INTERNATIONAL BUSINESS AND TRADE

1.1 Evolution of International Trade Theory: A Glimpse

LESSON SUMMARY
1. The main historical theories are called classical and are from the perspective of a country, or country-
based. By the mid-twentieth century, the theories began to shift to explain trade from a firm-, rather than a
country-based, perspective; hence, referred to as modern and are firm-based or company-based
2. The evolution of what is recognized as the Standard Theory of International Trade goes back to the
years when Adam Smith's Wealth of Nations (1776) and David Ricardo's Principles of Economics
(1951) were published. The theory is a classical, country-based international trade theory that states that a
country's wealth is determined by its holdings of gold and silver.
3. Smith and Ricardo herald the formulation of a theory of free trade. Free trade, as opposed to the
mercantilist policies of protection, was championed by both Smith and Ricardo as a route to achieve
production efficiency at a global level.
4. The possible dilemmas in terms of the need for monetary adjustments for countries having a continuous
trade surplus could be shelved aside by relying on the automatic adjustment as posited by Smith's
contemporary, David Hume (1776), when he offered the theory of the price-specie flow mechanism.
5. Division of labor is the separation of a work process into a number of tasks, with each task performed
by a separate person or group of persons to boost productivity and efficiency and enhance specialization.
6. Trade surplus is the amount by which the value of a country's exports exceeds the cost of its imports.
7. Industrial capitalism was the second phase of capitalism in which industries/ factories became the
dominant factor in the production of goods.
8. In a free trade system, individuals benefit from a greater choice of affordable goods, while
mercantilism restricts imports and reduces the choices available to consumers.
9. Absolute advantage is the country's inherent ability to produce specific goods efficiently and
effectively at a relatively lower marginal cost, lesser workforce, lesser time, and lesser cost without
compromising the quality.
10. Comparative advantage refers to the country's capability to produce
the specific good at lower marginal cost and opportunity cost compared to other countries.
11. Marginal cost is the cost incurred in producing an additional unit of a product.
Opportunity cost means the value you will get from an alternative that you did not choose.
12. The Standard Theory of International Trade has evolved into the Theory of International Trade
and Commercial Policy, still considered to be one of the oldest branches of economic thought. From the
ancient Greeks to the present, government officials, intellectuals, and economists have deliberated about
the determinants of international trade, have discussed whether trade is beneficial or harmful to nations,
and, more importantly, have tried to determine what trade policy is best for any particular country.

TAKEAWAYS
1.The classical theory of international trade Are the historical country based theory.
2.The modern mid-20th century are referred to as firm based or company based.
3. Adam Smith published Wealth of Nations 1776) and David Ricardo published Principles of Economics
(1951).
4. The Standard Theory of International Trade is a classical, country-based
international trade theory that states that a country's wealth is determined by its holdings of gold and
silver.
5. In a tree trade system, individuals benefit from a greater choice of affordable goods, while
mercantilism restricts imports and reduces the choices available to consumers.
6.Division of labor is the separation of a work process into a number of tasks, with each task performed
by a separate person or group of persons.
7.Trade surplus is the amount by which the value of a country's exports exceeds the cost of its imports.
8.Industrial capitalism was the second phase of capitalism in which industries/ factories became the
dominant factor in the production of goods.
9.Absolute advantage is the country's inherent ability to produce specific goods efficiently and effectively
at a relatively lower marginal cost.
10.Comparative advantage refers to the country's capability to produce specific goods at lower marginal
cost and opportunity cost.
11.Marginal cost is the cost incurred in producing an additional unit of a product.
12.Opportunity cost means the value you will get from an alternative that you did not choose.
13. The Theory of International Trade and Commercial Policy, still considered to be one of the oldest
branches of economic thought, has evolved from the Standard Theory of International Trade.

1.2 Barter
KEY TAKEAWAYS
1. Bartering involves a direct trade/exchange of goods and services.
2. The advantage of bartering is that it does not involve money and it is very simple.
3. However, it is difficult to find people who need what the other people have and there is no
standard measure of value.
4. Even today, there are swap markets, online auctions, and numerous websites that offer online
bartering arrangements.
5. The early humans had very little needs and there was no need for exchange of goods.
6. As the number of people increased, they started forming groups and travelled long distances to
find food.
7. Gradually, however, intergroup interaction started and this paved the way for a system of trading
8. As cultivation and farming flourished, there was no shortage of food. They started trading surplus
goods and the system of trade flourished
9. The history of bartering can be traced back to 6000 BC, when the barter system was introduced
by the tribes of Mesopotamia, then adopted by the Phoenicians, and improved by the
Babylonians.
10. Salt was so valuable at that time that the salary of Roman soldiers was paid in salt.

1.3 Origin of Money

LESSON SUMMARY
1. It is believed that the first recognizable metal coins appeared in China, during 1000 BC. The
earliest currency of China of the eighth century BC consisted of miniature hoes and billhooks
(pruning implements), with inscriptions indicating the authority.
2. Sometime around 770 BC, miniature replicas of tools and weapons cast in bronze were used by
the Chinese as a medium of exchange. The small bronze celts (prehistoric tools resembling
chisels) and bronze rings played a monetary role. Due to impracticality, these tiny daggers,
spades, and hoes were eventually abandoned for objects in the shape of a circle. These objects
became some of the first coins.
3. Around 700 BC, the Chinese moved from coins to paper money. By the time Marco Polo (the
Venetian merchant, explorer, and writer) visited China in approximately AD 1271, the emperor
of China had a good handle on both the money supply and various denominations.
4. The first region of the world to use an industrial facility to manufacture coins (a mint) was in
Europe, in the region called Lydia (now western Turkey). Minting is the proces making a
combsy, Lydia: King A500 BC, around The time China stated using paper money, Lydia’s King
Alyattes minted the first official currency, non-standardized coin from electrum (a naturally
occurring alloy of gold and silver) that did not have a standard value.
5. King Croesus (son of King Alyattes) of Lydia (reigned 560-546 BC) produced bimetalic system
of pure gold and pure silver coins. The Croeseid, anciently Kroseii stateres, was a type of coin,
either in gold or silver, which was minted in Sardis by King Croesus,from around 550 BC,
Croesus is credited with issuing the first true gold coins with a standardized purity for general
circulation, and the world's first bimetallic monetary system.
6. The foundation deposit of the Artemisium (temple to Artemis) at Ephesus shows that electrum
(which the Greeks called "white gold") coins were in production even before Croesus, possibly
under King Gyges.
7. The European colonial governments in North America issued the first paper currency in
Canada (then a French colony). Instead of going back to a barter system, the colonial
governments issued IOUs (promissory notes) that traded as a currency.
8. According to Adam Shortt, the great Canadian economic historian, the first regular system of
exchange in Canada involving Europeans occurred in Tadaoussac in the early seventeenth
century, where French traders bartered each year with the Mantagnais people (also known as the
Innu) trading weapons, cloth, food, silver items, and tobacco for animal pelts, especially those of
the beaver.
9. The first colonial settlement at Quebec on the St. Lawrence River was established by Samuel
de Champlain in 1608. The beaver pelt was the one universally accepted medium of exchange
in the infant colony, although wheat and moose skins were also employed as legal tender. As the
colony expanded and its economic and financial needs became more complex, coins from France
came to be widely used
10. Silver and copper coins designed especially for the colonies was minted in 1670. These coins
could not be circulated in France. While apparently intended only for the West Indies, a small
number of these coins are believed to have circulated in Canada.
11. The West Indies are a chain of islands in the Caribbean Sea and Atlantic Ocean divided into
three groups: The Bahamas, the Greater Antilles, and the Lesser Antilles.
12. The livre (French for "pound" and the name of both units of account and coins) was the currency
of the Kingdom of France and its predecessor state of West Francia from 1781 to 1794.
13. In 1685, Jacques de Meulles, Intendant of Justice, Police, and Finance came up with the
temporary issuance of paper money printed on playing cards. Card money served as money in
Canada, just as coin did in France.
14. In 1717, all debts and contract in Canada became payable in monnoye de France.
15. Copper coins were introduced in 1722, but they were not well received by merchants. Notes
issued by private individuals based on their own credit standing also circulated as money. The
government issued promissory notes called ordonnances and treasury notes called acquits, which
began to circulate as money.
16. In March 1729, card money was legal tender for all payments and replaced the ordonnances in
circulation. Legal tender means currency, such as coin and paper money, is valid and sufficient
for the payment of debts. A rapid increase in the amount of paper in circulation during the late
1750s led to rapid inflation: Inflation means increase in prices, reducing the purchasing power of
money.
17. On October 15, 1759, the French government suspended payment of bills of exchange drawn on
the Treasury for payments of expenses in Canada until three months after peace was restored.
Paper money traded at a sharp discount and ultimately became worthless following the British
conquest in 1760. Gold and silver, which had been hoarded, came back into circulation.
18. Settlement of the paper obligations issued by the colonial authorities in Canada was included in
the Treaty of Paris, signed in February 1763, which ended the war between Great Britain and
France.
 19. The advent of paper money led to an increase in international trade.
Today, physical currency is not required, as electronic money is widely used for monetary
transactions. In fact, we now have digital/virtual currencies or cryptocurrencies.

KEY TAKEAWAYS
1. The first recognizable metal coins appeared in China, during 1000 BC.
2. Sometime around 770 BC, the small bronze celts (prehistoric tools resembling chisels) and
bronze rings played a monetary role.
3. Objects in the shape of a circle became some of the first coins.
4. Around 700 BC, the Chinese moved from coins to paper money.
5. The first mint, an industrial facility to manufacture colns, was estabished in Lydia (now western
Turkey)
6. Minting is the process of making a coin by stamping metal.
7. In 600 BC, around the time China started using paper money, Lydia's King Alyattes minted the
first official currency, non-standardized coins from electrum (a naturally occurring alloy of gold
and silver).
8. King Croesus (son of King Alyattes) of Lydia is credited with installing the world's first
bimetallic monetary system of pure gold and pure silver coins, the Croeseid (anciently Kroiseioi
stateres), around 550 BC.
9. The foundation deposit of the Artemisium (temple to Artemis) at Ephesus snows thai electrum
(which the Greeks called "white gold" coins were in production even before Croesus, possibly
under King Gyges.
10. The European colonial governments in North America issued the first paper currency in Canada
(then a French colony). Instead of going back to a barter system, the colonial governments issued
IOUs (promissory notes) that traded as a currency.
11. The first regular system of exchange in Canada involving Europeans occurred in Tadaoussac in
the early seventeenth century, where French traders bartered each year with the Mantagnais
people (also known as the Innu) trading weapons, cloth, food, silver items, and tobacco for
animal pelts, especially those of the beaver.
12. The first colonial settlement at Quebec was established by Samuel de Champlain in 1608.
13. The beaver pelt was the one universally accepted medium of exchange in Quebec, although wheat
and moose skins were also employed as legal tender. As the colony expanded and its economic
and financial needs became more complex, coins from France came to be widely used.
14. Silver and copper coins, apparently intended only for the West Indies, was minted in 1670,
believed to have circulated in Canada, but could not be circulated in France.
15. The West Indies are a chain of islands in the Caribbean Sea and Atlantic Ocean divided into three
groups: The Bahamas, the Greater Antilles, and the Lesser Antilles.
16. During the mid-1600s, Spanish dollars (piastres) represent the first distinctive Canadian coins.
17. The livre (French for "pound") was the currency of the Kingdom of France and its predecessor
state of West Francia from 1781 to 1794.
18. In 1685, Jacques de Meulles, Intendant of Justice, Police, and Finance came up with the card
money, which served as money in Canada, just as coin did in France, but it was only in March
1729 that card money became legal tender and replaced the ordonnances in circulation.
19. Legal tender means currency, such as coin and paper money, is valid and sufficient for the
payment of debts.
20. Inflation means increase in prices, reducing the purchasing power of money.
21. In 1717, all debts and contract in Canada became payable in monnoye de France.
22. Copper coins were introduced in 1722, but they were not well received by merchants. Notes
issued by private individuals also circulated as money.
 23. The government issued promissory notes called ordonnances (replaced later by card money) and
treasury notes called acquits, which began to circulate as money.
24. Bills of exchange drawn on the Treasury were used for payments of expenses in Canada.
25. Settlement of the paper obligations issued by the colonial authorities in Canada was included in
the Treaty of Paris, signed in February 1763, which ended the war between Great Britain and
France.
26. The advent of paper money led to an increase in international trade.

1.4 History of the Philippine Currency

KEY TAKEAWAYS
1. Barter was the means of trade long before the Spaniards came to the Philippines.
2. Barter was inconvenient so cowries, glossy, often colorfully patterned shells, was adopted as a
medium of exchange.
3. Barter rings, made in gold called piloncitos, were the first local form of coinage. These had a
flat base that bore an embossed inscription of the letters
"MA" or "M" believed to be the name by which the Philippines was known to Chinese traders.
4. The cobs or macuquinas (silver coins) were the earliest coins brought in by the galleons from
Mexico and other Spanish colonies. These silver coins usually bore a cross on one side and the
Spanish royal coat-of-arms on the other.
5. The barrilla, a crude bronze or copper coin worth about one centavo, was the first coin struck in
the country as ordered by the Royalty of Spain. The Filipino term "barya," referring to small
change, had its origin in barrilla.
6. Gold coins with the portrait of Queen Isabela were minted in Manila.
7. Silver pesos with the profile of young Alfonso XIII were the last coins minted in Spain.
8. The pesos fuertes, issued by the country's first bank, the El Banco Español Filipino de Isabel II,
were the first paper money circulated in the country.
9. The Philippine Republic of 1898 under General Emilio Aguinaldo issued its own coins and
paper currency backed by the country's natural resources. Two types of two-centavo copper
coins were struck at the Malolos arsenal.
10. One-peso and five-peso revolutionary notes were printed as Republika
Filipina Papel Moneda de Un Peso and Cinco Pesos.
11. With the coming of the Americans in 1898, the Philippines became one of the most prosperous
countries in East Asia. The Americans instituted the gold standard and pegged the Philippine peso
to the American dollar at the ratio of 2:1.
12. The gold standard is a monetary system where a country's paper money has a value directly
linked to gold; countries agreed to convert paper money into a fixed amount of gold per unit of
currency.
13. The US Congress approved the Coinage Act for the Philippines in 1903. The coins issued under
the system bore the designs of Filipino engraver and artist, Melecio Figueroa. Coins in
denomination of one-half centavo to one peso were minted.
14. El Banco Español Filipino was renamed Bank of the Philippine Islands in
 1912. All notes and coins issued up to 1933 used English. Beginning May
 1918, treasury certificates replaced the silver certificates series, and a one-peso note was
added
15. Two kinds of notes circulated in the country during the outbreak of World War II-war notes in
high denominations issued by the Japanese Occupation Forces dubbed as "Mickey Mouse"
money and guerrilla notes or resistance currencies in low denominations issued by different
provinces and municipalities.
16. Old treasury ceriticates overprinted with the word "Victory" was used as currency when the
Philipines gained independence from the United Stares following the end of World War II.
 17. With the establishment of the Central Bank of the Philippines in 1949, the first currencies issued
were the English series notes printed by the Thomas de la Rue & Co., Ltd. in England and the
coins minted at the US Bureau of Mint.
18. The "Filipinization" of the republic coins and notes began in the late 60s and is carried through
to the present.
19. In the 705, the Ang Bagong Lipunan (ABL) series notes printed at the Security Printing Plant
were circulated starting 1978.
20. In 1983, the Flora and Fauna coin series was initially issued.
21. The New Design Series of banknotes issued in 1985 replaced the ABL series.
22. Ten years later, a new set of coins and notes were issued carrying the logo of the new Bangko
Sentral ng Pilipinas.

1.5 Mobile Payment and Internet Payments

LESSON SUMMARY
1. Mobile payments are money rendered for a product or service through a portable electronic
device, such as a cell phone, smartphone, or a tablet device. It can also be used to send money to
friends or family members.
2. Near field communication (NFC) payments is the technology that allows two devices-your
phone and a payment's terminal-to process contactless payments using close-proximity radio
frequency identification.
3. Sound wave-based (SWB) or sound signal-based (SSB) mobile payments or pay-by-sound uses
an advanced, ultra-low power, wireless transmission technology to transmit data via sound waves
that originate from POS terminals.
Any phone with a microphone can pick up those waves to complete a transaction without the
need for internet.
4. Magnetic secure transmission (MST) is when a phone emits a magnetic signal imitating the
magnetic strip on the payer's credit card, which the card terminal picks up and processes as if a
physical card was swiped through the machine. MST is secure as it uses a secure tokenization
system.
5. A mobile/digital wallet stores payment information on a mobile device, usually in an app that
utilizes different technologies in the payment process.
They commonly work through complex encryption and tokenization, a method using time-limited
token numbers generated to process the specific transaction using your already-encrypted card
"stored" in your mobile wallet.
6. Quick response (QR) codes are the trademark of a type of matrix barcode (type 2D barcode)
readable by smartphones. This is more secure because your phone, that your card details are
securely connected to, confirms you are the owner of the card
7. A QR code has four important advantages:
a) It stores a large volume of data.
b) It can be scanned from a screen, not just paper.
c) It can be read even if part of the code is damaged.
d) It is safer because information can be encrypted.
8. Short message (or messaging) service (SMS), also called premium SMS payments, simply
means paying for products or services via a text message with the relevant information to the
right payee phone number and the payment amount is added to your mobile phone bill.
9. Direct carrier billing (DCB) is similar to SMS payments because you pay through your mobile
carrier instead of using bank or card details, the payment will then be added to your phone bill or
prepaid SIM card as with SMS payments.
 10. Internet payments can be done on desktops, laptops, or even phones (as in mobile payment) and
can also be used to send money to friends or family members.
11. Wireless application protocol (WAP) payments used to be the most common facility on
smartphones through a more limited-capacity WAP browser or app.
12. Most credit cards and bank accounts have what we call "auto pay," where payments to credit
cards or other bills, like for water, electricity, or whatever bills need to be paid, are scheduled to
be automatically paid on a certain date from funds of the payee with a certain bank. It can be the
bank doing the auto pay or the credit card company
13. Payment links or pay by link is most commonly referring to a button/link sent in an email, text
message, messaging app, or over social media where a checkout page opens up in an internet
browser where the recipient can enter their card details to process a transaction for a specified
merchant.
14. NeoBank literally means new bank, and is from the Greek word “Neos” meaning new, it is an
umbrella term for the new generation of cutting-edge, fully digital banking services. They all
operate online or through apps; hence, they are classified as a type of financial technology
(fintech) solution.

KEY TAKEAWAYS
1. Mobile payments are money rendered for a product or service through a portable electronic
device, such as a cell phone, smartphone, or a tablet device.
2. Near field communication (NFC) payments is the technology that allows contactless payments
using close-proximity radio frequency identification.
3. Sound wave-based (SWB) or sound signal-based (SSB) mobile payments or pay-by-sound uses
an advanced, ultra-low power, wireless transmission technology.
4. Magnetic secure transmission (MST) makes use of a magnetic signal to process payment using a
secure tokenization system.
5. Mobile/digital wallets work through complex encryption and tokenization to process specific
transactions.
6. Quick response (QR) codes are the trademark of a type of matrix barcode (type 2D barcode)
readable by smartphones used in e-commerce to process payments.
7. Short message (or messaging) service (SMS), also called premium SMS payments, simply means
paying for products or services via a text message.
8. Direct carrier billing (DCB) is similar to SMS payments where you enter your phone number on a
payment page or in an app and the payment will then be added to your phone bill or prepaid SIM
card
9. Internet payments can be done on desktops, laptops, or even phones (as in mobile payment).
10. Wireless application protocol (WAP) payments used to be the most common facility on
smartphones through a more limited-capacity WAP browser or app.
11. "Auto pay" is done when payments to credit cards or other bills, like for water, electricity, or
whatever bills need to be paid, are scheduled to be automatically paid on a certain date from
funds of the payee with a certain bank, just like a debit card.
12. Payment links or pay by link is most commonly referring to a button/link sent in an email, text
message, messaging app, or over social media to process a transaction for a specified merchant.
13. Neobank is an umbrella term for the new generation of cutting-edge, fully digital banking
services classified as a type of financial technology (fintech) solution.

1.6 Virtual Currency

LESSON SUMMARY
 1. Cryptocurrency or virtual/digital currency is any type of digital unit that is used as a medium
of exchange or a form of digitally stored value generated by agreement within the community of
virtual currency users. It is referred to as
"digital gold." It is also called "altcoins." Cryptocurrency is digital money — it is virtual and has
no physical form.
2. Fiat currency or cash, on the other hand, is the real currency. Coins and paper money (bills)
issued and printed by the central bank of a country are fiat currency, fully-backed by the
government of a country and is acceptable as payment for public and private debts.
3. E-money is a digital representation of fiat currency stored in digital wallets or e-wallets. Any
amount of currency stored in an electronic wallet (such as GCash, PayMaya, Coins PH, GrabPay,
and the like) is e-money, which can also be accepted as a "card payment" or can be withdrawn
right away as cash.
4. Virtual currency, which is stored digitally, would still need to be converted first to Philippine
peso, then transferred to a destination wallet or be withdrawn as cash through different mediums
that are accepted in the country. In general, conversion is done through a virtual currency
exchange. In the Philippines, cryptocurrencies are regulated by the Bangko Sentral ng Pilipinas
(BSP).
5. Cryptocurrencies work through blockchain technology. Blockchain is a special kind of database,
a "distributed ledger" or a "global ledger" built on a data structure known as "blocks." Blockchain
allows all participants to view the records and all the changes that happen in the database. Your
transaction data will be stored in a block, which is technically a list of other transactions made by
other people. The block where your transaction is listed will then be chained to previous blocks.
Cryptocurrencies use electronic coins as their form of exchange, which are nothing more than
slots in the blockchain.
6. Cryptocurrencies use cryptography, the process of protecting information by using codes, for
security. It is also used to control transactions and increase the supply. With this feature,
cryptocurrencies have become self-governing and self-regulating. It provides routine escrow
mechanisms that could easily be implemented to protect buyers.
7. However, having no intrinsic value, there arront shsir nficant risks associated with
cryptocurrencies. Their worth comes from their users. The more users a coin has, the more useful
it becomes, and the higher its price goes Cryptocurrencies only serve to transter wealth from one
party to another. But when a coin falls out of favor, there is nothing to stop it from going to zero
and that is the risk.
8. China has already developed a Central Bank-backed crypto, and in the US it was discussed as
part of the C-19 stimulus. In other words, unregulated cryptocurrencies will one day compete
against state-sponsored ones, too.
9. Decentralized cryptocoin markets run through a blockchain relying on a peer-to-peer protocol. So
trading altcoins is done through dozens or even hundreds of independent nodes and masternodes.
Transactions occur only when the nodes come to a consensus based on the exchange's verification
rules.
10. When it comes to cryptocurrency exchange websites, however, centralization remains a core
concept. Centralized exchanges are run by companies that manage and earn revenue from
transactions on the platform.

KEY TAKEAWAYS
1. Cryptocurrency, virtual/digital currency, "digital gold", or "altcoins" are any type of digital unit
that is used as a medium of exchange or a form of digitally stored value generated by agreement
within the community of virtual currency users.
2. Fiat currency/fiat money or cash is the real currency, coins and paper money (bills) issued and
printed by the central bank of a country.
3. E-money is a digital representation of fiat currency stored in digital wallets or e-wallets.
4. Virtual currency, which is stored digitally, would still need to be converted first to Philippine
peso, then transferred to a destination wallet or be withdrawn as cash through different mediums
that are accepted in the country done through a virtual currency exchange.
5. Cryptocurrencies work through blockchain technology. Blockchain is a special kind of database,
a "distributed ledger" or a "global ledger" built on a data structure known as "blocks."
6. Cryptocurrencies use electronic coins as their form of exchange, which are nothing more than
slots in the blockchain.
7. Cryptocurrencies use cryptography, the process of protecting information by using codes, for
security.
8. The more users a coin has, the more useful it becomes, and the higher its price goes. But when a
coin falls out of favor, there is nothing to stop it from going to zero.
9. China has already developed a Central Bank-backed crypto.
10. The cryptocoin market is decentralized, but cryptocurrency exchange websites, are centralized.