CBSE-i
CLASS – X ECONOMICS
STUDENTS’ MANUAL
CONTENTS
Globalisation:
Its Meaning, causes and outcomes
Capital Formation:
It’s meaning, components, need, importance and
sources
Capital Movement:
It’s meaning need and types
Private Foreign investment:
Foreign Direct Investment(FDI) and Foreign
Institutional Investment
Stock Market:
Basic terms used, working and market
fluctuations
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INTRODUCTION
McDONALDS’, SONY, COKE and PEPSI - these are some MNCs that the present
generation is well aware of. Whereas, NASDAQ, SHANGHAI STOCK EXCHANGE, SAUDI
STOCK EXCHANGE, BOMBAY STOCK EXCHANGE – are names that still puzzle
students and many of the adults alike.

The ripple effect of fluctuation in one stock market is felt globally in other stock markets
of the world. Isn’t this phenomenon confusing?

Why do some groups oppose the coming of MNC’s, although they generate more
employment, is to be comprehended.

To what extent does the progress of a country depend upon Foreign Direct Investment is
also debatable.
All these issues can be answered logically, once we understand how the world has
changed, after the transformation of GATT into WTO and its impact on different countries’
economic policies.
In this unit, apart from understanding conceptual differences between different
terminologies, students will be acquainted with issues like Great Depression.
Source: ghoenglish.de
Source: bds-umanities.weebly.com
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Globalisation: An Overview
In the flat world of maps, sharp lines show where one country ends and another begins.
The real world is more fluid. People do not have borders the way that parcels of land do.
More Chinese people live outside mainland China than French people live in France, while
many South Asians are found in the Middle East. These hundreds of big and small
communities of people of one or the other country have been part of the world for a long
time.
Today two things that make them more pronounced are,

First, these groups or communities of people are larger than before.

Second, thanks to easy availability and accessibility of means of transport and
communications, people can now stay in touch with the places they came from.
A century ago, a migrant might board a ship, sail to America and never see his friends and
family again. Today he texts his mother while still waiting to clear customs. He can wire his
money in minutes. He can follow news from his hometown on his laptop. He can fly
regularly to visit relatives or invest his earnings in a business in his hometown.
FIG: AN OVERVIEW OF GLOBALISATION
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In order to understand this significant development around the world, let’s look at the
following live experiences.
CASE STUDIES
1) Soap factory in Nigeria
Chike Obi Igbo, for example, runs a factory in Emugu, Nigeria, making soap and other
household goods. He needs machines to churn palm oil and chemicals into soap, stamp it into
bars and package it in plastic. He buys Chinese equipment because although he knows it is
not as good as European stuff, it is much cheaper.
When he wants to inspect a machine he has seen on internet, he asks an agent from his tribe,
who lives in China to go and look at it. After receiving a feedback via e-mail he is in a better
position to make a decision.
2) African cotton farmers battling to survive
By Gumisai Mutume
In the small, remote village of Logokourani in western
Burkina Faso, cotton is everything. It is the mainstay of
that rural community, providing the major, and in some
cases the only, source of income for many inhabitants.
Cotton pays for health and education. It helps build houses
and schools. Not too long ago, when exports of cotton
increased in value, production expanded in that part of the
country, raising village incomes.
Loading bales of cotton in Zimbabwe
Source: www.un.org
But the collapse of the cotton price on the world market -- it has fallen by 54 per cent since
the mid-1990s -- threatens the very existence of communities such as Logokourani. "Cotton
prices are too low to keep our children in school, or to buy food and pay for health," notes Mr.
Brahima Ouattara, a small-scale cotton farmer in Logokourani. "Some farmers are already
leaving. Another season like this will destroy our community".
STORY OF SALMA
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Source: topnews.in
This is about a graduate Salma and her friend Samaira in India. Both of them while still
studying in the University doing their undergraduate course are motivated by their seniors and
friends in college to apply for a job in a call center run by US based company in 2006. One
day they got a call for walk-in-interview and got selected for voice based service.
Both were very excited as they got a pay package of about $1500 which was considered to be
a decent salary. Their odd working hours hardly gave them time to study. They had to leave
their studies.
After working for three to four months in night shifts as the company was US based, their
health started showing signs of deterioration. Long and odd working hours with work related
deadlines gave them promotion but took a toll on their health. After working for a year both
were promoted as project leaders. Then one day Salma was shocked to find that her I-Card
was denied access at the office-entrance.
Later, she was informed that many like her in the company have been laid off due to
slowdown in the U.S. economy.
She had no other option but to sit at home to wait for another job opening.
MEANING OF GLOBALISATION
From all the new channels and means of fast transport and communications people around the
world are not only engaging in foreign trade (buying and selling goods and services) but are
increasingly making investments in foreign countries.
This greater integration and interconnectedness among economies is what is termed as
globalization. Therefore, globalization is not only movement of people, goods and services
across boundaries but it also encompasses flow of technology, capital, ideas and culture
among nations. For example, a Chinese businessman in South Africa, who senses demand for
plastic umbrellas will quickly inform his cousin who runs a factory in China.
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It is not that these flows did not exist earlier in the world but what is novel about these flows
today are the intensity, frequency and speed with which these flows are carried out.
Globalisation is the result of set of various policies that are aimed at transforming the world
towards greater interdependence and integration.
It involves creation of networks and activities transcending economic, social and
geographical boundaries. It is turning the world into a global village.
Globalization attempts to establish links in such a way that happenings in Dubai or America
or China can be influenced by events happening across seven seas.
Is the world flat?????
The United Nations ESCWA (United Nations Economic and Social Commission for Western
Asia) says globalization "is a widely-used term that can be defined in a number of different
ways.
When used in an economic context, it refers to the reduction and removal of barriers between
national borders in order to facilitate the flow of goods, capital, and services and labour...
although considerable barriers remain to the flow of labour.
Outcomes of Globalisation
Thomas L. Friedman has examined the impact of the "flattening" of the world, and argues that
globalized trade, outsourcing, supply-chaining, and political forces have changed the world
permanently, for both better and worse. He also argues that the pace of globalization is
quickening and will continue to have a growing impact on business organization and practice.
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From all the above three examples you must have gathered the contemporary phenomena of
globalisation taking place around you and that the effects are not always what you like. There
are certain aspects of these phenomena which you may not like.
Now let’s look at the causes and consequences of globalisation.
CAUSES OF GLOBALISATION
Globalisation is principally caused due to a gamut of economic, technological, socio-cultural,
political and biological factors.

With the invention and development of computers, work done at high cost location can be
transferred to low cost location which includes development of software, engineering and
designing.

Further, with the advent of internet telephony, other developments in science and
technology, fast means of transport, under sea video cables-dissemination of information
has grown exponentially.
KNOW ABOUT CONTACTLESS TRANSACTIONS!
Source: www.buzzle.com
Imagine the day when people no longer need to carry their wallet everywhere. Instead of
making payment through smartcard/credit card, people just have to flash their mobile
phone in front of swiping machines.
Such transactions are not far away thanks to ‘Near field communication’ or NFC
technology which facilitates contactless transactions and is revolutionizing mobile based
payment across the globe. People in Japan are already using NFC enabled mobile phones
to make payments for the day-to-day purchases.
Even in developing countries of Southern Africa, large numbers of people are carrying
out person–to-person money transfers over mobile phones.
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Since World war II, under the auspices of GATT(General Agreement on Tariffs and Trade), a
number of multilateral and bilateral trade and investment agreements among countries to
remove restrictions on free trade are seen as one of the most significant factors contributing
to globalisation. The two main international financial institutions like World Bank and IMF
have also played an important part in augmenting global exchanges.
WTO (WORLD TRADE ORGANISATION)
Source:onlinepoker.net
As the world trade had undergone number of changes since the commencement of GATT
(General Agreement on Tariffs and Trade), share of employment and export in the service
sector increased .Therefore, under the leadership of USA developed countries took the
initiative of bringing the service sector into trade negotiations.
This is the reason that the Uruguay round of GATT included negotiations on trade in services,
trade in investment ,subsidies, intellectual property rights, anti dumping measures were taken
besides traditional GATT subjects such as tariff and non tariff barriers on goods.
These negotiations were supposed to be concluded in four years but because of differences in
certain critical areas like agriculture, textiles etc. the Uruguay round went on from 1986 to
1994.
The final agreement was signed on 15th April, 1994 at the ministerial conference held at
Marrakech, Morocco. This agreement signed in 1994 consists of the following features:
*
Establishment of WTO
*
Multilateral agreement on trade in goods
*
Trade related investment measures(TRIMS)
*
General Agreement on Trade in services (GATS)
*
Trade Related aspects of Intellectual property rights(TRIPS)
*
Dispute Settlement (DSU)
*
Reviews of Governments’ policies.
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The GATT’S (now WTO) approach of reducing trade barriers was based on two
principles:
*
Most Favoured Nation principle: which refers to equal treatment a country gives to all its
trading partners.
*
National Treatment: A country should not discriminate between domestic and imported
goods/services.
Another main difference between GATT and WTO is that WTO panel decisions are
binding .This means that if one nation makes a complaint to WTO that the other nation’s law
are violating the rules laid down in WTO agreement; the WTO can enforce the laws on the
country concerned in accordance with WTO standards. Even then if the country fails to
comply, WTO authorizes the complaining country to impose trade sanctions.
IMF AND GLOBALISATION:
The International Monetary Fund (IMF) is responsible for promoting international
monetary cooperation, exchange stability, expansion of capital investment in the under
developed countries, generate higher employment income and to establish multilateral trade
and payments.
Economic globalisation is a historical process, driven mainly by invention and innovation, as
well as economic policy. This integration of markets has brought about the more effective use
of scarce global resources, with enhanced economic growth and increased employment and
job quality. For individuals, this has meant higher incomes, more variety for consumers, and
better access to education, health care, and other services. Particularly with the development
of the emerging Asian economies, globalization has until recently helped dampen price
pressures.
Rapid globalization has in many countries also coincided with rising income inequality,
although research at the IMF and elsewhere indicates that this mainly reflects the direct
impact of technological change on inequality. Trade and foreign investment flows themselves
have had neither a clear negative, nor a clear positive, impact on inequality.
Economic and financial globalization and the expansion of world trade have brought
substantial benefits to countries around the world. But the current financial crisis has put
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globalization on hold, with capital flows reversing and global trade shrinking. Some analysts
see the drivers of the recent globalization wave getting undermined, with protectionism on
the rise.
Even supporters of globalization agree that the benefits of globalization are not without
risks—such as those arising from volatile capital movements. The IMF works to help
economies manage or reduce these risks, through economic analysis and policy advice and
through technical assistance in areas such as macroeconomic policy, financial sector
sustainability, and the exchange-rate system
OUTCOMES OF GLOBALISATION THAT ARE FAVOURABLE
Emergence of MNC’s power across the world
World Trade in manufactured goods has increased more than 100 times (from $95 billion to
$12 trillion) since 1955.Till 80’s most developing countries used to consider Foreign Direct
Investment (MNC’s) a threat to their sovereignty and security.
The huge size of their investments was sometimes bigger than the budget of some
small countries. This also raised the fears that these MNC’s would influence their economic
and political affairs. These fears were not baseless as many of these MNC’s belonged to those
very nations who had colonised these developing and poor nations during nineteenth century.
Moreover, a lot of the multinational corporations were found to be engaged in unfair business
practices.
Therefore, before and during 90’s it was mainly MNC’s from US and Europe who had the
capacity of making huge investments in different parts of the world, but these investments
remained at a low level. It was during the late 90’s and twenty first century that large number
of mergers and acquisitions by MNC’s from developed as well as developing world started
taking place.These big MNC’s like oil and steel majors Petrobras of Brazil, PetroChina of
China, Samsung and LG of Korea, Reliance industries and Tata group of companies from
India have launched their various investment projects in different parts of the world. This is
further shown in worldwide production markets and increase in international trade of
manufactured goods by hundred times since 1955 (from $95 billion to % 1.2 trillion).
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But everything about globalization is not as bright as it appears to be. Large numbers
of African countries who have remained confined to a limited number of primary
commodities have not been successful in reaping benefits of economic integration. As these
products are such that there is a tough competition from other developing and developed
countries and demand remains largely static therefore these products are susceptible to price
fluctuations thus adversely affecting the producers of these products.
1. AMERICAN MNC STORY-THE WAL-MART
Source: topnews.net.nz
A Wal-Mart store in China
Wal-Mart has 8500 retail stores around the world in 15 countries.
Wal-Mart has expanded to all the countries for the simple reason that its domestic market is
saturated. Therefore, it is looking to emerging economies like India, Argentina, Brazil, and
China along with developed nations like Japan, Canada and U.K.
In China itself Wal-Mart has opened 30 outlets out of which three were opened in 2010 in
Shanghai, Beijing and Shenzhen in South China to Kunming, Yunnan in the West and Harbin in
the North. Wal-Mart China is rapidly expanding in China’s increasingly modern business.
To which country does Wal-Mart belong to?
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2. STORY OF FORD MOTOR COMPANY
The American Ford Motor Company has announced a new investment package worth $450
million in a new modern automobile factory in Thailand. Prior to that, Japanese Mitsubishi
Motors had also decided to invest $450 million in its third factory in Thailand, which will churn
out a new generation of environmental-friendly vehicles. The third factory, to be located near
the two existing factories in the west of Thailand, will have the capacity to churn out some
50,000 products per annum, and is expected to wheel its first products off the assembly line in
2012.
Meanwhile, Japanese Suzuki Motors late last year announced a plan to invest $225 million in
Thailand, after winning approval from relevant Thai agencies. The manufacturer plans to make
small-size environmental-friendly cars, with the first products expected to come out in March
2012.
In the 1990s, Thailand came to be known as the “Detroit of Asia,” when it successfully
developed supporting industries with many enterprises which made car parts and accessories.
Despite recent political upheaval, Thailand still trumps many other countries in the region in
auto manufacturing and has caught the eyes of the world’s largest car producers, attracting them
to head to Thailand to establish bases.
Sourc:eenglish.vietnamnet.vn/biz/201007/Why-do-car-manufacturers-come-to-Thailand-notVietnam-922809
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IMPACT OF GLOBALIZATION –
Workers in developing countries
The biggest impact of globalization is on the workers in developing nations who now have
more occupational choices than before. Educated labour forces in these economies are able to
compete at global level for high paying jobs.
In fact manufacturing workers in developing nations not only have a level playing field with
their counterparts in developed nations but also have a better cost advantage over them.
HSBC, one of the world's largest banks, operates across the globe shown here is the HSBC
Global Technology Centre in developing country which develops software for the entire
HSBC group.
This has also given them immense opportunity of migrating and taking up employment in
these industrialized nations or staying at home in outsourced destinations.This phenomenon
has benefited countries like Vietnam, India, China, Philippines and Uganda. As a result of
their opening up to world economy, poverty in these countries has reduced significantly.
In fact manufacturing workers in developing nations not only have a level playing field with
their counterparts in developed nations but also have a better cost advantage over them.
In Vietnam large number of jobs was created in footwear and garment industry along with
better pricing of products produced by farmers, like rice, fish, cashew due to economic
integration. This has further resulted in reduction of poverty by 40% as shown in a survey
conducted by the government there.
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IMPACT ON CONSUMERS
Before 90’s due to the policies of protectionist regimes in developing countries, of
putting restrictions on imported goods, consumers had to purchase whatever was produced
locally. The domestic businessmen were aware that they had a captive market so they had no
incentive to improve the quality of their products.
The competition from imports forces producers to be more efficient and previous policy of
protecting domestic industries did more harm than good for domestic markets.
Debenhams, Marks and Spencer, Louis Vuitton, Coca-Cola ,McDonalds are some of the
brand names which were earlier considered to be imported brands are now available under
one roof of big departmental stores in all countries .This has brought competition for
domestic producers who in order to face competition are forced to upgrade their products. In
order to survive in this highly competitive world, producers have to aim for higher
productivity using better technology.
RISE OF A NEW INDUSTRY:
Tourism and medical tourism
With globalization the world is witnessing an increased spending on different kinds of
luxurious consumption. Large number of people with increased purchasing power in
developing and developed countries is an attractive source of customers for many travel
promotion companies. These tour operators are selling various tour packages to the neo-rich
of globalized world.
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Be it a family vacation, leisure, pilgrimage or business trips –all kinds of tour packages by
different countries are being aggressively advertised and sold. South East city states like
Hong Kong and Middle East cities like Dubai attract shoppers from all over the world for
unlimited duty-free shopping and entertainment. Nature and adventure tourism are being
promoted and enjoyed the world over. Countries like Egypt with rich culture and ancient
civilization have become one of the most visited tourist destinations.
This trend has helped many countries like Sri Lanka in South East Asia and UAE in Middle
East to develop tourism as an industry. Thus, many Middle East countries along with oil as
a source of income are reaping the profits from this new industry called tourism.
What is Medical tourism?
When people of one country travel to another country for those medical treatments that are
either not available in one’s own country or are too expensive in the country an individual
resides it is known as medical tourism. This concept of travelling for healthcare started as a
way for people in developing countries to developed nations to receive medical treatment that
was not available in their own countries.
But, now people from developed nations like America are travelling to developing nations for
medical treatment as these are done at a fraction of cost it is done in their home country. In
fact medical procedures in countries such as India, Thailand and South America are a fraction
of cost of medical procedures in United States.
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Analyse the repercussions
Do You Know!
For Example,
The cost of an open heart surgery is up to $1, 50,000 in United States, it ranges around only
$10,000 in Iran. Cosmetic surgeries in Costa Rica are normally one third of the cost that they
are in United States.
Over the last few years, medical tourism has been steadily rising. In 2008, nearly 5, 40,000
Americans travelled abroad for various kinds of medical treatments.
Singapore, India, Cuba and Thailand have witnessed an increase in medical tourists showing
20% growth.
As medical tourism is still a new trend, it does have its own drawbacks.
 What if, any complications from procedures arise after patient has returned to his home
country?

Are there any laws or regulations concerning international medical procedures? Or is
it so risky?

Will this trend develop international standards in medical education and health
facilities all over the world?
A NEW TREND CALLED “PUBLIC PRIVATE” PARTNERSHIP
Public-Private Partnership (PPP) is a concept in which a public infrastructure project such as
a new telecommunications system, airport or power plant is developed by a public partner
(represented by the government at a local, state and/or national level) and a private partner
(a privately-owned business, public corporation or consortium of businesses in the same
area).
PPP is a broad term that can be applied to anything from a simple, short term management
contract. To a long-term contract that includes funding, planning, building, operation,
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maintenance and divestiture. PPP arrangements are useful for large projects that require
highly-skilled workers and a significant cash outlay to get started. They are also useful in
countries that require the state to legally own any infrastructure that serves the public.
This concept has gained popularity as private sector runs such projects more efficiently than
public sector. The private sector not only brings efficiency in the function of the project but it
also provides financial support.
.
Some Examples in the world
Many such Public Private Partnerships started during nineties and the start of twenty first
century as shown in the following examples

Public Private Partnership is being used for teaching and learning in schools in Abu
Dhabi, United Arab Emirates.

In India PPP have been extremely successful in developing infrastructure particularly
road assets under National Highways Authority of India.

In Canada PPP have become significant in both social and infrastructural development.
The Abu Dhabi Education Council (ADEC), an independent corporate body set up in
September 2005, is attempting to change the face of public education in the Emirate through
a public-private partnership (PPP) with international education operators
The SABIS® School Network, through its managing arm, was awarded a contract to manage
6 kindergarten and primary schools in the Emirate of Abu Dhabi through a public-private
educational initiative of the Abu Dhabi Educational Council in September 2006.
Mosaica Education was contracted to manage six Abu Dhabi schools in the Abu Dhabi
school reform initiative under ADEC. Mosaica was awarded two clusters of schools: one
cluster in Abu Dhabi and a second cluster in Baniyas, a suburb of Abu Dhabi. Mosaica
Education is a leading US educational service provider, managing 90 charter school
programs in eight states, the District of Columbia and Qatar. Serving over 18,000 students,
Mosaica Education operates charter schools, which emphasize strong basic skills, an interdisciplinary curriculum and extensive use of technology.
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In 1999, His Majesty King Abdullah II articulated his vision that the economic future of
Jordan would be found through successful participation in the global knowledge economy,
and more particularly in the value-added information technology industries. The JEI is a
Public-Private Partnership launched in June 2003 with the support of the WEF and is being
marketed as a mechanism for enabling and accelerating social and economic development
across the region. It aims at developing an e-learning curriculum and piloting in 100
“discovery schools”. Private organizations are investing around $15 million, in addition to
$5-$6 million from the government.
NEGATIVE OUTCOMES OF GLOBALIZATION
On Farmers in Developing Countries
Cotton farmers in Africa
Source: monsantoblog.com
Brazilian sugarcane producer
source:trendsupdates.com
Statistics suggest that 96% of the world’s farmers live in developing countries, with some 2.5
billion people who depend on agriculture.
Almost all developing countries are largely
dependent on agriculture. It is the main source of livelihood of 70% of world’s poorest
people. Therefore the subsidies under common agriculture policy of Europe are criticized for
preventing developing countries from exporting agricultural produce to European Union on
equal ground.
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Moreover, poor countries’ farmers produce and export only few products which make them
vulnerable to sharp decline in prices of these products. The competition emanating from
imports has not been fair, in many cases. This is because imports coming from developed
countries are usually heavily subsidized, and thus their prices are artificially cheapened.
Poor farmers are not able to compete at these prices.
The drastic fall of cotton price in the world market by 54 percent in mid 1990’s has proved to
be a danger for the survival of the rural communities in Maharashtra, India and in Burkina
Faso. It has mainly affected the cotton producers in Central and West Africa. Nine of the
West and Central African countries account for 15 percent of the world’s total production of
cotton.
The main reason mentioned for fall in cotton prices is attributed to agricultural subsidies in
United States. These subsidies have resulted in
overproduction in the US, due to which
international market is being supplied cotton at a price which is less than its cost of
production.
Source: toonpool.com
Though the cotton farmers in developing countries are capable to produce at much lower cost
but, it is the access to the subsidies that is making the cotton growers in US have comparative
advantage. The farmers of developing countries are usually not subsidized. Moreover, the
assistance that their governments provided have, in many countries, been withdrawn or
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substantially reduced, due to the structural adjustment policies. In many developing countries,
the liberalisation of imports has resulted in intense competition from imports that have
threatened to displace some of the products of small farmers from their own domestic market.
In spite of this in May 2002, US government had passed a law to further increase the amount
of subsidy that the government pays to farmers. As per WTO, share of developing countries
in world’s exports fell from 40%in 1961to 35% in 2010.
This measure has further infuriated developing countries. Brazil has lodged a legal
challenge against US at WTO, on grounds of breach of trust of Agreement on Agriculture.
*
In many developing countries, the liberalisation of imports has resulted in intense
competition from imports that have threatened to displace some of the products of small
farmers from their own domestic market.
*
The competition emanating from imports has not been fair, in many cases. This is
because imports coming from developed countries are usually heavily subsidized, and
thus their prices are artificially cheapened.
*
On the other hand, the farmers of developing countries are usually not subsidized.
Moreover, the assistance that their governments provided have, in many countries, been
withdrawn or substantially reduced, due to the structural adjustment policies.
*
Another important fact which is hurting the farmers in developing countries is that
countries like US and other developed nations have imposed high tariffs on agricultural
products coming from developing nations. At the same time these countries force developing
countries to open their markets for their products.
IMPACT ON WORKERS IN DEVELOPED NATIONS
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Source: monkeybuddha.blogspot.com
Workers in developed nations like United States and Europe in manufacturing sector and
services sector are facing a tough challenge directly from workers in developing countries. As
the same work now is being done in developing nations at a cheaper cost therefore, many
workers in developed countries have lost their jobs.
With increasing competition from migrants and BPO’s in developing nations, countries like
U.S and European Union are losing jobs on a large scale. This has further created resentment
among people in these countries manifested recently by large scale protests and rioting in
Greece, Italy, and U.K.As a result governments of these countries have made the immigration
policy more restrictive.
It is indeed surprising that on one hand efforts for greater movement of goods, capital and
service are going on while on the other hand restrictions are being imposed on the movement
of people among countries especially developed ones, in the name of safety measures against
terrorism.
IMPACT ON WIDENING INCOME DISPARITY
Post 90’s with greater globalisation world has witnessed increase in income inequality among
people within countries i.e. rich are getting richer and poor are getting poorer.
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The economic disparity has widened among developed nations and developing countries.
Developed countries like USA taking the advantage of WTO policies of greater access to
developing countries’ market has resulted in greater incomes for its entrepreneurs.
On the other hand, with greater flexibility in labour laws, no job security and exploitation of
labour in developing countries has made workers in these countries economically vulnerable.
This has increased the gap between rich and poor in these developing countries too. In urban
areas in these countries, on one hand urban rich live in enclosed apartments while a large
population of poor live in ever increasing slum areas. Most of the developing countries in
order to acquire the membership have carried out taxation reforms and have reduced
corporate taxes. These countries are moving towards a flatter taxation system. Which means
the burden of direct and indirect taxes will further make the poor, poorer with lesser available
income.
IMPACT ON ENVIRONMENT
With globalization fierce competition among producers across the globe has resulted in
progress which is using the resources mindlessly.
The zenith of consumerism is evident in large amounts of income being spent on
consumption. Many production units are being set up in developing countries. But, in the
absence of adequate environmental laws and regulations, free trade is causing higher levels of
environmental pollution. This is observed in over fishing of ocean waters, air and water
pollution along with deforestation on account of excessive mining for mineral wealth.
Global warming resulted in dramatic rise of global temperatures. This rise in temperatures is
mainly caused by carbon dioxide emissions. It is a well-established fact that
these
greenhouse gas emissions are largely from industrialised nations who should bear the
responsibility of fighting the damage done to the environment.
But a question arises; can developing countries be treated partially on CO2 emissions? On the
grounds of development should we leave environmental concerns unattended?
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Environmental Hazards
Seventy-five percent of Brazil’s greenhouse gas emissions are the result of deforestation and
changes in land use to pave the way for production of livestock and crop. Almost a million
square km (386,000 sq mi) or nearly half of the Cerrado, have been burned and are now cattle
pasture, or are cultivated for soybeans, corn (both primary ingredients in livestock feed), and
sugarcane, for ethanol production.
According to Brazilian journalist Washington Novaes, “if we consider the viable fragments
of the Cerrato, those with at least two continuous hectares (5 acres), only 5 percent of it is
left. It’s a very severe level of habitat loss”. At least one quarter of Brazil’s grain is grown in
the cerrado.
.
Source: stayanonymous.hubpages.com
Deforestation done for grazing land in Amazon Basin
1. With the increase in consumers and their needs there is increase in pressure on the resources
available. Explain the impact on mineral wealth, Land as a resource.
2.
Globalisation has given rise to increased incomes, standard of living and as a result
consumerism. Evaluate this change light of environmental concerns.
3. Find out more about greenhouse gas emissions and how they increase with the increase in
cattle population.
We can conclude that …
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
From all the above discussion, on impact of globalization on different economies, we
realize that globalization has fostered interdependence and competition among nations
like never before. As a result of this various policies and measures being framed in all
countries are not only determined by domestic policies and market conditions but also by
international policies and market conditions.

Therefore while formulating national, political and economic policies countries have to
anticipate the possible actions and reactions of these policies in rest of the world.

In this process of modern globalization, countries have lost their autonomy to some extent
to take decisions for their own countries.

All economic entities, be it producers, consumers or investors have become more
interdependent for their needs in today’s globalized world.

The process of globalization has given mixed results. Large scale producers like
multinational companies entering developing countries with numerous facilities benefit
these countries in a limited way. Since these companies use the resources of the host
country exclusively for quick profits, without transferring skills to local people do more
harm than good to these third world countries. On the other hand local small businesses
close down due to unfair competition.
It is hypocritical to preach the advantages of free trade and free markets and then erect
obstacles in precisely those markets in which developing countries have a comparative
advantage.’
Nicholas Stern ,Chief Economist, World Bank
IS GLOBALISATION EQUALLY FAIR FOR ALL? OR
NOT!
Leaders of India, Brazil, South Africa and China have been realizing the fact that the current
impasse going between developed and developing countries should be resolved. Though they
know that measures taken by developing countries to open up their economies for rest of the
world is not being reciprocated by developed countries like US and European Union these
developed countries have not given equal access to their markets to developing nations. They
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continue with their existing trade barriers and subsidies to their farmers adversely affecting
developing countries interests.
In view of the above fact, we come to a conclusion that developing countries in order to reap
maximum benefits out of globalization need economic development to overcome the
handicap of being exporters of primary products. Developing countries have to acquire the
capability of becoming a hub of manufactured goods. A significant progress has been made
by China and some South East Asian countries like Thailand, South Korea in this direction.
But there are many Asian, African and Latin American countries that have to catch up with
the west as far as development is concerned. These countries should build their capacity for
industrial and agricultural production. In order to achieve the targets, these countries should
identify those sectors in which they have competitive advantage. Such sectors should be
promoted with subsidies and favourable tariffs.
As these countries generally lack availability of required capital and entrepreneurial
capabilities Foreign Direct Investment should be invited by creating Special Economic Zones
and similar zones where restrictions and taxes are minimum possible.
NECESSARY INGREDIENTS OF DEVELOPMENT

A big question for developing countries?

How to fast track growth and development?

How should a country go about?
IMPORTANCE OF CAPITAL FORMATION
Imagine, if we want to provide clothes to our ever increasing population
and future generation for next 20 years, should a country produce more
machines that produce cloth or should it produce cloth for next 20 years.
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OR
MEANING OF CAPITAL FORMATION
There are three basic forms of economic activities viz. production, consumption and capital
formation. They are called vital processes of an economy.
Production: The act of making and providing goods and services is called production in
economics
Consumption: The act of using goods and services to satisfy human wants is called
consumption.
Capital formation: The surplus of production over consumption in any accounting year
which takes the form of goods that are used for further production is called capital formation.
OR
The Term ‘Capital’ here in Economics refers to man made goods used for further production.
These goods have a life of more than one year.
Capital formation refers to the proportion of present income saved and invested in order to
increase future production and income. It is usually acquisition of new factory along with
machinery, equipment and all productive capital goods. It is the process of building up the
capital stock of a country through investing in productive plants and equipments.Capital
formation involves the increasing of capital assets by efficient utilisation of available natural,
man-made and human resources of the country. Simply put, Capital formation or investment
is the means of adding to economy’s wealth’. Capital formation can either take place
domestically or from rest of the world.
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When domestic capital formation is insufficient, capital movement from across the borders is
what fills the gap between requirement and availability within the country.
Foreign capital in a country comes in mainly three forms

First, Foreign aid (usually comes from foreign governments and international financial
organisation like IMF, World Bank)

Second, Foreign Direct Investment(By Foreign Multinational Companies)

And third Foreign Institutional Investment (investment in stock market by foreign
investment firms for example mutual fund companies.
COMPONENTS OF GROSS DOMESTIC CAPITAL FORMATION
According to United Nations system of National Account Gross Domestic Capital Formation
is further subdivided in to following two parts.
(a) The production of fixed assets such as machinery, factory buildings, offices, residential
buildings, trucks, go downs, cold storages etc. These goods have a life of more than one
year.
(b) The stocks or inventories of raw material, finished or semi finished goods lying with the
producer.
Gross Capital Formation
Gross Domestic Capital Formation
Net Exports
Gross Domestic Fixed Capital
Net Inventories
Gross Domestic Fixed Capital Formation
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Fixed Assets
Net Inventories
Source: Google.com
GROSS AND NET CAPITAL FORMATION
There is another way of looking at Gross Domestic Capital formation which can be
comprehended with the following example:
In a factory let’s say there are 50 machines .The producer /owner of the factory comes to the
conclusion that 10 machines out of the existing are no longer of any use and need to be
replaced.
Along with this he also wants to double the production next year for which, he purchases 30
machines.
Out of the new 30 new, 10 machines are meant for only replacing the 10 bad ones, which
means, net addition to the capital stock of company is only 20. If the price per machine is $1,
00,000.How much is the company spending on Gross Investment, depreciation and Net
Investment?
In Economics not only Gross Capital formation is valued without deduction of
consumption of fixed capital (depreciation) but Net Capital formation is also valued after
deducting depreciation.
Gross Capital formation
Net Capital Formation
Depreciation
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Need for Capital Formation for Development
As in most of the low income countries rural areas are plagued by disguised unemployment,
which means there is a large population of surplus farmers who if given gainful employment
elsewhere ( other than farm) will result in increase in income of their household.
In order to provide this alternative employment multiple projects for capital formation are
needed in rural areas.
Therefore, construction of roads, tube wells, canals, school buildings etc should be
undertaken.
This not only provides income and employment to surplus farmers but also become a
valuable source of capital formation in the country.
Relationship between Capital Formation and Economic Growth
A study conducted by Nigeria tested the Harrods-Domar model to examine the
relationship between capital formation and economic growth in Nigeria.
The results supported Harrod-Domar model which proved that the growth rate of
national income will directly or positively be related to saving rate and capital formation. That
is, more the economy is able to save and invest greater will be the growth of GDP.
Simply put, more the number of machines produced at present, greater will be the ability to
produce goods and services in an economy.
The Harrod-Domar model was developed to help analyze the business cycle. However, it was
later adapted to 'explain' economic growth. It concluded that:
* Economic growth depends on the amount of labour and capital.
* As LDCs (Less Developed Countries) often have an abundant supply of labour it is a lack
of physical capital that holds back economic growth and development.
* More physical capital generates economic growth.
* Net investment leads to more capital accumulation, which generates higher output and
income.
Source:www.bized.co.uk
NEED FOR FOREIGN CAPITAL IN DEVELOPING COUNTRIES
Gross capital formation is said to take place when savings are utilized for investment
purposes, which is investment in production.
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Large number of poor and developing countries, face the problem of lack of capital formation
due to low levels of domestic savings required for the purpose. In these less developed
countries large parts of the population are abysmally poor and hence their capacity to save is
too low.
On the other hand rich sections of the society mostly spend their wealth in acquiring real
estate, luxury goods or keep their wealth in foreign tax safe havens. As far as business sector
is concerned, though they save voluntarily they usually don’t want to take the risk associated
with investment.There is constant fear of political instability and nationalization
(Government taking over loss making units) which stops many of the entrepreneurs taking up
investment.
The past records in many such underdeveloped nations have shown that such nations
manage to save only 15% of their GDP (National Income), which is not even sufficient to
maintain present standards of living.As domestic savings are insufficient for capital formation
in such countries, foreign capital is required to fill this gap.
MEANING OF CAPITAL MOVEMENT
Capital movement here refers to flow of capital among countries that is investor in one
nation and financial institution of the other country. The capital flow across the borders can
take place by any of the following ways:

Foreign direct Investment (FDI): This kind of investment includes establishment of a
production unit, acquisition of the domestic company, and joint venture with domestic
firm or offering the franchisee.
Examples are all Multinational firms like Ford Motors, Wal-Mart, Samsung, and Sony
Ericsson operating across the world.

Foreign Institutional Investment (FII)(Portfolio Investment):this refers to purchase of
bonds, securities by investors in foreign stock markets

Real Estate Purchases or investments: Purchase of land, plots, buildings etc.
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
Granting of Loans and Credits: Lending and borrowing can take place among national
governments (at lower interest rates) or commercially (private people at market rate of
interest).

Foreign Assistance (Aid): This source is mostly for reconstruction purpose after any
natural calamity or for consumption or for military purpose.
Foreign Aid to Zambia
Since 1960’s Zambia has been receiving foreign aid .The amount of aid increased
significantly during 70’s and again in the early 90’s as percentage of GDP. Increase in
foreign debt is mainly due to poor performance of Zambian economy and partly due to
decline in prices.
Most of the foreign aid was directed to agriculture, education, infrastructure and health?
Zambia mainly borrowed from IBRD (World bank) at commercial rates of interest and IDA
(International Development Association) at concessional rates after 1978.
Though it received bilateral aid from countries which was largely condition free. But due to
heavy repayment of loans and debt crisis various conditions were imposed by world Bank
on them for future like making economic policy changes.
Between 1996 and 1998 many donor countries withheld the aid as Zambia faced debt
payment crisis along with political turmoil.
At present world Bank is trying to provide Zambia Highly indebted Poor Country (HIPC)
status.
The above example of Zambia shows that foreign loan and foreign aid as a source of capital
formation comes with a heavy cost. With foreign aid comes huge cost of political pressure
and arm-twisting by the donor country and their economic exploitation at the hand of
developed country by agreeing to greater access to markets and raw material sources.
GROWTH OF FOREIGN DIRECT INVESTMENT (FDI)
In recent years due to significant reduction in restrictions on FDI by developing nations and
factors like accelerating technological change, emergence of integrated production across the
world, marketing networks and existence of bilateral investment treaties has given a boost to
FDI across the world.
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This is the reason why foreign direct investment has become an easy alternative to foreign
loans as a source of foreign capital.
The need for liability and condition free foreign capital prompted many developing countries
to offer subsidies and an incentive to those MNC’s who supported industrial policies of these
countries. In addition to the above fact, FDI has further been promoted as countries have
undergone technological changes along with the signing of bilateral investment treaties as
part of a newly formulated WTO.
By virtue of becoming the member of WTO, these developing nations had to oblige by
adopting ‘open door policy’ to MNC’s. Developing countries in general and Asia in
particular, have been able to reduce restrictions and implement foreign investment friendly
policies, which have further provided impetus to FDI flows across countries.
FDI includes three basic aims:
1). Investors from rich countries should be protected through bilateral and multilateral
investment treaties.
2). Protecting the interests of host countries (mostly developing and poor nations)
3). To use FDI for developing infrastructure and those services which were earlier provided
by the government in these countries.
The following facts substantiate the growth of FDI:*
FDI flows across the globe have surpassed the growth of world exports.
*
FDI flows reached to a staggering amount of $1.4 trillion in 2000 from a meager $53.7
billion.
*
Compared to the increase in world output, total FDI flows have increased at a faster rate.
Patterns of Private Foreign Investment in different countries
Different countries have responded differently to FDI flows.
1. Largest volumes of foreign investment flows have taken place among rich countries.
Europe and North America continued to be the largest sources of FDI flows in the
world, supplying at least 75 % of total FDI and also the biggest recipients of FDI.
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2. Developed nations have contributed maximum share of FDI in middle income countries
like China, Brazil and Mexico. Among industrialized nations Japan has shown a decline
as an important source of FDI.
3. Share of Asia and Pacific in total FDI outflows declined due to falling importance of
Japan as an FDI supplier.
4. In this period share of World’s FDI to middle income countries exceeded to that of poor
countries by a good 15%.Among middle income countries, Republic of Korea, Brazil,
Finland have overtaken Malaysia, Singapore and Thailand as preferred locations for FDI.
5. India has replaced Indonesia as one of the top FDI destinations in Asia till late 1990’s.
6. Hong Kong, China has become more important as preferred destination than Singapore
and Malaysia.
7. It is the less developed countries who have the lowest share in the world’s FDI flows.
8. After the 1997 East Asian financial crisis, FDI flows to poor countries has further
declined, while it has increased towards middle income countries consistently till 2001.
DIFFERENCE BETWEEN “FDI AND FII”
Both FDI and FII are investments made in a foreign country.
Foreign Direct Investment can take place in following ways:




Establishment of a production unit by MNC in the foreign country.
Taking over the company of the foreign country.
Entering into the joint collaboration with the company belonging to country in which it
intends to invest.
Getting the production done under its brand name produced by local producers
i.e. .extending franchisee.
In Foreign Institutional Investment (FII)
Company only needs to register in stock exchange of that country.

FII is also referred as ‘Hot Money’ as the investor has the freedom to enter the stock
market (buy shares, bonds) and exit from the stock market (sell shares).

Through FDI production increases in the economy moreover the recipient country gets
the benefit of better technology, management practices and employment for its people.

FDI is considered to be more stable than FII.
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
Though FII helps in making the capital available through secondary market, it is a short
term investment unlike FDI which is a long term investment.
This is the reason why FDI is preferred over FII.
Foreign Institutional Investors
Source: www.google.com
Foreign investors, meanwhile, are few and far between.
"Although we have opened to international investors, it has not been of the variety that is a
long-term investor. We've attracted relatively short-term investors and hot money, so that's
why we need to look more closely at providing access to long-term investors,"
Says Nasser Saidi, Chief Economist of the Dubai International Financial Centre Authority
and Executive Director of the Hawk Amah Institute for Corporate Governance.
STOCK MARKET
Stock Market is one of the most important sources to raise funds.
This is an area of contact by which companies raise capital to be used later for expansion,
diversification or for launch of a new project.
There are two types of stock markets where securities are traded:

Primary market: in this form of market companies offer their new shares/bonds for sale
popularly referred as Initial Public Offering (IPOs). Companies raise funds from primary
market directly.
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
Secondary Market is those contact markets where previously issued shares/bonds are
resold to retail (or common) investors.
The shares/bonds traded can be categorized as:

Debentures: these are particular types of bonds on which the company has to pay the
investor a fixed percentage at regular time intervals till maturity irrespective of success or
failure of the investment project for which these borrowings were used.

On the other hand equity is a security that gives shareholder an ownership right in the
company to share the profit or loss as the case may be.
NEED FOR THE STOCK MARKET
When a firm is started by an entrepreneur, he either has the option of using his own funds or
friends /relatives may provide funds as start-up capital.

In order to further expand or diversify, it will need more money or capital.

For this purpose he will either borrow from a bank or market or raise funds through
market.

Another option for the entrepreneur is to sell a part of his company by issuing shares.
This is where the role of a stock market becomes important by making the capital resources
available for corporations (companies that issue shares) that require capital to expand their
operations and finance their growth.
Do you want to buy shares??? Know the Share Market
There are two kinds of stocks(shares) issued in the market:
(a) Initial Public Offering: Majority of investors are not able to purchase these IPO’s which
are meant largely for institutional and listed investors.
Let’s understand by this example:
Suppose ‘A’ an entrepreneur is the owner of a firm that is worth $10 million. Now, A wants to
share his risk of loss or rewards of profit of undertaking an investment so he decides to make
his firm public i.e. he issues shares of his company (IPO’s).A divides his firm net worth ($1
0million) into million small parts. Out of the 1 million parts he sells 90 000 shares with an
initial price of $10per share. By doing this he is able to gather $9 million cash but at the same
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time he is no longer the only owner of his business he has to work for his shareholders and will
share the profit or loss of the business.
The secondary market is more popular among common investors, who buy ‘used’ shares
from brokers. The company whose name is mentioned on the share document never receives
this money. For example, when somebody buys a second hand (used) Ford car, the company
does not get any of this money because once it is sold to the first buyer company does not own
this car any longer.
BASIC TERMS (to know about stock market)
To understand stock market and how it functions we have to understand some related terms.
An asset is anything of durable value, that is, anything that acts as a means to store value over
time.
Assets are of two types :
 Real assets: Are those assets which are in physical form (e.g. land, equipment, houses
etc) including ‘human capital’ assets embodied in people (skills, knowledge etc)
 Financial assets: Includes debts and claims against real assets either directly(e.g. stock
shares equity claims) or indirectly(e.g. money holdings or claims to future income
streams that originate ultimately from real assets)
Securities: are financial assets exchanged in auction and over- the- counter markets whose
distribution is subject to legal requirements.
Lenders: are the people who have available funds in excess of their desired expenditure that
they are attempting to loan out.
Borrowers: are people who have a shortage of funds relative to their desired expenditures.
A financial market is a market in which financial assets are traded.
Examples: Shanghai stock exchange, Brazilian government bond market
A financial institution- is an institution whose primary source of profits is through financial
asset transactions.
Examples: Brokers, banks, insurance companies, complex multi function financial institution
such as Merill Lynch.
Financial institutions are of following four types:
1.Brokers: are commissioned agents of a buyer (or seller) who facilitate trade by locating a
seller to complete the desired transaction. A broker does not take a position in assets he trades
i.e. he does not maintain the inventories in these assets.
Brokers receive sales commissions. Examples: Real estate brokers, stock brokers
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2. Dealers: Like brokers dealers facilitate trade by matching buyers with sellers of assets.
However a dealer takes position i.e. maintains inventories in assets he or she trades.
Unlike brokers dealers do not receive sales commission they make profits by buying assets at
relatively lower prices and reselling them at relatively higher prices.
The price at which a dealer offers to sell an asset (the asked price) minus the price at which a
dealer offers to buy an asset (bid price) is called bid-ask spread and represent dealer’s profit
margin on asset exchange.
3.Investment Banks: An investment bank assists in the initial sale of newly issued securities
(i.e. in IPO’s=Initial Public Offerings)by engaging in a number of different activities: Some of
the best known US investment banks are Morgan Stanley, Merrill Lynch, Goldman Sachs
4. Advice: corporations whether they should issue bonds or stock and for bond issues, on the
particular types of payment schedules these securities should offer.
5. Underwriting: Guaranteeing corporations a price on the securities they offer, either
individually or by having several different investment banks form a syndicate to underwrite
jointly.
6. Sales Assistance: Assisting in the sale of these securities to the public.
Financial Intermediaries:
Unlike brokers, dealers and investment banks, financial intermediaries are the financial
institutions that engage in financial asset transformation. That is, financial intermediaries
purchase one kind of financial asset from borrowers (generally some kind of loan contract)
whose terms are adapted to the specific circumstances of the borrower (e.g. a mortgage)and
sell a different kind of financial asset to savers ,generally some kind of relatively liquid claim
against Financial Intermediary (e.g. a deposit account).
In addition, unlike brokers and dealers, financial intermediaries make profit by charging higher
interest rates to borrowers and paying relatively lower interest rates to savers.
Example: commercial banks, pension funds, life insurance companies, stock and mutual fund
companies, finance companies.
Note: These four types of financial institutions are simplified idealized classifications, but
many actual financial institutions today engage in activities that overlap two or more of these
classifications.
Example: Merrill Lynch acts as a broker, dealer, financial intermediary and an investment
banker.
Source: www.tn.gov.in
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STOCK EXCHANGE
A stock exchange is a corporation or mutual organization which provides trading facilities
for brokers to trade in stocks and securities. (Securities include shares issued by companies,
unit trusts, bonds etc)
Shanghai Stock Exchange(China)
NASDAQ Stock Market(America)
Source: siliconangle.com
Source funwithhistory.wordpress.com
Source :adyingartist.wordpress.com
Interesting facts
The Dutch started joint stock companies, which let shareholders invest in business
ventures and get a share of their profits –or losses. In 1602, Dutch East India Company
issued the first shares on the Amsterdam Stock Exchange. It was the first company to
issue the stocks and bonds. It was also the first joint stock company to get a fixed capital
stock.
The Amsterdam Stock Exchange (or AmsterdamBeurs) is also said to have been the first
stock exchange to introduce continuous trade in the early 17th century.
Established in 1875, Bombay Stock Exchange is Asia’s first Stock Exchange
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CONDITIONS REQUIRED TO TRADE IN STOCK EXCHANGE
In order to trade in a stock exchange a company has to be listed there, as the trading can
be done only by members of the stock exchange.
There are some legal requirements for companies to be listed on a stock exchange.
TERMS TO KNOW

Physical Stock Exchange: Is a place where trading is done by brokers or dealers by
being present physically on the floor of stock exchange.

Open Outcry: In this method shares and bonds are auctioned by trade verbally bidding
and offering at the same time.

Virtual Stock Exchange: Is where trading is done through a network of computers
electronically.

In actual transaction, auctioning of shares is done where the trader who wants to buy the
share ‘bids’ at a price and the trader who wants to sell the share ‘asks’ a price.

When both ‘bid’ and ‘ask’ price match, transaction takes place.
If more than one buyer and seller are able to match the price transaction is done on the basis
of first come first serve basis.
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SOME HISTORICAL MARKET CRASHES
Read the below given stock market crashes and answer the following:
There have been number of famous stock market crashes like

Wall Street Crash of 1929,

The stock market crash of 1973-74,

The Black Monday of 1987,

Dot-com bubble of 2000

The stock market crash of 2008
Great Depression 1929
During first world war, as large parts of resources were diverted for war purposes and excessive
expenditure on war resulted in heavy debt. This resulted in high inflation rate and rise in costs of
production. Though the war was not fought on American soil but all Europe the suffered vast
devastation and had to depend on USA for borrowing.
As a result USA emerged as financial superpower. Inspite of all the efforts done on the part of
United States the global economic slowdown broke which was followed by crash in American
stock markets. This is termed as Wall Street Crash of 1929, the most devastating crash in world’s
economic history. This crash was the beginning of the twelve year old depression that continued
till World War II erupted.
1973-74 Stock Market Crash
Political Clash in Middle East over Israel and oil embargo imposed by OPEC countries resulted
in severe oil crisis. The failure of Foreign Exchange Rate System failed as a result of certain
shocking measurs taken by President Nixon at that time. This had a fall out on all the stock
markets in the world specially European countries .
Dot com Bubble’2000
Also known as internet bubble or IT bubble, this happened during late 90’s when large number of
web based companies came up which also included some fraudulent companies.
The shares of those companies even with prefix e_ or suffix dot com were heavily speculated and
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their share prices rose dramatically in stock markets. This created highly inflated markets which
ultimately went bust resulting in loss of large amounts of investment.
2007-2009 Housing Bubble
In United States since the beginning of twenty first century rising prices of housing sector
motivated large number of speculators and buyers to invest in housing sector. This investment
was done mainly by taking loans from banks. The banks gave large number of such loans against
subprime mortgages (the very houses for which loans were given). Too much of loan activity and
failure on part of borrowers to pay the loan resulted in large number of defaulters. They could not
recover the money and the mortgages could not be liquidated.
This resulted in financial crisis in banks and loss of confidence in banking system. The crisis
reached to such an extent that some of the largest banks like Lehman Brothers; Citigroup went
bankrupt and brought Global financial system to a collapse.
Reasons: Along with various economic factors, a reason for stock market crashes is also due to
panic and investor’s loss of confidence.
Read the above given crashes and answer the following
1) What do you infer from the above experiences?
2) What are the causes for Great Depression 1929?
3) What is IT Bubble and why those situations arise?
4) Whether oil price fluctuations have any effect on Stock markets? Explain.
5) Story of two brothers... one used his money to buy land, a shop. Other bought shares to
get quick returns. What happens when market crashes? Second brother loses all
money as he did not have the understanding of the stock market?
CASE STUDIES
Read the given case studies.
1) Analyse the factors responsible for the countries economic growth
2) Understand the behaviour of stock markets in these countries
3) Make a case study of similar nature of some other country
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UNITED STATES OF AMERICA
After the end of world war II since 1945 U.S experienced an increase in the middle class
national income and productivity. This period is known as the Golden Age for America.
Most of the development that took place during this period was due to migration of low income
farm labourers to better paying jobs in towns and cities which went on till 1960’s.
United States during 70’s was dependent on oil imports for its needs. World was facing oil
crisis during this period. This resulted in high inflation rates inspite of price control measures
taken by the then Nixon government. Collapse of Bretton Woods’s system and rising
importance of market further aggravated the problem.
Source:npaphistory.wikispaces.com
Source:hoffblog1.blogspot.com
Though economy recovered in 1973 by increase in expenditure done by U.S. government the
inflation rate remained at double digits and out of control.
After the turbulent 70’s, Reagan government during 80’s took special measures to deregulate
transport, banking sectors.Inspite of the measures taken by American government, the economy
faced recession in 80’s.Around one million people lost jobs in manufacturing and service sector.
In 1981 President Reagan took special measures by cutting tax rates which helped in bringing
inflation rate down from 13.5 % to 3 %. Unemployment came down from 10% to 6% by end of
Reagan’s President Ship in 1989.
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During 90’s since the formation of WTO due to increased free trade and high corporate taxes in
the country American companies began to shift their manufacturing and heavy industries to
developing countries with low labour costs. Income inequality in the country increased on one
hand while on the other hand consumers were able to buy goods at lower prices and in large
quantities.
From 1994 to 2000, unemployment had dropped below 5 %, resulting in a boom in the market
due to large number of IPO’s of high-tech companies called dot com companies.
By 2001 economy worsened as growth reduced to 3% and unemployment increased. The
situation further deteriorated by September 11 terrorist attacks in the same year. No of corporate
scandals is also said to be responsible for US market failure.
Since then there was bubble in making, from 2001 Boom in housing sector across US fuelled a
false sense of security. By 2008 a situation reached when another disaster hit not only the
country, but also the whole world. Largest banks of US and European Union went bankrupt.
These banks had to be bailed out by their respective governments. Though President Osama
has taken various measures to boost the American economy which only time will tell, in the
coming years.
PEOPLE’S REPUBLIC OF CHINA
scientiaweb.com
After the civil war in China from 1937 to 1940 and formation of People’s Republic of China
many development strategies were adopted which included Great Leap Forward Programme
campaign and commune cultivation. But famine and temporary discord with erstwhile USSR
resulted in economies failure.
The economic performance of China remained poor when compared with countries like Japan
and South Africa. China under the leadership of Mao had slow growth as it was plagued with
huge inefficiencies and failed investments.
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President Mao
Deng Xianoping
Source: worst-killers.com
ej1030.edu.glogster.com
After Mao’s death reforms were introduced under the leadership of Deng Xianoping . Though
he faced opposition from conservative members of party Politbureau, he went ahead with
reforms and proved to be successful.
Reforms were introduced first in agriculture which was neglected during earlier regimes, as they
were reminded of 1959 famine. Agricultural land was distributed among farmers who were
allowed to keep the produce after paying taxes/share to the government.
This helped in boosting agricultural production and living standards of millions of farmers.
In industrial and urban sector dual pricing system was brought in, so that people were able to
sell their output at government fixed prices as well as at market prices. Private sector was
allowed to set up industries for the first time.
FDI was allowed for which special economic zones were created which were free of
bureaucratic regulations. Government intervention and control on private sector went on
reducing. State owned enterprises which were running in losses were privatized.
During 80’s ,due to corruption, inflation and vested interests led by Chen Yun ( opposition
leader) large scale protests at Tiananmen square many key reformers were eliminated. But Deng
continued with his reforms.
During 90’s share of private sector surpassed states share in GDP for the first time.
After Deng’s death, reforms continued under Jiang Zemin and Zhu Ronji.
By 1997 and 1998 except for a few state monopolies, all public sector companies were
liquidated and sold to private sector.
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During the same period tariffs and other trade barriers were reduced. Economic growth in China
after reforms has been exceptionally fast i.e. around 9-10%.
China is seen as the engine of world and regional growth.
A significant transformation is the change in crop growing pattern of China from just rice and
grain to cash crops. Trade in agriculture has also been liberalized.
China has become an exporter of food grains in contrast to previous famine and food shortages.
Industrially China has emerged as the biggest manufacturer of steel, ships, textiles, concrete and
has largest automobile market.
China joined WTO and it agreed to considerably harsher conditions than other developing
countries.
THE BEHAVIOUR OF THE STOCK MARKET
From experience we know that investors may temporarily move financial prices away from
their long term aggregate price ‘trends’.
Source: inkcinct.com.au
Source:matrixmarkets.blogspot.com

Positive or up trends are referred to as bull markets.

Negative or down trends are referred to as bear markets.
A Stock market crash is often defined as a sharp dip in share prices of equities listed on
the stock exchanges
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1.
2.
3.
4.
5.
6.
Books and Reference material used
The World is Flat -by Thomas L.Friedman
National Income Accounting- by Saurabh Rastogi and Shekhar Aiyar
National Income Accounting -by D.K.Sethi
Indian Economy -By Ruddar Datt and K.P.M.Sundaram
The Economist- A monthly magazine
Indian Economic Development- by Dr. Deepashree

Websites
http://en.wikipedia.org/wiki/Capital_formation
http://esaharyana.gov.in/CapitalFormation.aspx
www.fareastjournals.com/files/FEJPBV3N1P2.pdf
www.imf.org/external/pubs/ft/issues/issues17/index.htm
//en.wikipedia.org/wiki/Globalization
http://www1.american.edu/ted/medical-tourism.htm
http://triplehelixblog.com/2011/09/outsourcing-medicine-the-expanding-field-of-medicaltourism/
http://searchcio.techtarget.in/definition/Public-private-partnership-PPP
http://www.un.org/ecosocdev/geninfo/afrec/vol17no1/171agri4.htm
http://iesenvis.nic.in/success-stories1.htm
http://www.bized.co.uk/virtual/dc/aid/kariba/issue4.htm
http://www.un.org/ecosocdev/geninfo/afrec/vol17no1/171agri4.htm
http://www.pinoy-ofw.com/news/4850-philippines-worlds-top-bpo-country.html
ww.econlib.org/library/Enc1/ForeignInvestmentintheUnitedStates.htm
eenglish.vietnamnet.vn/biz/201007/Why-do-car-manufacturers-come-to-Thailand-notVietnam-922809
tp://www.bized.co.uk/virtual/dc/copper/theory/th7.htm

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






Sources of all pictures (in the order they come in the document)
globalisation2.gif (ghoenglish.de)
www.buzzle.com
onlinepoker.net
Toonpool.com
topnews.net.nz
monsantoblog.com
monkeybuddha.blogspot.com
topnews.in
sketchmyworld.com
adyingartist.wordpress.com
matrixmarkets.blogspot.com
inkcinct.com.au
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WORKSHEETS
WORKSHEET - NO. 1
The Extent of Interconnectedness
The Blackberry wireless solution (phone, E-mail and other services) are provided by a
Canadian Multinational Company named Research in Motion Ltd. (RIM Ltd.). This company
has headquarters in Waterloo Ontario, Canada.
In July 2011 this company had reduced jobs by 11%, 2000 workers were laid off in one go.
In the same year, the company decides to build an assembly line in Malaysia and
Blackberry’s application and research Centre in Indonesia.
In October 2011, Blackberry outage (total communication failure at their data centre) was
experienced by tens of millions of Blackberry users in Europe, Middle East, Africa and North
America. Thy were unable to receive or send e-mails and messages through these smart
phones. A mere data centre outage had ripple effects all over the globe and once restored,
brought all these users globally together.
Q1. In the above example how are blackberry users all over the world interconnected?
Q2. Do we depend on other countries?
(a) only for goods
(b) services, investment
(c) technology, communication
(d) finance, employment
(e) or all the above
Give Reason:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
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WORKSHEET - NO: - 2
WTO
No. 1
No. 2
Answer the following questions on World Trade Organisation:
Q1. The above picture No 1 shows the building of headquarters of WTO. Name the place.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Q2. In the above picture no 2 shows the Chairperson of Uruguay Round of WTO negotiations.
Name the Chairperson.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Q3. What is the name of the current round of negotiations of WTO countries?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Q4. Do all the countries who are the members of WTO have the same tariff structure?
Among the following countries arrange the countries in ascending order of tariff rates: China,
Brazil, India, Sri Lanka, Russia, South Africa, Nigeria, and USA.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
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Q5. WTO is a watch dog of the international trade. Justify.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
WORKSHEET –NO- 3
It’s Shopping time!
Next time when you go to market, shopping mall or read newspapers and magazines, collect
pictures and names of five MNC’s,their range of products sold and the country of their origin
in the following industries:
1. Apparel industry________________
________________
_____________
2. Home Appliances ______________
__________________
______________
3. IT industry ____________________
_________________
_____________
4. Automobile Industry____________
________________
____________
5. Banking and Finance____________
________________ _______________
6. Fast Moving consumer Goods (FMCG)____________
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WORKSHEET NO: 4
Employment in call Centres
It’s Official: Philippines Tops India as World’s No. 1 in BPO
BY INQUIRER.NET ON December 4, 2010 CATEGORIZED UNDER PINOY CALL
CENTER AGENTS
After challenging India for the top position for several years, the Philippines is now the
world leader in business support functions like shares, services and business process
outsourcing, according to the latest reports and trends analyses.
source: /www.pinoy-ofw.com
In fact, the country overtook India in these categories last year, according to IBM’s latest
Global Locations Trend Annual Report, released recently in New York.
India now ranks No. 2, the first time it was not in the leading position for these activities,
according to the IBM report, launched in October but made available online last month.
“The Philippines has taken over the lead in the global ranking from India,” the report said.
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The IBM report said the Philippines offered a similarly attractive business environment
for international business support functions as India. Unlike India’s BPO hot spots,
however, labour costs here have not increased as much.
On the basis of the above news text, answer the following questions.
1. What are the reasons behind India and Philippines becoming successful outsourcing
destinations?
________________________________________________________________________
2. Mention the names of some (at least three) such BPO centres in your country?
________________________________________________________________________
________________________________________________________________________
_______________________________________________________________________
________________________________________________________________
3. What are the advantages and disadvantages of spread of these BPO centres? Explain
three each.
________________________________________________________________________
________________________________________________________________________
_______________________________________________________________________
4. What is the main cause behind Philippines taking over India as most favoured
outsource destination?
________________________________________________________________________
________________________________________________________________________
_______________________________________________________________________
5. Do you agree that BPO jobs facilitate globalization?
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________________________________________________________________________
________________________________________________________________________
_______________________________________________________________________
WORKSHEET NO: 5
Three cities of Joy
1
2
Above are the pictures of three most popular cities of the world
Q1. Identify these places on the basis of the following clues.
a) These places are considered to be the shopper’s paradise.
b) These are one of the most free trade zones in the world as declared by WTO.
c) All these three places are in developing countries.
d) All these three places are flourishing on tourism industry and service sector.
Ans._1.________________________________________________________
2.____________________________________________________________
3.___________________________________________________________
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Q2. Compare the tariff structure in your country with these three places.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
WORKSHEET NO.: 6
Impact on Culture
Japanese McDonald’s fast food as evidence of corporate globalization and the integration of
the same into different cultures.
Growth of cross-cultural contacts; advent of new categories of consciousness and identities
which embodies cultural diffusion, the desire to increase one’s standard of living and enjoy
foreign products and ideas, adopt new technology and practices, and participate in a “world
culture”. Some bemoan the resulting consumerism and loss of languages. This might also
affect the spreading of multiculturalism and better individual access to cultural diversity (e.g.
through the export of Hollywood). Some consider such “imported” culture a danger, since it
may supplant the local culture, causing reduction in diversity or even assimilation. Others
consider multiculturalism to promote peace and understanding between people. A third
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position that gained popularity is the notion that multiculturalism to a new form of
monoculture in which no distinctions exist and everyone shifts between various lifestyles in
terms of music, cloth and other aspects once more firmly attached to a single culture. WHO
estimates that up to 500,000 people are on planes at any one time? In 2008, there were over
922 million international tourist arrivals, with a growth of 1.9% as compared to 2007.
Culinary culture has become extensively globalized. For example, Japanese noodles, Swedish
meatballs, Indian curry and French cheese have become popular outside their countries of
origin. Two American companies, McDonald’s and Starbucks, are often cited as examples of
globalization, with over 31,000 and 18,000 locations operating worldwide, respectively.
Q1. What was the traditional dress worn by your ancestors? Is the same dress worn by your
generation? What kind of dress is worn by you and your friends?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Q2. Give the names of any five international fast food chains popular in your city.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Q3. List at least three arguments each in favour and against the impact of globalization on
the culture of your country.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
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WORKSHEET NO: 7.
Sweatshops
In many poorer nations, globalization is the result of foreign businesses utilizing workers in a
country to take advantage of the lower wage rates.
One example used by anti-globalization
protestors is the use of sweatshops by manufacturers. According to Global Exchange these
“Sweat Shops” are widely used by sports shoe manufacturers and mentions one company in
particular – Nike. There are factories set up in the poor countries where employees agree to
work for lower wages than would be required in richer countries.
Several agencies have been set up worldwide specifically designed to focus on antisweatshop campaigns and education of such. In the USA, the National Labour Committee has
proposed a number of bills as part of Decent Working Conditions and Fair Competition Act,
which have thus far failed in Congress. The legislation would legally require companies to
respect human and worker rights by prohibiting the import, sale, or export of sweatshop
goods.
Specifically, these core standards include no child labour, no forced labour, freedom of
association, right to organize and bargain collectively, as well as the right to decent working
conditions.
Q1. In the above text what do you understand by the term ‘Sweatshops’?
_________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________
Q2.Name any two such companies like Nike in your country which you can put under the
category of sweatshops.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Q3.Why do you think such companies who exploit labour adopt such practices?
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___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Q4.What role can labour union play in reducing labour exploitation?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
WORKSHEET NO: -8
Identify Yourself
Q1.Which of the above mentioned traits of globalization are reflected or more suitable for
your country?
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Q2.On the basis of above analyse the impact of globalization on your country?
_________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________
___________________________________________________________________________
Q-3.What do you understand by the term Globalisation
_________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________
___________________________________________________________________________
Q-4 Can we call our world as Global Village???? If so why?
_________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________
Q-5 As a student in what way globalization brought change in your life????Analyse
_________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________
WORKSHEET NO: 9
GLOBALISATION: HOW LONG IT WILL LAST?
It is becoming increasingly difficult to maintain food security in a world beset by a
confluence of “peak” phenomena, namely peak oil, peak water, peak phosphorus, peak grain
and peak fish. Growing populations, falling energy sources and food shortages will create the
“perfect storm” by 2030, according to the UK government chief scientist. He said food
reserves are at a 50-year low but the world requires 50% more energy, food and water by
2030. The world will have to produce 70% more food by 2050 to feed a projected extra
2.3 billion people and as incomes rise, the United Nations’ Food and Agriculture
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Organisation (FAO) warned. Social scientists have warned of the possibility that global
civilization is due for a period of contraction and economic re-localization, due to the decline
in fossil fuels and resulting crisis in transportation and food production. One paper even
suggested that the future might even bring about a restoration of sustainable local economic
activities based on hunting and gathering, shifting horticulture and pastoralism.
Q1.The adverse impact of population growth on food supplies, urbanization and availability
of land for cultivation is evident from the text. What is the contribution of globalisation in all
three cases?
___________________________________________________________________________
___________________________________________________________________________
Q2.Globalisation has made ‘Consumer the King’. Comment
___________________________________________________________________________
___________________________________________________________________________
Q3.What is the role of transport in making globalisation a faster process? In case of fast
diminishing fossil fuels what is the future of globalisation.
___________________________________________________________________________
WORKSHEET NO: 10
STORY OF SUKHOMAJRI
An Indian village named Sukhomajri is located near Chandigarh (Haryana), India at the
foothills of Himalayas. This village was facing problems of water scarcity, soil erosion due to
excess felling of trees and overgrazing along hill slopes during 70’s.
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This adversely affected the agricultural production. This is when the village formed a society
named Hill Resource Management society (HRMS) .This society undertook measures as
follows:
Protection of hill slopes from grazing and deforestation
Construction of small earthen dams to accumulate water
(i) Distribution of water for irrigation from the dams and maintaining the dams.
(ii) Construction of water harvesting system
All the above measures not only gave direct employment to the surplus labourers, but also
increased agricultural output from previous 40 kg/hectare to over 2000kgs by 1986.In just
five years from 1979 to 1984 its household income went from Rs. 10,000 to Rs. 15,000.
A survey conducted in 1998 found that the income distribution in this matches the income
distribution of rural Haryana which is one of the most prosperous states of India.
Q1. Is capital formation required only in industrial production? What are the capital assets
required in agricultural production?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
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2. What is the role of rural capital formation in increasing the income of the rural people?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
WORKSHEET NO: 11
CAR IN YOUR GARAGE
Your family has bought a new car just last month for $20,000.Do you think, this car will
remain of the same value after a period of two months?
1. Will the car lose its value?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
2. What makes the car lose its value?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
3. Does it lose value because your family is using it? Or does it lose value because of launch
of new variant of the car in the car market? Or both? Give reason and explain.
__________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________
WORKSHEET NO -12
Foreign Direct Investment
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Sourc:eenglish.vietnamnet.vn/biz/201007/
WHY DO CAR MANUFACTURERS COME TO THAILAND NOT TO VIETNAM
The American Ford Motor Company has announced a new investment package worth $450
million in a new modern automobile factory in Thailand. Prior to that, Japanese Mitsubishi
Motors had also decided to invest $450 million in its third factory in Thailand, which will
churn out a new generation of environmentally-friendly vehicles. The third factory, to be
located near the two existing factories in the west of Thailand will have the capacity to churn
out some 50,000 products per annum and is expected to wheel its first products off the
assembly line in 2012.
Meanwhile, Japanese Suzuki Motors late last year announced a plan to invest $225 million in
Thailand, after winning approval from relevant Thai agencies. The manufacturer plans to
make small-size environmentally-friendly cars, with the first products expected to come out
in March 2012.
In the 1990s, Thailand came to be known as the “Detroit of Asia,” when it successfully
developed supporting industries with many enterprises which made car parts and accessories.
Despite recent political upheaval, Thailand still trumps over many other countries in the
region in auto manufacturing and has caught the eyes of the world’s largest car producers,
attracting them to head to Thailand to establish their bases.
Q1. In the above example various names of MNC’s are mentioned. Make a list of MNC’s
which belong to developed country and developing country respectively. Also write the
products they produce.
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Ans.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Q2.Which of the above car manufacturers are more popular in your country?
Ans.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Q3.Find out and explain the reasons behind setting up of car production units in such large
numbers in Thailand.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
WORKSHEET NO: 13
Foreign Institutional Investors
Foreign Institutional Investors, unlike FDI, invest in bonds ,pension funds,
mutual funds and other securities in foreign stock markets. Therefore this
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form of foreign capital comes in large amount on positive sentiments and result in sudden rise
of markets and boost the economy.
Foreign investors, meanwhile, are few and far between. "Although we have opened to
international investors, it has not been of the variety that is a long-term investor. We've
attracted relatively short-term investors and hot money, so that's why we need to look more
closely at providing access to long-term investors," says Nasser Saidi, Chief Economist of the
Dubai International Financial Centre Authority and Executive Director of the Hawkamah
Institute for Corporate Governance.
Q1. In the examples foreign direct investment i.e American Ford Motor Company and
Foreign Institutional Investors like mutual funds, which investor will stay longer in the
country they are investing in? Give reasons.
Q2.Which one will give employment to the people in the country?
Foreign Direct Investment or Foreign Institutional Investment?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Q3. In You Opinion what are the advantages and disadvantages of Foreign Institutional
Investors.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
WORKSHEET NO: 14
Foreign Aid to Zambia
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Is Foreign Aid really beneficial!
Since 1960’s Zambia has been receiving foreign aid .The amount of aid increased
significantly during 70’s and again in the early 90’s as percentage of GDP. Increase in
foreign debt is mainly due to poor performance of Zambian economy and partly due to
decline in prices.
Most of the foreign aid was directed to agriculture, education, infrastructure and health?
Zambia mainly borrowed from IBRD (World bank) at commercial rates of interest and IDA
(International Development Association) at concessional rates after 1978.
Though it received bilateral aid from countries which was largely condition free. But due to
heavy repayment of loans and debt crisis various conditions were imposed by world Bank on
them for future like making economic policy changes.
Between 1996 and 1998 many donor countries withheld the aid as Zambia faced debt
payment crisis along with political turmoil.
At present world Bank is trying to provide Zambia Highly indebted Poor Country (HIPC)
status.
Q1.In case of Zambia as in the above text and many other Asian and African countries what
are the main reasons behind dependence on foreign aid?
Ans:
Q2.What are the possible consequences these countries have to face for taking foreign aid?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Q3.Following are the different sources of foreign capital for any country. Which one do you
consider best source of capital? Give reason in support of your answer.

Foreign aid or

Foreign Direct Investment or
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
Foreign Institutional Investment
WORKSHEET NO: 15
Expansion Dilemma
Salim: I want to set up one more factory to increase the production of leather products?
Riaz: Why don’t you take a loan from a Bank?
Salim: But, I already have taken a loan? Another loan will increase by debt burden?
Riaz: An idea! Why don’t you take some money from those friends and relatives who have
excess money? Your company is running very well and it has earned a good reputation.
Salim: Alas! I have tried out that option too!
Riaz: Oh…
1. If you would have been in place of Salim what would you have done to finance your
business in the similar situation?
___________________________________________________________________________
2. If Salim wants to raise money from share market what are the requirements of the market
he has to fulfil?
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WORKSHEET NO: 16
Story of two Brothers
Two Brothers living in Cape Town, South Africa. One Tony Richards and another Roger
Richards. After being employed for more than twenty years in the best and most lucrative
jobs in the corporate world, they both plan for investing their past savings in various assets.
Tony purchases two shops, a big land plot in the countryside for developing it as a resort. He
also buys some shares, debentures and mutual funds. On the other hand, Roger who is a firm
believer that savings in banks and such fixed assets is sleeping money which gives less
returns, so he invests half of his past savings in shares ,debentures ,mutual funds.
Both the brothers are retail investors who mainly bought their shares from a broker.
During the Asian financial crisis that was followed by the Dot-Com bubble stock markets
around the world crashed.
Answer the following questions based on the above text:
1. Which one of the two brothers will be worst affected? Give reasons.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
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2. Did they have enough knowledge of the stock market?
________________________________________________________________________
________________________________________________________________________
_______________________________________________________________________
3. What are the precautions to be taken while making an investment of one’s savings?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
WORKSHEET NO: 17
2007-2009 Housing bubble
In United States since the beginning of twenty first century rising prices of housing sector
motivated large number of speculators and buyers to invest in the housing sector. This
investment was done mainly by taking loans from banks .The banks gave large number of
such loans against sub-prime mortgages (the very houses for which loans were given). Too
much of loan activity and failure on part of borrowers to pay the loan resulted in large
number of defaulters. They could not recover the money the mortgages could not be
liquidated.
This resulted in financial crisis in banks and loss of confidence in the banking system. The
crisis reached to such an extent that some of the largest banks like Lehman Brothers;
Citigroup went bankrupt and brought Global financial system to a collapse.
citizenship.typepad.com
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CBSE-i
CLASS – X ECONOMICS
STUDENTS’ MANUAL
Q1. Is the world economy able to recover from the recession mentioned in the above case of
housing bubble? Explain.
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Q2.Has the above financial collapse affected all the countries equally? Name the country’s
most adversely affected.
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EXERCISE No. 18
Be a Research Scholar
Collect the business page of the newspaper for a month and prepare a report on the
following:

Name the Index and the Stock Exchange which is the basis of your report.

Study the trend of rise or fall of the stock market index.

Also note down the top five gainers and losers each day in the market.
WRITE A REPORT
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CBSE-i
CLASS – X ECONOMICS
STUDENTS’ MANUAL
EXERCISE NO. 19
Dragon Rules The World!
China's trade with Africa rose sevenfold during 2000–07 alone.
Chinese Investment Abroad
Top Target
The United Nations’ trade and development agency predicted global Foreign Direct Investment
flows would climb to $1.5 trillion this year and $2 trillion in 2012 from an estimated $1.2
trillion in 2010 with China remaining the top target. India and Brazil will trail as the No. 2 and
No. 3 recipients, according to the report.
China was the second-largest recipient of FDI in 2009, attracting $95 billion, behind the U.S.
with $130 billion, the United Nations said in a report in July. China estimated its FDI in 2009
at $90 billion.
China's trade with Africa rose sevenfold during 2000–07 alone.
--Chinmei Sung, Zheng Lifei, Li Yanping. With assistance from Jay Wang. Editors: Nerys
Avery, Paul Panckhurst
To contact the reporter on this story: Chinmei Sung in Taipei at csung4@bloomberg.net.
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CBSE-i
CLASS – X ECONOMICS
STUDENTS’ MANUAL
Victoria, a 10-year-old Polish girl living on 66th Street in Woodside, New York, has collected
more than 20 Barbie dolls.
When she was asked whether she knew which country made the Barbies, she shook her
head. "Mom said they are cheap and good," she said, "I like them dearly."
This New York-based Chinese journalist picked 20 toys at random from the shelves of Toys
"R" Us in Manhattan, New York, and found that all of them were made in China, evidence
perhaps that the presence of Chinese-made toys on the U.S. market in the Christmas shopping
season has not been affected by the recent spate of recalls.
1. In the above two news texts, the success of China as an emerging manufacturing hub of
various goods is evident. List all the reasons behind China’s success story?
2. Elaborate the reasons behind cheaper toys being manufactured in China?
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