Understanding Trading, Investing and Foreign Exchange!

Understanding Trading

This article will delve into the various topics related to supply chain, such as trading globally, investing abroad, foreign exchange markets, and trade agreements. These ideas and concepts are key in the overall understanding trading, investing and foreign exchange, and the process of the supply chain and it gives many key benefits that propel companies to more successful opportunities.

Also, these current events and issues allow for scholars, supply chain managers, companies, and any other player involved within the supply chain to further their understanding of what is working and what is not effective for the success of the supply chain and their business within the process.

Furthermore, the supply chain is one of the most important aspects to any business, big or small. Without supply chain, the modern business could not survive or thrive in this market. This wonderful business aspect, supply chain, is defined as the entire process of making and selling commercial goods, including every stage from the supply of materials and the manufacture of the goods through to their distribution and sale.

Essentially the sole purpose of a supply chain is to make the most efficient process possible for companies to deal with.

            Supply chains, when operated efficiently, have several beneficial factors to offer an organization. When supply chains are working efficiently, it enables companies to enjoy lower costs and a much quicker production cycle. Supply chain management also helps companies to reduce risk throughout their processes as well as enables a smoother operation.

In a business, companies always try to find ways to cut costs and find more efficient ways of operation. These two traits can be achieved through an effective supply chain. This is the main reason why companies put such a massive importance on their supply chain management. But if a companyhas a poor or inefficient supply chain, it could break their company.

Before delving into a business or major operation, it is essential to research and understand the ins and outs of a supply chain. All in all, the supply chain is such a powerful tool that it could quite literally make or break a company.

Global Trade

            Global trade to the supply chain is one of the most influential and important aspects to the overall process of the supply chain. One tool that has been a part of global trade has been outsourcing. A lot of companies rely on outsourcing to other countries for advantages such as cheaper labor, increased efficiency, easier access to resources, tax benefits, etc.

Outsourcing also allows for companies to enjoy a competitive advantage over their fierce competitors. Another reason why global trade is so vital to companies and the economy is due to the fact that the trade expands the market and eases the accessibility for goods and services that may have been difficult before.

Thus, global trade within the supply chain doesn’t just benefit the companies and producers, but is also beneficial towards the consumer, as competition drives prices down. All in all, it is very evident that global trade is one of the successful driving factors of the modern supply chain. 

With the importance of supply chain on the rise, global trade has hit a record high in 2021. This record high in global trade comes to no surprise as this record came right after the negative effects of COVID-19. Also, the use of the supply chain was a crucial tool that helped resurrect the economy as well as the well-being of the world.

This record high is highlighted as the value of global trade reached a record level of $28.5 trillion in 2021, which is an increase of 25% on 2020 and 13% higher compared to 2019, before the COVID-19 pandemic struck.[1] Although 2021 enjoyed this record high, the rise mainly happened in the first half of the year, with steady growth in the second half of the year.

Additionally, with a strong fourth quarter rise in trade, almost at 200 billion dollars, this record high reached 5.8 trillion dollars.[2] One of the big additions to the economy from this rise in the supply chain, post COVID, was the growth of trade in developing countries. By gaining more participants into the supply chain, with the addition of developing countries, the world-wide economy and supply chain can continue to grow.

Overall, the supply chain was hit with a major blow during COVID, but was able to bounce back stronger than ever due to a major increase in the trade of goods as well as the addition of newly developing countries to the supply chain.

Foreign Exchange Markets

            When dealing with the supply chain, understanding the foreign exchange market is vital. The foreign exchange market is a massive part of the global financial system and helps propel the economy worldwide. The foreign exchange is crucial in sustaining efficiency and arbitrage conditions in most other international financial markets, including the bond, stock and derivatives markets.[3] 

The pricing mechanisms of the FX market affect financial conditions, resource utilization and inflation, and so a proper understanding of these mechanisms is at the heart of central bank mandates and operations in many countries around the world.[4]

For the Riksbank, an inflation targeting central bank in a small open economy, understanding the drivers and fundamentals of the krona exchange rate, and how the FX market structure is evolving, is important to monetary policy and financial stability.[5] 

Essentially, the foreign exchange market is an incredible tool that propels the economy and supply chain onwards. Also, the supply chain can not operate without the foreign exchange market, deeming it a very essential financial tool.

Trade Agreements

            One of the most important aspects of the supply chain are the trade agreements that occur among trading partners. The topic of trade agreements is usually misunderstood and underestimated. Most individuals think of trade agreements on the base level of just trade restrictions at the border.

But, these trade agreements cover regulatory standards, health and safety rules, investment, banking and finance, intellectual property, labor, the environment, and many other subjects.[6] They reach well beyond national borders and seek deep integration among nations rather than shallow integration that people usually view trade agreements as.

Overall, trade agreements allow the supply chain to work more smoothly and coherently when countries are in “agreement” with one another. 

            When companies interact amongst each other in a supply chain, they look for preferential trade agreements. PTA’s help a lot with border restrictions and make the ease of business smoother between companies in the supply chain. In addition to reducing barriers at the border, modern PTAs remove many behind-the-border barriers by regulating foreign direct investment (FDI), liberalizing services, and protecting intellectual property rights.[7] 

Modern PTAs do not only include tariff reductions, but they also regulate investment, intellectual property rights (IPRs), competition policy, and government procurement, to mention only a few.[8] In other words, PTAs do not remove barriers only at the border, but also behind the border, producing what has been referred to as deep integration between countries.[9] 

With this being said, it is quite obvious how important it is for companies to obtain PTA’s when dealing with other companies and countries within the supply chain worldwide. Essentially, PTA’s enable a smoother operation in the supply chain process.

Conclusion

All in all, supply chain is one of the most important aspects to any business, big or small. Without supply chain, the modern business could not survive or thrive in this market. Essentially the sole purpose of a supply chain is to make the most efficient process possible for companies to deal with.

Bibliography

UNCTAD Editors. “Global Trade Hits Record High of $28.5 Trillion in 2021, but Likely to Be Subdued in 2022.” UNCTAD, 17 Feb. 2022, https://unctad.org/news/global-trade-hits-record-high-285-trillion-2021-likely-be-subdued-2022

Nordstrom, Amanda. “Understanding the Foreign Exchange Market – Riksbank.” Understanding the Foreign Exchange Market, https://www.riksbank.se/globalassets/media/rapporter/pov/artiklar/svenska/2022/220314/2022_1-understanding-the-foreign-exchange-market_sv.pdf.

Rodrik, Dani. “What Do Trade Agreements Really Do?” Journal of Economic Perspectives, https://www.aeaweb.org/articles?id=10.1257%2Fjep.32.2.73. 

Baccini, Leonardo. The Economics and Politics of Preferential Trade Agreements. https://www.researchgate.net/profile/Leonardo-Baccini/publication/327301570_The_Economics_and_Politics_of_Preferential_Trade_Agreements/links/5b874661299bf1d5a7311b77/The-Economics-and-Politics-of-Preferential-Trade-Agreements.pdf.


[1] UNCTAD Editors. “Global Trade Hits Record High of $28.5 Trillion in 2021, but Likely to Be Subdued in 2022.” UNCTAD

[2] UNCTAD Editors

[3] Nordstrom, Amanda. “Understanding the Foreign Exchange Market – Riksbank.” Understanding the Foreign Exchange Market

[4] Nordstrom, Amanda

[5] Nordstrom, Amanda

[6] Rodrik, Dani. “What Do Trade Agreements Really Do?” Journal of Economic Perspectives

[7] Baccini, Leonardo. The Economics and Politics of Preferential Trade Agreements

[8] Baccini, Leonardo

[9] Baccini, Leonardo

Understanding Trading article and permission to publish here provided by Jacob Tracz. Originally published on Supply Chain Game Changer on April 29, 2023.

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