Imagine that you run a country.
It doesn’t have to be that big of a country. It doesn't even need to have to a navy. The only thing that your country needs to do is produce...something.
Let’s say you produce an incredibly large amount of corn at an average of $4.00 per bushel. However, a neighboring country is a bit more technologically advanced than you are. They have better fertilizer, better irrigation, and better soil moisture. Your country's fertilizer is crap (literally), your water is contaminated, and your dirt is dry as a bone.
The neighboring country can produce corn for $3.00 and ship it to your nation’s customers for 50 cents. Which means they can export corn to your country for $3.50 while your farmers can only bring their corn to market for $4.00.
Naturally, your customers want the cheaper corn that isn’t grown in crap. But you can’t let your farms fail. So what do you do to protect your country?
You throw up a customs barrier, making it impossible for the neighboring country to export corn to your nation at a price that would even come close to matching your farmers’ price.
Perhaps you put up an utterly irrational import tax along the lines of $1.50. That would make your neighbor's corn $1 higher than your domestic market. Your customers won’t be happy, but your farmers will work hard to re-elect you, because you looked out for them.
Human history has so many great examples of top-down government control over the agricultural system, eh?
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Finance: How do foreign parties affect t...0 Views
Finance allah shmoop How do foreign parties affect transaction costs
They make them higher Yeah buying a basket of cheese
from the local safeway or alberts in store in paying
for us dollars is way easier and cheaper Transactional ethan
buying a similar basket of cheese from france and paying
for it in euros and france So other than in
world war two a big one is generally perceived as
being reliable stable So in the case of cheese dealing
with frances easy relatively easy anyway But what happens when
you want a similar cheese basket from the somalian warlord
christmas collection gift basket of cheese for the holidays Huge
risk not just in currency but in shipping in a
well in your life And trust of course like which
warlord will be on top that week If you pay
the money up front like they demand will the cheese
ever show up And if it does you know Will
there be a bomb in it Or another warlords head
Or maybe there's some other body part on anyway So
dealing across or outside of u S borders carries more
risk When you transact and surprise surprise it carries more
reward as well If you're an investor think about buying
u S treasury bonds the safest most norman of investment
you could make They pay like in two or three
percent return for a five year bond And well if
you make the same investment in bonds backed by the
french government these days well they pay about four and
a half percent Why well more inflation in france More
risk One of my bonds backed by the sum holien
government Yeah like there You've got to get one hundred
ninety seven percent interest rate and good luck collecting Should
those bonds ever default Note that there's a lot more
risk being a u S citizen investing in bonds overseas
versus a local buying locally that is many countries give
priority to their own citizens in collecting on government debt
You know debts owed by their own country versus them
damn foreigners throwing their capital in the mix The u
S is distinctively egalitarian in this way going out of
its way to treat all investors all around the world
equally the same way they would treat their own citizens
are u S citizens investing in u S Securities and
as a result of being extremely fair in equal ish
we've attracted mounds and mounds of capital from all over
the world They trust us Yeah it's where so much 00:02:22.41 --> [endTime] We print it right onto our currency Nothing
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