Institutions
Globalization led to the increase of the business associations among the countries within the world. As a regulating factor, international organizations bring in a way to conduct such activities so that they proceed in a harmonious manner. The International Monetary Fund and the World Trade Organization are among these international organizations. India and the US conduct numerous business transactions between themselves, and the above mentioned organizations make it convenient for the two countries to cooperate.
The International Monetary Fund (IMF) The IMF is an international organization that came into being in July 22, 1944 to organize the international payment system after World War II. Initially, it had 45 member states, but it currently consists of 188 member states. The organization’s members avail money through a quota system. Countries with imbalances in payments can temporarily borrow money from IMF. The organization aims at improving the economies of its member states by ensuring their financial securities and promoting world-wide monetary flow.
The facilitation of international trade is also a mission for this organization. Furthermore, increasing of employment rates and reduction of poverty among member states is also a function of the IMF. It carries out these functions by overseeing the formulation of economic and monetary policies among member states (Blanco & Carrasco, 1999). The World Trade Organization (WTO) The World Trade Organization seeks to oversee and liberalize international trade among its member states. On January 1, 1995, the organization came on the world stage to provide a platfrm for member states to parley and devise trade agreements. It also provides a means of resolving the conflicts among the member states on international trade by formulation the WTO agreements signed by each member state.
From its conception, it sought to strengthen and maintain existing trade agreements as well as form the new ones. The WTO aids developing, low-income and least-developed countries to comply with its rules by training and technical cooperation (Hoekman, 2002). Trade between India and the USIndia and the US carry out a significant amount of trade among themselves. It makes both countries rank top in the world according to purchasing power parity and economic development. The two countries have two-way profitable trade relations due to their exploitation of the comparative advantage and factor endowment theories in their trade. The factor endowment theory applies in both countries as India has an abundance of labor for mass production of goods for export to the US.
The high population within the country gives it a massive employee base. The fact that skilled labor is prevalent in India makes the country even better placed than most countries in terms of personnel. This enables the country to develop the industries and organizations and be confident in their employees, who can run them successfully giving it absolute advantage. These organizations can aid in the production of goods as well as entrepreneurship within the country to provide India with numerous goods and services to trade with the US. Conversely, the US has an abundance of entrepreneurship and money that could be used for manufacturing within the country.
The excess of manufacturing countries enables the US to provide goods such as electronics and equipment that are costly to manufacture. Therefore, it gives the country a comparative advantage over India. Therefore, the US can trade with India in a way that is beneficial for both countries. Significance of WTO and IMF to India and the US The IMF can assist India in funding and help develop the industries so as to increase the employment rate within the highly populated country. The poverty level in the country is considerably high, and the assistance of the IMF can aid in the development of policies and provision of loans to reduce the poverty level.
The trade between the US and India requires a change in currency as the two countries use different denominations of currency. The IMF regulates the exchange rates of these currencies to reduce losses due to currency change (Bahmani-Oskooee & Mitra, 2008).The WTO aids the trade between the two countries by enabling the agreement and formulation of tax incentives that can reduce the cost of trade. The incentives on certain goods at customs during import and exports foster improvements in trade relations and magnitudes. Conclusion The WTO and IMF are international organizations that provide the conduction of international transactions such as money transfers and business activities.
The IMF aids the transfer of currency between the US and India and provides its security, while the WTO formulates regulations that guide these business activities. The two countries can apply the theories of absolute advantage, comparative advantage and factor endowment to maximize profits in their business transactions.
