Text 25: how the markets work

Organized markets in primary commodities are an important part of the facilities available in the United Kingdom for the conduct of international trade. Markets in primary commodities are found in many countries abroad, some transacting a far greater volume of business than the corresponding markets in the United Kingdom; but these foreign markets are mainly concerned with domestic demand or domestic supply. The distinguishing feature of the U.K. markets is their international character, in the sphere of international merchanting, that is, buying from one country and selling to another, and in the variety of commodities in which they deal, they are collectively the most important in the world. They have their origins in the history of British exploration and investment overseas and industrialization at home, and in the consequent growth of the United Kingdom's world-wide trading links. Because they are international markets, however, they also benefit the economy in two special respects. Firstly, in attracting business from overseas the U.K. markets play an important part in the use of sterling as an international currency. Their existence has undoubtedly made foreign traders more ready to hold sterling and to settle an important part of their international transactions in it. Secondly, there is the benefit of increased invisible earnings. In addition to the profits and commissions earned by the markets direct, a more significant contribution to the UK balance of payments is made by the banking, insurance and shipping services which are employed by commodity traders in the execution of contracts made in the UK markets.

It is customary for these contracts to be drawn up on c.i.f. terms, in which the charges for insurance and freight to the port of destination are included in the contract price, and it follows that bank credits to finance such transactions undertaken by UK merchants, and other related freight and insurance contracts, will tend to be arranged in the United Kingdom.

Text 26: gross domestic product

Gross Domestic Product or GDP is the amount of money a country makes from goods and services inside the country for a certain period of time, usually for a year.

When GDP is calculated different sectors of economy are analysed.

In the United Kingdom the following sectors of economy are usually analysed: manufacturing, services (financial, professional and scientific services, leisure and tourism), energy (oil, natural gas, coal) and agriculture. In the United States the following sectors of economy are usually analysed when the GDP is defined: construction and manufacturing; trade and finance; transport, communication and services; agriculture; and mining.

Speaking, as an example, about one of the recent year's GDP figures, the following can be quoted.

In the U.K. the services sector accounted for roughly 60 per cent of Gross Domestic Product. Manufacturing sector accounted for a small percentage of gross domestic products. Energy production sector accounted for about 8 per cent of GDP. Agriculture - only for 4 per cent of GDP. But the agricultural sector satisfies two-thirds of the country's needs. And only a small fraction of the total population, about 2 per cent, are engaged in agriculture.

In the U.S.A. the construction and manufacturing sector accounted for 40 per cent of GDP; trade and finance earned 25 per cent of GDP; transport, communication and services sector earned 20 per cent of GDP; agriculture and mining earned 5 per cent of GDP. By the way 10 per cent of the employed population of the United States is engaged in agriculture.