Student Name: PRATIBHA KUMARI Registration Number: 1205030111 Subject Name: International Business Management

Course: MBA LC Code: 02835 Subject Code: MB0053

Q.1) The world economy is globalizing at an accelerating pace. Discuss this statement and list the benefits of globalization. Answer: Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Put in simple terms, globalization refers to processes that increase world-wide exchanges of national and cultural resources. Advances in transportation and telecommunications infrastructure, including the rise of the telegraph and its posterity the Internet, are major factors in globalization, generating further interdependence of economic and cultural activities. To begin with, globalization has contributed to the worlds economy in many valuable ways. The advances in science and technology have allowed businesses to easily cross over territorial boundary lines. Accordingly, companies tend to become more creative, competitive thus raising quality of goods, services and the worlds living standard. Secondly, several companies from the more developed countries have already venture to begin foreign operations or branches to take benefit of the low cost of labor in the poorer countries. This kind of business activity will provide more arrival of cash or asset funds into the less developed countries. However, one cannot reject the harmful effects which have resulting from globalization. One crucial social aspect is the risk and danger of outbreak diseases which can easily be multiply as the mode transportation is easier and faster in todays advance society. As large corporations spend or take over many off shore businesses, a modern form of immigration will also change which may fake certain power force on the local governments of the less developed countries. Unemployment rates in the more developed regions like Europe may also rise as corporations choose to outsource cheaper work force from Asian countries. Benefits of globalization Promotes foreign trade and liberalization of economies. Increases the living standards of people in several developing countries through capital investments in developing countries by developed countries. Benefits customers as companies outsource to low wage countries. Outsourcing helps the companies to be competitive by keeping the cost low, with increased productivity. Promotes better education and jobs. Leads to free flow of information and wide acceptance of foreign products, ideas, ethics, best practices, and culture. Provides better quality of products, customer services, and standardized delivery models across countries. Gives better access to finance for corporate and sovereign borrowers.
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 Increases business travel, which in turn leads to a flourishing travel and hospitality industry across the world.

Q.2) Compare the Adam Smith and David Ricardos theories of international trade with examples.

Answer: Adam Smith and David Ricardo argued that trade is positive sum game and not a zero sum game as mercantilists argued. Trade benefits everyone due to variety of reasons such as cost competitiveness, comparative advantages, absolute advantages, PLC cycle, factor endowments etc. Adam Smith attacked the mercantilism and argued that countries differ in their ability to produce goods and services efficiently due to variety of reasons. At that time, England, by virtue of their superior manufacturing processes, were the worlds most efficient textile manufacturers of the world. This was due to combination of several factors such as favourable climate, good soils, skilled manpower and accumulated experience and expertise in textile production. On the other hand, the French had one of the most efficient wine industries of the world. Thus, England had an absolute advantage in the manufacturing of textiles and France had an absolute advantage in the production of wine. Adam Smith argued that a country has an absolute advantage if it has one of the most efficient and cost effective product in comparison to any other country producing it. Smith argued that countries should specialize in production and manufacturing of goods and services in which they have an absolute advantage. Such cost effective and efficient products can be traded with goods from other countries in which that country has an absolute advantage. The crux of Smiths absolute advantage theory is that a country should not produce goods at home in which it does not have cost advantage; instead it should import from other countries. David Ricardo, in his notable book Principles of Political Economy published in 1817 came up with an improvement on Adam Smiths absolute advantage theory. Ricardo argued what might happen if one country has an absolute advantage in the production of all goods. Adam Smiths theory suggests that such a country might not have benefitted from international trade as trade is positive sum game and countries prosper only if they exchange the goods in which they have absolute advantage. Ricardo argued that it was not the case and showed that countries should trade goods with each other where they have comparative cost advantage. For a sustainable economic system, Ricardo argued that a country should specialize in the production of those goods that it can produce most efficiently and import the goods which it produces less efficiently even if it has absolute cost advantage in the production of those goods.

Q.3) Regional integration is helping the countries in growing their trade. Discuss this statement. Describe in brief the various types of regional integrations. Answer: Regional integration is a process in which states enter into a regional agreement in order to enhance regional cooperation through regional institutions and rules. The objectives of the agreement could range from economic to political to environmental, although it has typically taken the form of a political economy initiative where commercial interests have been the focus for achieving broader socio-political and security objectives, as defined by national governments. Types of Integration Preferential trading agreement Preferential trading agreement is a trade pact between countries. It is the weakest type of economic integration and aims to reduce taxes on few products to the countries who sign the pact. The tariffs are not abolished completely but are lower than the tariffs charged to countries not party to the agreement. Free trade area Free Trade Area (FTA) is a type of trade bloc and can be considered as the second stage of economic integration. It comprises of all countries that are willing to or agree to reduce preferences, tariffs and quotas on services and goods traded between them. Countries choose this kind of economic integration if their economical structures are similar. Custom union Custom Union is an agreement among two or more countries having already entered into a free trade agreement to further align their external tariff to help remove trade barriers. Custom union agreement among negotiating countries may encompass to reduce or eliminate customs duty on mutual trade. Common market Common market is a group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members. European community is an example of common market. Common markets levy common external tariff on imports from non-member countries. Economic union Economic union is a type of trade bloc and is instituted through a trade pact. It comprises of a common market with a customs union. The countries that are part of an economic union have common policies on the freedom of movement of four factors of production, common product regulations and a common external trade policy. The purpose of an economic union is to promote closer cultural and political ties while increasing the economic efficiency between the member countries. Political union A political union is a type of country, which consists of smaller countries/nations. Here, the individual nations share a common government and the union is acknowledged internationally as a single political entity. A political union can also be termed as a legislative union or state union.

Q.4) Write short note on: a) GATS (General Agreement on trade in services) b) ILO (International Labour organization) Answer: General Agreement on Trade in Services (GATS) GATS is a framework agreement defining the rules under which trade in services must occur. GATS aim at extending the rules covering trade in goods to trade in services. A detailed rule has been included to take into account the differences between goods and services and the way in which trade in services is conducted. Trade in services cover a wide range of activities in the area of telecommunication, information, banking, insurance and education. The main objective of GATS is to establish a framework for liberalizing trade in services. It encourages countries to modify their domestic regulations. This modification results in elimination of restrictions applied to service products entering the country and is applicable to international service suppliers who are carrying out business in various modes. According to the GATS, MFN status and transparency is applicable to all services. Other commitments such as national treatment and market access are only applicable to services that are opened according to the specified negotiated commitments. GATS covers services known as consumption abroad where services such as e-commerce are used by the consumers in a host country and citizens of a country travel overseas to consume products such as tourism or education. International Labour Organization (ILO) is a specialized agency of the United Nations which deals with labour issues. The headquarters is situated in Geneva, Switzerland. The secretariat comprises of the people employed by the organization throughout the world. The secretariat is known as the International Labour Office. Four strategic objectives: fundamental principles and rights at work and international labour standards employment, sustainable enterprises and income opportunities social protection social dialogue and tripartite consultations The ILO manages work through three main bodies. They are: International Labour Conference: The members of the ILO meet at the International Labour Conference every year in June, in Geneva. Two government delegates along with an employer delegate and a worker delegate represents their respective member state. Governing Body: The executive council of the ILO is known as the Governing Body. It meets thrice a year in Geneva and takes decisions on the ILO policies. It forms programmes and budgets which are submitted to the Conference for adoption International Labour Office: The permanent secretariat of the International Labour Organization is the International Labour Office. It is the central point for all activities that are administered by the governing body.

Q.5) What is the difference between domestic and international accounting and how will you measure this difference? Answers: Domestic vs. international accounting Different countries whether domestic or international, has different accounting standards. A common belief is that these differences reduce the quality and importance of accounting information. Accounting standards determine the financial reporting quality and provides separately verified information about an organizations financial performance to investors creditors. Though there are differences in accounting methods, domestic businesses are not affected. The accounting system of a domestic organization must meet the specialized and regulatory standards of its home country. But, an MNC and its subsidiaries must meet differing accounting and auditing standards of all the countries in which it operates. This leads to a need for comparability between businesses in the group. In order to successfully manage and organize their operations, local managers require accounting information, which should be prepared according to the local accounting concepts and denomination in the local currency. Yet, for financial controllers, to measure the foreign subsidiarys performance and worth, the subsidiarys accounts must be translated into the organizations home currency. This translation is done using accounting concepts and measures, which are detailed by the organization. Investors worldwide look for the highest possible returns on their capital, in order to interpret the track record, though they use a currency and an accounting system of their own. The organization also has to pay taxes to the countries where it does business, based on the accounting statements prepared in these countries. Besides this, when a parent corporation tries to combine the accounting records of its subsidiaries to produce consolidated financial statements, extra complexities occur because of the changes in the value of the host and home currencies. There are many differences between International Accounting Standards (IAS) and Domestic Accounting Standards (DAS). On the basis of difference between the two, two indices, namely 'divergence' and 'absence', are created. Absence is the difference between DAS and IAS; the rules on certain accounting issues are missed out in DAS and covered in IAS. Divergence represents the differences between DAS and IAS; the rules on the same accounting issue differ in DAS and IAS. Measurement of differences between IAS and DAS You can measure the differences between IAS and DAS in the following way: Literature on international accounting differences Referring to earlier reports on international accounting could give more information about the subject. Most of the earlier reports understand international accounting differences as various options adopted by nations for the similar accounting problems, which correspond to divergence concept. Framework of analysis Links between variations in accounting standards and financial reporting quality of various countries could be clearly seen from the reports published earlier. We should consider the institutional determinants of accounting differences such as legal origin, governance structure, economic development, and equity market.

Q.6) Discuss the various payment terms in international trade. Which is the safest method and why? Answer: The various payment terms in international trade are: 1. Cash in advance clearly is risk-free except for consequences associated with the potential nondelivery of the goods by the seller. Cash in advance is usually a wire transfer or a check. it is often preferred because it is speedy and does not bear the danger of the check not being honored. The check can be at a disadvantage if the exchange rate has changed significantly by the time it arrives, clears and is credited. On the other hand, the check can make it easier to shop for a better exchange rate between different financial institutions. 2. The letter of credit is the most secure instrument available for international traders. This is the commitment made by the bank that the payment will be made to the exporter if the terms and conditions are met. The terms and conditions of the payment are explained in the required documents. 3. Documentary collection is a transaction in which, the exporter's bank (remitter bank) sends the documents to the importer's bank (collecting bank). The document contains information about the payment. The funds are collected from the importer and paid to the exporter through the banks involved in the collection, in exchange for the documents. 4. The open account transaction involves the shipping and delivery of goods in advance. The payment is due usually from 30 to 90 days. This is advantageous for the importer in cash flow and cost terms, but at the same time it is very risky for the exporters. Buyers from abroad stress on open accounts since the extension of credit from the seller to the buyer are more International common in many countries. Exporters who avoid extending credit may face loss in the sale because of competitors in the market. Letters of credit (LCs) are one of the safest instruments available to international traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the LC have been met, as verified through the presentation of all required documents. The buyer pays his or her bank to render this service. An LC is useful when reliable credit information about a foreign buyer is difficult to obtain, but the exporter is satisfied with the creditworthiness of the buyers foreign bank. An LC also protects the buyer because no payment obligation arises until the goods have been shipped or delivered as promised.