Two Basic Economic problems€------€1) How to produce wealth

2) How to distribute wealth

Why is there continual turmoil in the political environment after the fall of th
e Soviet Union€------€Because there is no bipolar system of power. The communist sy
stem controlled many countries which are now in regional warfare.
Communist way of tackling the two basic economic problems:€------€1) Joint productio
n (here is were communism fails, because no one wants to work at maximum efficie
ncy because there is no incentive to do so)
2)Equal distribution of wealth
Consequences of the fall of the Soviet Union€------€Instead of one big enemy, we wer
e left with many small enemies. We lost the balance of power, stability and con
trol.
Because of the fall, there was (is) a higher risk of regional wars, and made it
near impossible to have a solid foreign policy.
Neo conservatives€------€a political group that created the concept of pre-emptive d
efense.
Are we living in a transitory period today?€------€Yes, because there is no politica
l system for world peace without another super power.
What is Socio-cultural-economic environment? (aka Globilization)€------€Think of his
example of Princess Dianas death, and the many products and nations involved.
Where does the world become interdependent?€------€1)National Level
2)Personal level
Globalization€------€Growing social/cultural/economic interdependence of countries a
betted by the recent technology.
Sociological aspect of globalization provides:€------€A sense of global unity (aka d
eterritorialization)
Cultural aspect of globalization provides:€------€"the west on the rest" and cultrua
l convergencec. Meaning that the cultures of the west are impacting the rest of
the world, and cultures which at one time were very unique, are not converging
into new cultures.
Political aspect of globalization provides:€------€process of losing the sovereighty
of the nation state. Note here that this is also an important drawback to F.D.
I.
Economic aspect of globalization provides:€------€acceleration of cross border trans
actions, more international trading. Since globalization the world GDP has incr
eased from 2 trillion (1965) to 30 trillion (2000). Trade has increased from 2
trillion to 6 trillion.
List the importance of each of the three factors of Globalization€------€1) Technolo
gical development has yielded the "death of distance", as well as time and space
compression by new technology, and example of such being satellites and the jum
bojet.
2) Institutional arrangment: having international committees has forwarded globa
lization, such as the WTO, IMF, and the OECD
3) Deregulation/Liberization by governments themselves has also spurred on glob
alization.
What is the Janus face of globalization and list its factors.€------€The Janus face
is the postive and the negative aspects of each factor for globalization.
1)Economic Prosperity --> income disparity (rich get richer, poor get poorer)
2)More interdependence ---> more insecurity at the national level
3)Cultural convergence --> cultural decay
4) "Pollution Halo" ---> "Pollution haven" (poorer countries with less stringet
environmental controls will yield companies who pollute like hell)
5)Cost saving to MNCs develop local economies ---> Job flight (loss) and the exp
loitation of cheap labor
What are some of the impacts, if any, of globalization on MNCs?€------€1) Globalizat
ion is the process of losing soverighnty of the nation state to the MNCs (note:
Canada). the power of the MNCs override a countrys ability to control their own
economy.
2) The size of economic activities increase with globalization (500 MNCs control
70% of trade, 200 MNCs produce more than 1/3rd of the worlds output).
3) It also creates a "borderless market" where national boundries become meaning
less
4) Globalization developed the use of strategic alliances (look at Daemlyr-Cryst
ler) which formed stateless corporations where the nationality of firms/products
become obscure.
New Rule of the game under Globalization€------€If you arnt globally competitive, yo
u cant survive even in your own domestic market.
Definition of International Business€------€Sudy of any business activity conducted
across national boundries either by provate or government sectors.
Rule of Transfer€------€"Law of One Price" dictates the transfer of goods, from the
low priced market to high priced market (think of it as the opposite to the law
of gravity)
What are the two ways of implementing the rule of Transfer:€------€1) Arbittrage: wh
ere you buy/sell from/to different places. This tactic must be carried out quic
kly, because time is of the essence
2) Speculation: "buy now low, sell later at a high price".
Objective of the Economist€------€Maximise efficiency of the use of scarce resources
.
Objective of business€------€How to maximize return to shareholders.
How does International Economics differ from International Business?€------€I.B. pay
s more attention to behavioral aspects, whereas I.E. does not.
What is the Balance of Payment?€------€a summary of International Business activitie
s of one country, which uses a double entry system to reflect a countrys "extern
al liquidity" position. The balance of payment uses a Credit and Debit System,
where cash flows in are a "Credit" and cash flows out are a "Debit"
What does "External Liquidity" mean?€------€It is a countrys ability to meet foreign
claims and to buy foreign goods and services, in the amount of internationally
acceptable currency.
What are the major accounts included in the Current Account in the Balance of Pa
yment, and what subaccounts are included within it?€------€I. Current account includ
es the:
a) Merchandise account b) Services account (which then include the Travel and Tr
ansport, Fees, and Income Abroad accounts) and c) Unilateral Transfers (one way
transfer of funds, such as gifts, aid, etc.)
The Merchandiese account yields the Merchandise Balance, the Services account ye
ilds the "Trade Balance" and with the addition of the Unilateral Transfer accoun
t it yields the overal "Current Account Balance".
What are the Major accounts included in the Capital Account in the Balance of Pa
yment?€------€The Capital Account when added together is the Basic Balance. This re
flects the ability of a country to pay for goods and services and to pay foreign
debt. Included in the Capital account are the:
a) Long Term Capital Account (such as FDI and Loans)
b) Short term Capital Account (such as Certificates of Deposit [CD] and Money Ma
rket Instruments [MMI]. The S.T.C.A does not truley reflect a countrys ability
to pay for debt.
What are the major accounts included in the Official Reserve Account in the Bala
nce of Payment?€------€The Official Reserve Account shows what changes are occuring
on the Balance of Payment. It includes a) Gold and Foreign Exchange (F.X.) and
b) S.D.R (Special Drawing Right) which is the right to print money.
When this account is added to all the other accounts, it will yield an "Overall
Balance"
What is the effect of a deficit/surplus on the Balance of Payment?€------€If there i
s a deficit, the value of the countrys economy will decrease, and if there is a
surplus, the value will increase.
What are the three economic variables that can affect the BOP?€------€1)Inflation:
This will always influence the BOP condition. High inflation is a negative impa
ct on BOP.
2)Interest Rate: A high interest rate yeilds higher inflow of foreign money, ye
ilding a more positive B.O.P.
3)National Income increase: When our income goes up, consumers begin to buy lar
ge quantities of foreign goods and services, thus decreasing our B.O.P.
What are the external and internal reasons for the 600 Billion dollar U.S. merch
andise deficit?€------€External Reasons:
1)Lack of reciprocity: we open our markets to almost everyone, but they wont ope
n theirs to the extent to which we open ours
2)Foreign governments subsidies: these create an artifical market and means that
there isnt a "true" market, and trade becomes managed trade, not fair trade.
Internal Reasons
1) The U.S.s inefficient management of cash
2)Strong Regulation of environment and saftey causes massive cost increases
3)Cultural insenstivity (we assume that if it works in the U.S. it will work eve
rywhere else)
4)Inflexible labor market (even if the market goes south, you cant lower salarie
s or fire people because of unions etc.)
5) Political objectives
6) Lack of government support to business
7) Exports have been replaced by F.D.I of U.S. companies in foreign markets.

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[blink]INTERNATIONAL BUSINESS[/blink]
Time : Three hours Maximum : 100 marks
PART A — (5 * 8 = 40 marks)
Answer any FIVE questions.
1. Define International business and It’s objectives.
2. What are the classification of International business?
3. What is a multinational corporation? and state It’s concept and strategy.
4. Write a brief note on ASEAN.
5. State the objectives of UNCTAD.
6. Explain dispute settlement under WTO.
7. Explain the procedure for international commercial Arbitration?
8. What is TRIMS? What are the essential features of TRIMS?

PART B — (4 *15 = 60 marks)

Answer any FOUR questions.
9. Explain the various factors influencing international business.
10. Discuss the role of NAFTA. Ec in international business of it’s member countri
es.
11. Briefly explain the kinds of collaboration and joint ventures.
12. Explain WTO’s structure functions and areas of operation.
13. What are the main problems faced by developing countries in increasing their
exports? Discuss the role of UNCTAD in this connection.
14. Briefly explain environmental aspects in international business.
15. Explain the pull and push factors of foreign investments.