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NOTE: All
questions are compulsory.
Q1. (a) Briefly
explain the political and economic environment of International Business.
The political
and economic environment of international business refers to the factors and
conditions that influence business activities and operations across national
borders. These factors can significantly impact the success and profitability
of international businesses. Here is a brief explanation of the political and
economic environment in international business:
Political
Environment: The political environment encompasses the laws, regulations,
government policies, and political stability of a country. It includes factors
such as:
Legal and
Regulatory Framework: Different countries have their own legal systems and
regulations governing business activities. These can include trade laws,
intellectual property rights, labor laws, and environmental regulations.
Understanding and complying with these laws is crucial for international
businesses.
Government
Policies: Governments may enact policies that directly or indirectly affect
international business operations. These policies can include tax policies,
trade restrictions (tariffs, quotas), foreign investment regulations, and
subsidies. Political stability and predictability of government policies are
essential for creating a favorable business environment.
Political
Risks: Political instability, changes in government, civil unrest, and
geopolitical conflicts can pose risks to international businesses. These risks
can disrupt operations, create uncertainty, and impact investment decisions.
Economic
Environment: The economic environment refers to the economic conditions and
factors that influence international business. It includes:
Market Size and
Potential: The size and growth potential of a country's market influence
business decisions. Large and growing markets offer opportunities for expansion
and higher sales potential.
Economic
Development: The level of economic development, infrastructure, and the overall
business climate in a country are crucial considerations. Developed economies
generally offer more stability, better infrastructure, and higher consumer
purchasing power.
Exchange Rates
and Currency Fluctuations: International businesses must consider exchange
rates and currency fluctuations as they can impact profitability, pricing
strategies, and cost management. Exchange rate risks can affect the
competitiveness of products or services in foreign markets.
Trade Policies
and Agreements: Trade policies, including import/export regulations and free
trade agreements, shape international trade flows and market access.
Understanding these policies is vital for businesses engaged in cross-border
trade.
Economic Risks:
Economic risks such as inflation, recession, interest rates, and economic
volatility can significantly impact international businesses. These risks can
affect consumer demand, investment decisions, and overall business performance.
To succeed in
international business, companies need to carefully analyze and adapt to the
political and economic environment of the countries in which they operate. This
requires a thorough understanding of local laws, regulations, market
conditions, and potential risks. Additionally, building relationships with key
stakeholders and staying updated on political and economic developments is
essential for effective decision-making and risk management.
(b) What
do you mean by disequilibrium in balance of payments. What are the causes behind
it? How can it be corrected.
Disequilibrium
in the balance of payments refers to a situation where a country's payments for
imports and payments received from exports are not balanced. It occurs when
there is an imbalance between a country's inflows and outflows of foreign
currency.
Trade
Imbalance: If a country imports more goods and services than it exports, it
creates a trade deficit, which contributes to a disequilibrium in the balance
of payments. Factors such as changes in global demand, competitiveness of
domestic industries, and exchange rates can affect trade imbalances.
Capital Flows:
Unequal inflows and outflows of capital can also contribute to disequilibrium.
Excessive capital outflows, such as foreign investment or debt repayments, can
result in a deficit. Conversely, significant capital inflows, such as foreign
investments or loans, can lead to a surplus.
Exchange Rate
Fluctuations: Changes in exchange rates can impact a country's balance of
payments. A depreciation in the domestic currency can boost exports but
increase the cost of imports, potentially worsening the imbalance. Conversely,
a strong domestic currency can make exports less competitive and encourage
imports.
Terms of Trade:
Changes in the terms of trade, which refers to the ratio of export prices to
import prices, can affect the balance of payments. If the terms of trade
deteriorate, meaning export prices fall relative to import prices, it can
contribute to a trade deficit.
Correction of
Disequilibrium in the Balance of Payments: To correct disequilibrium in the
balance of payments, countries can employ various measures:
Fiscal and
Monetary Policies: Governments can implement fiscal policies, such as reducing
government spending or increasing taxes, to reduce domestic demand and imports.
Monetary policies, such as adjusting interest rates or managing the money
supply, can influence capital flows and exchange rates.
Trade Policies:
Governments can use trade policies, such as tariffs, quotas, or export
promotion measures, to encourage exports and discourage imports. These policies
aim to improve the trade balance and reduce the overall imbalance.
Exchange Rate
Adjustments: A country can adjust its exchange rate to correct imbalances. A
depreciation in the domestic currency can make exports more competitive and
reduce imports. However, exchange rate adjustments need to be carefully
managed, as they can have broader economic implications.
Structural
Reforms: Implementing structural reforms to enhance competitiveness,
productivity, and diversification of the economy can help correct imbalances in
the long term. This can involve investments in infrastructure, education,
research and development, and improving the business environment.
International
Cooperation: Countries can work together through international agreements and
organizations to address imbalances in the balance of payments. This can
include negotiations on trade policies, exchange rate coordination, or
financial assistance programs.
It's important
to note that correcting disequilibrium in the balance of payments is a complex
and multifaceted task that requires a comprehensive approach. Governments need
to consider a combination of policies and strategies tailored to their specific
circumstances and objectives.
Q2.
Briefly explain the areas of international trade disputes. Explain the methods
of settling the trade disputes along with advantages and disadvantages.
International
trade disputes can arise in various areas, often involving disagreements or
conflicts between countries regarding trade practices, policies, or specific
trade-related issues. Here are some common areas of international trade
disputes:
Tariffs and
Trade Barriers: Disputes can arise when countries impose tariffs, quotas, or
other trade barriers that hinder the free flow of goods and services across
borders. These disputes can involve allegations of unfair trade practices,
discriminatory measures, or violations of international trade agreements.
Subsidies and
Dumping: Disputes can occur when one country provides subsidies or engages in
dumping practices, which involve selling goods in foreign markets at prices
below their production costs. These actions can be seen as unfair competition
and can harm domestic industries in the importing countries.
Intellectual
Property Rights (IPR): Disputes related to intellectual property rights can
arise when countries fail to adequately protect and enforce patents,
copyrights, trademarks, or other forms of intellectual property. These disputes
can involve allegations of piracy, counterfeiting, or unauthorized use of
intellectual property.
Sanctions and
Embargoes: Disputes can occur when one country imposes sanctions or embargoes
on another, restricting or prohibiting trade with that country. These measures
are often used for political reasons and can lead to trade disputes and
economic tensions.
Negotiation and
Consultations: Countries can engage in bilateral or multilateral negotiations
and consultations to resolve trade disputes. This involves direct discussions
between parties to find mutually agreeable solutions and reach a compromise.
Dispute
Settlement Mechanisms: Many countries are members of international
organizations, such as the World Trade Organization (WTO), which provide formal
dispute settlement mechanisms. These mechanisms involve adjudication panels or
arbitration processes to resolve trade disputes based on established rules and
procedures.
Mediation and
Conciliation: Mediation and conciliation involve the intervention of a neutral
third party to help facilitate discussions and reach a resolution. The mediator
or conciliator acts as a mediator and assists the parties in finding common
ground.
Expert Panels
and Technical Reviews: In complex disputes involving technical or scientific
issues, expert panels or technical reviews can be utilized. These panels
consist of experts in the relevant fields who provide objective assessments and
recommendations to resolve the dispute.
Negotiation and
Consultations: Advantages include flexibility, direct engagement, and the
ability to tailor solutions to specific circumstances. However, reaching an
agreement may be time-consuming, and parties may have unequal bargaining power.
Dispute Settlement
Mechanisms: Advantages include the enforcement of international trade rules,
objectivity, and the existence of established procedures. However, the process
can be lengthy, costly, and subject to potential non-compliance by one or both
parties.
Mediation and
Conciliation: Advantages include the involvement of a neutral third party,
confidentiality, and the potential for preserving or improving trade relations.
However, the success of mediation depends on the willingness of the parties to
cooperate and find common ground.
Expert Panels
and Technical Reviews: Advantages include the expertise and specialized
knowledge brought to the dispute resolution process. However, the reliance on
technical expertise may limit considerations of broader economic or political
aspects of the dispute.
Overall, the
choice of dispute settlement method depends on the specific circumstances, the
nature of the dispute, the parties involved, and the desired outcomes.
Effective dispute resolution mechanisms aim to strike a balance between
fairness, efficiency, and compliance with international trade rules.
Q3. Distinguish
between the following:
(a) Absolute
advantage & comparative advantage
(b) Arbitration
vs. Litigation
(c) Fixed
and Flexible exchange rate
(d) Current
account and capital account of Balance of Payments.
Q4. Comment
on the following statements:
(a) All
contracts are agreements but all agreements are not contracts.
(b) In
the neoclassical model free trade not only equalises the relative commodity
price in the two countries but also equalises the relative wage rate.
(c) An
international business firm should not monitor the foreign country’s trade,
monetary and balance of payments account.
(d) Indian
foreign trade policy does not facilitate the import of technology.
Q5. Write
short notes on the following:
(a) TRIPS
(b) World
Trade Organisation (WTO)
(c) Alternative
Dispute Resolution (ADR)
(d) Code
of Ethics in International Marketing
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