BEC 6.3

Question 1

Describe the impact of globalization

Answer 1

Results in deeper integration of the world’s individual national economies and makes those economies more interdependent

Question 2

What is a frequently used statistical measure for globalization?

Answer 2

World trade expressed as a percentage of GDP

Question 3

What is meant by shift in economic balance of power?

Answer 3

Ability of the world’s emerging nations to contend with the economies of the industrialized world for power, resources, influence, etc., is a change or shift in the economic balance of power from previous decades.

Balance of power theory holds that the states that are members of the global economy can either engage in balancing or bandwagoning behavior.
An emerging nation might side with the United States or other industrialized nations in an embargo or other economic sanction (bandwagoning) or could join with other emerging nations in ignoring the leadership of the United States (balancing).
The significance of their decision to change the impact of the embargo represents an important shift in the balance of economic power

Question 4

Name the motivations for developing international business operations

Answer 4

1. Comparative Advantage - creating economic advantage through specialization
2. Imperfect Markets - barriers to trade
3. Product Cycle - establishment of foreign subsidiaries to more efficiently capitalize on foreign demand for domestic products

Question 5

Identify three inherent risks of international business operations

Answer 5

1. Exchange rate fluctuation
2. Operating in foreign economies
3. Political risk

Question 6

Identify three categories of exchange rate exposure

Answer 6

1. Transaction risk (exposure)
2. Economic risk (exposure)
3. Translation risk (exposure)

Question 7

Name the factors influencing exchange rates

Answer 7

Trade-Related Factors:
1. Relative inflation rates
2. Relative income levels
3. Government controls

Financial Factors:
1. Relative interest rates
2. Capital flows