Business and the International Economy

Question 1

Globalization

Answer 1

Globalization is a term used to describe the increases in worldwide trade and movement of people and capital between countries.

Question 2

reasons how globalization has occurred are:

Answer 2

1. Increasing number of free trade agreements–
2. Improved and cheaper transport
3. Developing and emerging countries are becoming rapidly industrialized

Question 3

Advantages of globalisation

Answer 3

• Allows businesses to start selling in new foreign markets, increasing sales and profits
• cheaper materials and labour can be available in other countries
• reselling imported products could be more profitable

Question 4

Disadvantages of globalisation

Answer 4

• Workers in home country might leave for higher wages in other countries
• More foreign companies set up operations in the home country of the business, more competition
• globalisation brings consumers more choice and lower prices so more competition

Question 5

Protectionism

Answer 5

**Protectionism **refers to when governments protect domestic firms from foreign competition

HOW?
reduce the number of foreign goods in the domestic market and make them expensive to buy,

Question 6

Exchange Rates

Answer 6

The exchange rate is the price of one currency in terms of another currency

• The demand and supply of the currencies determine their exchange rate.

Question 7

Currency Appreciation

Answer 7

A currency appreciates when its value rises

• exports become expensive
• imports become cheaper

an appreciations is good for importers, bad for exporters ( competitiveness in home country has reduced)
Business may choose to lower prices as profitability has reduced

Question 8

Currency Depreciation

Answer 8

A currency depreciates when its value falls.

• exports become cheaper
• imports become expensive

a depreciation is good for exporters, bad for importers

Question 9

MNC’s

Answer 9

Multinational businesses are firms with operations (production/service) in more than one country.

Question 10

Why do firms become multinationals?

Answer 10

• To produce goods with lower costs
• To extract raw materials for production,
• To produce goods nearer to the markets to avoid transport costs.
• To avoid trade barriers on imports.
• To expand into different markets and spread their risks
• To remain competitive with rival firms

Question 11

Advantages to a Host country of MNC in their country:

Answer 11

1.More jobs created
2. Increases GDP of the country
3. The technology can bring in new ideas
4. the imports will be reduced and some output can even be exported
5. increasing the government’s tax revenue
6. More product choice for consumers

Question 12

Disadvantages to Host country of a MNC setting up in their country:

Answer 12

• The jobs created are often for unskilled tasks. with very low wages a
• local firms may be forced out of business,
• Multinationals can use up the scarce, non-renewable resources
• Repatriation of profit can occur. The profits earned sent back to their home country
• they can influence the government and economy.