IB Assignment (Group No. 4) F
IB Assignment (Group No. 4) F
Case 02
If A's demand for Product Y decreases, A will import
less of Y. in this case Offer curve shifts to A2 from A.
here the offer curve is less elastic.
Point of equilibrium is C
So, there is shift from the point of equilibrium C to C1
in case 01 and to C2 in case 02. Volume of Trade
Decreases here but Terms of Trade becomes
favorable.
Terms of trade (TOT)
TOT at C = Qm/Qx
Qm is the Quantity of Imports & Qx is the Quantity of Exports of the country.
Conditions:
Qm > Qx (unfavourable TOT)
Qm < Qx (favourable TOT)
Elasticity of offer curve & point of Equilibrium (offer curve B) vice versa of above
CONCLUSION: The theory points out a few things like
i. Equilibrium exchange rate is determined by the elasticity of offer curve
ii. J.S.Mill emphasized too much over the demand side;
iii. If one country is small and another country is large then the gain from trade will go to the smaller
country.
Q.3. Answer- In developing economies, big multinationals can use their economies of scale to push local firms
out of business. In the pursuit of profit, multinational companies often contribute to pollution and use of non-
renewable resources which is putting the environment under threat. This statement applies to the Pyramidal
model as according to this model the MNCs operates as it has strong headquarters but weak subsidiaries, all
decisions are made at the headquarters and imposed on subsidiaries, they may be quite old fashioned in their
functioning and due to this rigidity in functioning, such organizations may invite opposition from citizens in the
developing countries at any time.
Q.4. Answer-
Joint Venture Joining hands when two or more Bayer Zydus Pharma JV with Cadila
companies have to achieve common Healthcare Ltd
objective and expand
Foreign direct investment Controlling ownership in a business in Shares, properties & assets
one country by an entity based in
another country.
Cross border merger & acquisition M- Combination of 2 or more distinct M- Vodafone Idea
entities into one A - Walmart Acquisition of Flipkart
A - When one co. purchases and gains
control over another co.
Contract Manufacturing Foreign firm hires local manufacturer Varun Beverages - produces, bottles
to produce their product/part of the and distributes beverages of PepsiCo
product
Q.5. Principal objectives of WTO- A). To improve the standard of living of people in the member countries.
B) To ensure full employment and broad increase in effective demand. C). To enlarge production and trade of
goods. ADVERTISEMENTS: D). To increase the trade of services. E). To ensure optimum utilization of world
resources.
10 activities monitored by WTO-A) It negotiates any reduction or elimination of the obstacles in a trade
like import taxes and other barriers. B). WTO also monitors and administers the application of WTO rules
in trading goods, trade-related intellectual properties, and service trades. C). Also, it settles the disputes
between the member nations about the application and interpretation of the agreements. D). WTO reviews
and monitors various policies of trade to its members. E). It helps build the capacity of a developing nation
and its government officials in the matters of international trade. F). It also collects and conducts economic
research by disseminating the trade data in the support of its other main activities'). India decides to launch a
safe investigation for unwrought aluminum. H). The Trade Monitoring Exercise of the WTO provides
regular and up-to-date information on global trends in trade measures and trade policy making. I). India
notified the committee of WTO on safeguard in April 2016 related to safety investigation done by WTO on
unwrought aluminum on April 19, 2016.K). India is a member of WTO since its formation as well as a
member of GATT since 1948.
The impact of WTO on India and other developing nations with special reference to 'Hong Kong
Ministerial Conference. -The meeting was seen by most as a useful, but modest step forward. The Hong
Kong Ministerial Conference represented a modest but useful step forward in the Doha Round.
Q.6. Ans- The rupee strengthened with respect to the dollar in the last few weeks due to the following
reasons (as on 28th December 2022). Exporters holding their dollars are likely making sales as it is the end of
the quarter, but due to the absence of many market participants the moves would remain rangebound, said a
foreign exchange trader. Markets are likely "digesting the fact that the initial stages of China re-opening will
necessarily entail outbreaks in a thus-far cocooned population," Vishnu Varathan, head of economics and
strategy at Mizuho Bank, wrote in a note.
Tools available to Indian export companies to protect them from the risk of a falling dollar
Currency Hedging is one of the best options to protect your export import business cause of foreign exchange
derivatives. In a simple word when you did export shipment, and you are waiting for your $ Doller payment.
Suppose your invoice value is USD 50,000 and you have given 30- or 60-days credit. Meanwhile in your
waiting period if USD is weakened against the rupee than you will be received fewer rupees after the
conversation. In this case Importer in the profit but as an exporter exchange rate is unfavorable for you. Because
of this foreign exchange rate big exporter & importer are facing risk.
Q.7. Answer- Modern Trade Theories
1. Product Life Cycle Theory- The theory, originating in the field of marketing, stated that a product life cycle
has three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. The theory
assumed that production of the new product will occur completely in the home country of its innovation. The
product life cycle theory has been less able to explain current trade patterns where innovation and
manufacturing occur around the world. It has also been used to describe how the personal computer (PC) went
through its product cycle. The PC was a new product in the 1970s and developed into a mature product during
the 1980s and 1990s. Today, the PC is in the standardized product stage, and the majority of manufacturing and
production process is done in low-cost countries in Asia and Mexico.
2. Country similarity theory- Steffan Linder, a Swedish economist, was the founder of this theory. The theory
marked its emergence in the year 1961 and explained the concept of in-train industry trade. Linder suggested
that countries that are in a similar phase of development will probably have similar preferences. The suggestion
proposed by Linder was that companies first produce goods for their domestic consumption and later expand
production, thereby exporting those products to other countries where customers have similar preferences.
Linder suggested that most of the trade in manufactured goods, in most circumstances, will be between
countries with similar per capita incomes and that the in-train industry trade will thus be common among them.
This theory is generally more applicable in understanding trade where buyers mainly decide on the basis of
brand names and product reputations.
3. Porter’s national competitive advantage theory- The theory emerged in the 1990s with the aim of
explaining the concept of national competitive advantage. The theory proposes that a nation’s competitiveness
majorly depends upon the capability and capacity of the industry to come up with innovations and upgrades.
This theory attempted to explain the reason behind the excessive competitiveness of some nations as compared
to others. The main determinants proposed in this theory were local market resources and capabilities, local
market demand conditions, local suppliers and complementary industries, and local firm characteristics. The
theory also mentioned the crucial role of government in forming the competitive advantage of the industry.
1) Doing Business with expanded ASEAN- Association of South East Asian Nations (ASEAN) was
established on 8th August 1967 in Bangkok, Thailand. There are 10 member countries of ASEAN including
Brunei, Malaysia, Singapore, Vietnam, Indonesia, Laos, Cambodia, Thailand, Philippines and Myanmar.
The main goals of ASEAN are to increase economic growth, social progress and promote regional space
and stability. It aims to transform ASEAN into a single entity. Singapore is the biggest trading market of
ASEAN countries. As per the trade map, ASEAN exports of goods to the global market worth USD 890
billion and imports worth USD 846 billion in the year 2017. However, the exports were USD 1183 billion
and imports were USD 1105 billion during 2016.
2) David Ricardo's 2 Country - 2 Product Theory- Comparative advantage, economic theory, first
developed by 19th-century British economist David Ricardo, that attributed the cause and benefits
of international trade to the differences in the relative opportunity costs (costs in terms of other goods given
up) of producing the same commodities among countries. In Ricardo’s theory, which was based on
the labour theory of value (in effect, making labour the only factor of production), the fact that one country
could produce everything more efficiently than another was not an argument against international trade.
3) Political Risk Analysis - A Political Risk Analysis studies the various external factors in an investment
project. These are usually political or social problems that could happen when one invests in another
country. A political risk analysis reviews the various factors affecting your project. A political assessment
helps you understand how changes in government, environmental or social conditions may affect your
business. Political risk is the possibility of an adverse effect on economic value due to political change or
uncertainty. Political risks affect countries, companies, and industries differently depending on the country’s
development level and exposure to external factors.
4) Three Different Modes of Doing International Business Other Than Imports & Export - A) Licensing
and Franchising - Companies which want to establish a retail presence in an overseas market with minimal
risk, the licensing and franchising strategy allows another person or business assume the risk on behalf of
the company. B) A joint venture is one of the preferred modes of entry into international business for
businesses who do not mind sharing their brand, knowledge, and expertise. Companies wishing to expand
into overseas markets can form joint ventures with local businesses in the overseas location, wherein both
joint venture partners share the rewards and risks associated with the business. C) Strategic Acquisitions -
Strategic acquisition implies that your company acquires a controlling interest in an existing company in the
overseas market. This acquired company can be directly or indirectly involved in offering similar products
or services in the overseas market.
5) SAARC and SAFTA- the South Asian Association for Regional Cooperation (SAARC) was established on
8 December 1985. The Secretariat of the Association was set up in Kathmandu, Nepal, on 17 January 1987.
SAARC has eight-member countries (Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan
and Sri-Lanka). The objectives of the Association are: to promote the welfare of the peoples of South Asia
and to improve their quality of life; to accelerate economic growth, social progress and cultural development
in the region and to provide all individuals the opportunity to live in dignity and to realize their full
potentials. SAARC also aims to strengthen cooperation with other developing countries and to cooperate
with international and regional organizations with similar aims and purposes. The South Asian Free Trade
Area (SAFTA) is the free trade arrangement of the SAARC. The agreement came into force in 2006, succeeding
the 1993 SAARC Preferential Trading Arrangement. SAFTA signatory countries are Afghanistan, Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The members of SAARC signed the agreement in
order to promote and sustain mutual trade and economic cooperation within the region.
6) Current Trends and Application of Purchasing Power Parity Theory- The concept of purchasing power
parity (PPP) has two applications in economics. The first use is as a conversion factor to transfer data from
denomination in one national currency to another. The data are generally in a national accounts framework,
but the level of detail can range from the gross domestic product (GDP) itself to highly disaggregate
categories of expenditure. This use of PPP boasts a body of theory (mainly index-number theory) and
applications (predominantly to intercountry comparisons of GDP and its components) that have steadily
improved over the years, and path breaking studies in the area continue to appear.
7) Offshoring in International Business- Offshoring is a practice of processing business operations from one
country to another, usually from developed industrialized countries to less-developed/developing countries,
with the motive of cutting down the cost of doing business, enjoying tax benefits, and complying with less
stringent requirements regulations. Offshore business generally occurs among foreign banks, deposits,
investments, corporations, etc. Examples- WhatsApp Messenger, in its early days, the founders of
WhatsApp had offshored its services to developers in Russia to create the application at a low cost. Later,
Facebook acquired the company for $16 billion as it grew successful. Samsung Electronics Co., Ltd.
a South Korean multinational company that makes electronic and smart appliances has offshored its
manufacturing to USA, a huge consumer of its products. It has offshored its customer support for Australian
Samsung mobile users to the Philippines.
8) Dumping & Anti-Dumping Measures- “Dumping” is defined as a situation in which the export price of a
product is lower than its selling price in the exporting country. Dumping measures to provide relief to
domestic industries injured by imports. The country's imposition of an anti-dumping duty is determined by
the dumping margin the difference between the export price and the domestic selling price in the exporting
country. Anti-dumping duties are typically levied when a foreign company is selling an item significantly
below the price at which it is being produced.
Q.9. a) Define- “International Business focuses on any commercial activity or transaction between companies,
organizations, individuals, or government entities that crosses borders into different countries and regions.” By
Pearson Pathways.
b) State Objectives- Earn profits and expand sales, Acquire resources, and Minimize risk
c) Overview- entities engaged in international business often face difficulties than the entities that conduct
domestic business. Although international business has large customer base as they operate in multiple
countries as compared to domestic business’s customer base. Due to changes in political, economic, socio-
cultural environment across the nations, most business entities find it difficult to expand their business globally.
d) Comparison-
Aspects Domestic Business International Business
Meaning 1 Involves those economic transactions that 1 This involves those economic transactions
take place within the geographical that take place outside the geographical
boundaries of a country boundaries of a country
Area 2 Carried out within the national or 2 Carried out across borders and national
geographic borders of the country. territories of a country.
Business risk 3 Predictable, less risk 3 Unpredictable, high risk
Market research 4 Easy to conduct research, low cost is 4 It is complex and expensive
Currency required
Pricing 5 Deals in single currency 5 Deals in multiple currency
6 Same price is charged for similar 6 Price differentiation is carried out
Investment products, competitive pricing
Quality 7 7 Huge capital investment
Less capital investment
standards 8 8 Very high
Significantly low
Nature of
customers 9 9 Heterogeneous
Homogeneous
Mobility of
factors of 10 Free
10 Restricted
production
Part B
Q.13. Answer- The political environment means the political risk, the government’s relationship with a
business, and the type of government in the country.
A) Types of Political Environments- There are different types of political systems, such as one-party states,
multi-party democracies, dictatorships (military and non-military) and constitutional monarchies.
B) Various Political risks- Actions of legitimate governments- control on prices, outputs, activities, and
currency and remittance restrictions. Events outside of government controls such as war, revolution,
terrorism, labor strikes, and extortion, border disputes. Trade barriers serve to limit or prevent international
trade. E.g. Russia cutting off the Gas to Europe, Asian Territorial disputes, etc.
C) Strategies to manage political risks are-
1) Political Lobby support e.g. Coke (in India)
2) Bear CSR e.g. Microsoft (in India)
3) Local economy simulation- priority area investment e.g. Tata Power
4) Local employment e.g. British Textiles, Tobacco
5) Share ownership e.g. MUL (Maruti Udyog Limited, India)
Q.14.
A. Legal environment and its example - Business must function within the framework of laws and regulations
of the country. It exercises a significant influence on business activities. Some of the examples are: Safety
regulations, Pollution control laws, Judicial system of the country, etc.
B. Factors Affecting International Environment
Sociocultural Environment-
Legal Environment-
Customers’ Security-
Technological Environment.
Political Environment-
Political intervention To protect jobs and overall industries U.S. market with their sugar, then
from international business domestic producers would lose business
The protection of national security Semiconductors or aerospace
Economic intervention To protect new industries from fierce Due to protectionism, Brazil was able to
competition develop the world's tenth largest auto
industry
A- There are actually two reasons for government in international trade: political and economic.
Governments can create subsidies, taxing the public and giving the money to an industry, or tariffs, adding
taxes to foreign products to lift prices and make domestic products more appealing. For Example, BP
Deepwater Horizon oil spill on April 20, 2010.
Part C
Q .16. 1] SARRC & SAFTA, ASEAN & EU/ European Union
2] Following Zones-
Antarctica ocean & Arctic Ocean- C:\Users\HP\Documents\Antarctica & Arctic ocean.png
OPEC Nations (Yellow) - Venezuela, Algeria, Libya, Nigeria, Gabon, Congo, Equatorial Guinea, Angola, Iraq,
Iran, Kuwait, Saudi Arabia, United Arab Emirates.
Mauritius (blue)
Mexico & South Sudan (Green) - C:\Users\HP\Documents\World Map.h