1.5 Business and the International Economy

Question 1

What is globalisation?

Answer 1

Globalisation is the process of increased interdependence in the world.

Question 2

What causes Globalisation?

Answer 2

1. Cheaper Transport
2. Internet
3. Easier Communication
4. Free Trade
5. Trade Blocs

Question 3

How does globalization positively affect businesses?

Answer 3

1. Businesses can gain access to more markets
2. labour may be cheaper in host nations (economies of scale)
3. Increased Competition causes increases efficiency

Question 4

How does globalization negatively affect businesses?

Answer 4

1. Local Businesses in host countries may die
2. Exchange rate fluctuations can cause lower profits
3. Competition gets tighter
4. Marketing and distribution costs increases

Question 5

What are multinationals?

Answer 5

Multinationals are businesses which operate in multiple countries

Question 6

What are the benefits of being a multinational?

Answer 6

1. Risk Spreading
2. Lower Labour Costs in Host Countries
3. Economies of Scale
4. Access to Larger Markets
5. Premium Pricing (Higher International Prices)
6. Easier Access to Raw Materials

Question 7

How can an MNC benefit their host country?

Answer 7

1. Creates Jobs
2. Raises Living Standards
3. Increases Product Diversity
4. Improves Balance of Payments
5. Introduces New Technologies
6. Can Improve Infrastructure

Question 8

How can an MNC become detrimental to a country?

Answer 8

1. Overreliance
2. Can overrule the government
3. Smaller, local companies can’t compete
4. Negative Social Impact
5. Exploitation of labour and natural resources

Question 9

How do changing exchange rates affect international competitiveness?

Answer 9

The floating exchange rate:

1. Demand and Supply
2. Increases when Demand does, Decreases when Supply does

Question 10

How does depreciation affect exporters and importers?

Answer 10

Imports:

1. More expensive, Businesses will pay more

Exports:

1. Cheaper, exporting businesses will have increased demand as their products become cheaper.

Country:

1. If raw materials and semi-finished goods are imported, inflation.
2. Increased Export = Increased Demand = Appreciation = increase of BOP

Question 11

How does appreciation affect exports and imports?

Answer 11

Imports:

1. Cheaper, With a stronger currency you can buy foreign goods at a cheaper price

Exports:

1. More expensive, decreased demand and reduced sales
2. Reduced profits can cause redundancy

Country:

1. Decreased BOP; Local businesses can compete with cheaper international goods
2. Fall in exports, Fall in GDP and unemployment can be caused in affected sectors