1.5 Business and the international economy

Question 1

define globalisation

Answer 1

growing integration (and interdependence) of the world’s economy

Question 2

give opportunities of globalisation for businesses

Answer 2

• access to wider markets
• lower costs (economies of scale)
• access to more labour
• reduced taxation

Question 3

give threats of globalisation to businesses

Answer 3

• increased competition
• risk of international takeovers
• increased risk of external shocks (events in one economy affects others)

Question 4

give benefits to a business becoming a multinational

Answer 4

• larger customer base
• lower costs (economies of scale)
• higher profile, recognisable brand
• avoid trade barriers
• lower taxes

Question 5

give benefits of multinationals to a country/economy

Answer 5

• increase in income and employment (create jobs and use local suppliers)
• increase in tax revenue
• increase in exports
• transfer of technology (provide suppliers with technical help and training)
• improvement in quality of human capital (give training and work experience, government spend more on education to attract multinationals)
• enterpirse development (provide skills and motivation for enterprise)

Question 6

give possible drawbacks of multinationals to a country/economy

Answer 6

• environmental damage (from extraction industry)
• exploitation of less developed countries (low wages, minimal taxes, encourage reliance on just primary industry)
• repatriation of profits (profits returned to base country)
• lack of accountability (evade law when government is weak or corrupt)

Question 7

define exchange rate

Answer 7

the value of one currency in terms of another

Question 8

what is the impact of a fall in exchange rates for importers

Answer 8

bad because it makes imports more expensive, so they are less competitive

Question 9

what is the impact of a fall in exchange rates for exporters

Answer 9

good because it makes exports cheaper, so they are more competitive

Question 10

what is the impact of a rise in exchange rates for importers

Answer 10

good because it makes imports cheaper, so they are more competitive

Question 11

what is the impact of a rise in exchange rates for exporters

Answer 11

bad because it makes exports more expensive, so they are less competitive

Question 12

what is the acronym to explain the effect of strong pound on imports and exports

Answer 12

S trong
P ound make
I mports
C heaper but
E xports
D earer