6.3 – Business and the International Ecoonmy Flashcards
What is Globalization?
Increases in worldwide trade and movement of people and capital between countries
What are the reasons for Globalisation?
Increasing number of free trade agreements
Improved and cheaper transport
Developing and emerging countries are becoming rapidly industrialized
What are the Advantages of Globalisation?
Allows businesses to start selling in new foreign markets, increasing sales and profits
Can open factories and production units in other countries, possibly at a cheaper rate.
Import products from other countries and sell it to customers in the domestic market- this could be more profitable.
Import materials and components for production from foreign countries at a cheaper rate.
What are the Disadvantages of Globalisation
Increasing imports into country from foreign competitors
Increasing investment by multinationals in home country
Employees may leave domestic firms if they don’t pay as well as the foreign multinationals.
What is the Economic point of view on Globalisation?
Globalisation brings consumers more choice and lower prices and forces domestic firms to be more efficient
What is Protectionism?
When governments protect domestic firms from foreign competition
What is a Import Quota?
A restriction on the quantity of goods that can be imported into the country.
What are Tariffs?
Taxes on Imports
What are Multinationals?
Firms with operations (production/service) in more than one country.
Why do firms become multinationals?
To produce goods with lower costs
To extract raw materials for production, available in a few other countries
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 which may also be expanding abroad
What are the Advantages to a country of a multinational setting up in their country?
More jobs created by multinationals
Increases GDP of the country
The technology that the multinational brings in can bring in new ideas and methods into the country
As more goods are being produced in the country, the imports will be reduced and some output can even be exported
Multinationals will also pay taxes, thereby increasing the government’s tax revenue
More product choice for consumers
What are the Disadvantages to a country of a multinational setting up in their country?
The jobs created are often for unskilled tasks.
Since multinationals benefit from economies of scale, local firms may be forced out of business
Multinationals can use up the scarce, non-renewable resources in the country
Repatriation of profit can occur(Avoiding income tax)
As multinationals are large, they can influence the government and economy.
What is an Exchange Rate?
Price of one currency in terms of another currency.
What Determines the Exchange Rate?
The demand and supply of the currencies
What is Currency Appreciation?
A currency appreciates when its value rises. Appreciations is good for importers, bad for exporters
