External Influences +++

Question 1

How does the EU try to improve the living standard of their citizens?

Answer 1

Creating a larger market
Generating economic and political stability
Achieving balanced economic growth across all of Europe
Protecting all Eu citizens with a common law frame.

Question 2

What is meant by the term free trade?

Answer 2

Free trade refers to trade without tariffs or quotas being imposed when products are traded.

Question 3

What is meant by the term Single market?

Answer 3

A type of market that involves more than one nation based on a mutual agreement to permit the free movement of capital, labor, goods and services

Question 4

What is an example of a trade barrier?

Answer 4

Tariff

Quota

Question 5

What are tariffs?

Answer 5

Tariffs are taxes put on goods entering the country from abroad.

Question 6

What are Quotas?

Answer 6

Quotas restricting the number of imports allowed into the country.

Question 7

What is the problem with implementing a trade barrier?

Answer 7

Other countries will retaliate, this can result in a quota and tariff traded war that is damaging to businesses in the countries concerned, as all businesses may sell less as a result.

Question 8

What may prevent a UK business from trading in EU?

Answer 8

Swot Analysis must be performed before operating in the EU markets. This will require a lot of market research, which will take up time and other resources.

May Require to be fluent in different languages, which may deter some businesses.

Businesses have to comply with the common requirements on specifications, standards and labeling if they want to trade.

EU countries may want to pay UK businesses in Euros, this means if there is an exchange rate decrease the business may lose a lot of money.

Question 9

What may encourage a UK business to start trading in the EU?

Answer 9

A business operating in other countries can gain economies of scale, resulting in a lower unit costs as there is a larger scale of production.

Selling in other EU countries can help diversify the risk, as if there was a recession in the UK this may not affect another European country.

Question 10

What are the advantages to UK businesses if the UK joined the Euro?

Answer 10

UK businesses would no longer have to pay commission for buying or selling euros, without this commission it would make it cheaper to sell to the other EU countries

Prices would be more easily comparable

Less uncertainty over costs and profits due to changing exchange rate can mean a great deal of uncertainty for a UK business.

Question 11

What are the disadvantages to UK businesses of joining the Euro?

Answer 11

Loss of control over monetary policy, this could mean that in some cases UK businesses would suffer for the good of others.

Question 12

What is the most significant problem if the UK joined the Euro?

Answer 12

At what exchange rate should the pound join the euro?

Question 13

What is globalisation?

Answer 13

The growth in world markets through a process of integration where it is possible to trade in a global market the same way as a domestic market.

Question 14

What has contributed towards the growth of globalization?

Answer 14

Transport
Telecommunications
Internet

Question 15

According to the International Monetary fund what four factors have contributed towards globalisation?

Answer 15

Increase in trade and numer of transactions taking place
Increase in movements of capital for investment
Increase in the movement of people across international borders for work
Increase in the availability of knowledge, through the internet.

Question 16

What are emerging markets?

Answer 16

Emerging markets refers to developing countries that are achieving rapid growth and industrialisation.

Question 17

What are examples of emerging markets?

Answer 17

India, China, Brazil, Russia

Question 18

What opportunities arise from emerging markets?

Answer 18

New markets with higher disposable income

Opportunity to move production into these markets and take advantage of the new group of consumers

Investment opportunity in infrastructure and production

Question 19

What threats arise from emerging markets?

Answer 19

Lower labour costs and the ability to produce more cheaply than in developed countries

Fewer exports demanded by emerging markets as they become able to produce for themselves

Question 20

What are the advantages of globalisation?

Answer 20

The incoming company brings investment, jobs and training.

LDC’s living standards can increase due to the increase in globalisation.

Question 21

What are the disadvantages of globalisation?

Answer 21

The benefits of globalisation are mostly felt by developed countries, their inhabitants and their businesses, there can be very little benefit for the LDC.

The lack of legal framework can result in poor working conditions.

Fear in developed countries that jobs will be lost to LDCs as they have lower wages.

Question 22

What are the threats of globalisation?

Answer 22

Unemployment in areas and businesses that cannot compete efficiently.

Question 23

What are the opportunities of globalisation?

Answer 23

Lower production costs

Question 24

Why is international trade beneficial?

Answer 24

Variety trade enables countries to obtain products they cannot make themselves.

Growth access to millions of new potential customers.

Specialisation, a country can specialise in what id does best and sell these products to others.

Question 25

What are reasons why a country may put up trade barriers?

Answer 25

Foreign competition can lead to unemployment, due to cheap imports.

A country may decide that businesses in the country cannot compete at the moment but in the future will be able to.

If a country has a high balance of payments deficit it might try to correct this by rejecting imports.

Question 26

What is a trading bloc?

Answer 26

A group of countries within a particular geographical region that protect themselves from imports from non-members.

Question 27

What are the different types of trading blocs?

Answer 27

Free trade area-Two or more countries agree to reduce barriers to trade on all goods.

A custom union-No barriers on all goods, tariff on non members goods.

A common market- all resources are traded freely (services, labour e.g.

EU

Question 28

What are the benefits to a business of being part of a trading bloc?

Answer 28

Access to a potential market of hundreds of millions of people.

Diversifying selling (selling in more than one country) 
reduces the risk

Raw materials and components at lower costs as tariffs have been removed.

Potential for economies of scale

Access to capital from foreign financial institutions

Question 29

What are the disadvantages to a business of being part of a trading bloc?

Answer 29

Membership may hinder trading with countries outside of the bloc

The competition from foreign firms that can now freely compete may be too great for the domestic businesses to cope with.

Question 30

How is the exchange rate determined??

Answer 30

Determined by the interaction of demand and supply

Question 31

What causes demand for the pound?

Answer 31

Foreign investment in the UK
Demand for UK exports
Interest rates

Question 32

What causes supply for pounds?

Answer 32

Demand for imports of non-UK goods
Interest rates
UK Investing abroad

Question 33

What does SPICED stand for?

Answer 33

Strong 
Pound
Imports
Cheaper
Exports 
Dearer

Question 34

How can the Bank of England control the exchange rate?

Answer 34

BOE is able to buy and sell currency in order to prevent potentially damaging changes in the exchange rate or to support the objectives of its Monetary policy Committee.

Question 35

What is hot money?

Answer 35

Money that flows freely and quickly around the world looking to earn the best rate of return.

Question 36

How can the BOE use interest rates to impact the exchange rate?

Answer 36

Raise interest rates-More Demand-Higher Exchange Rate

Lower interest rate-Less Demand-Lower exchange rate

Question 37

How can the BOE use interest rates to impact inflation?

Answer 37

Higher exchange rates-Imports Cheaper-There For Costs can keep down-Reduces Inflation

Higher exchange rates-Exports Expensive-Less Demand-Lower prices

Question 38

How can the BOE use interest rates to impact Economic growth?

Answer 38

Lower exchange rate-Exports Cheaper-More Employment-Economic Growth

Question 39

What will happen if there is a rise in the exchange rate?

Answer 39

Imports Cheaper

Exports More Expensive

Question 40

What will happen if there is a fall in the exchange rate?

Answer 40

Imports expensive
Exports cheaper
Trend-If it was part of a trend very little effect
Extent-How big was the fall or increase?
Duration-How long is the change expected to last

Question 41

What will a business look at to see if a change in exchange rate will significantly affect the business?

Answer 41

Percentage of sales are exports

Percentage of inputs are imported

Question 42

What is the model TED?

Answer 42

Trend
Extent
Duration
It can be used to see how big an impact a change in exchange rate will be on the business.

Question 43

What support is available for businesses that trade internationally?

Answer 43

Signing a contract to buy or sell foreign currency in advance, or when its required to remove the impact of a fall in a currency a bank will charge a fee for this however.

Export insurance-Sometimes the government offers assistance in the form of insurance to UK exporters against the risk of non payment by overseas buyers.

Passport to Export Programme-Helps small and medium firms that want to start exporting helps with market research, selection of target markets, help to visit target markets, action plan for exporting.