Topic 6 - The Impact of Global Events and Ethics Flashcards
what is globalisation
international integration of business, industry and society through developments in technology, communication and migration
what can globalisation be described as
a trend towards a single global economy and society
a process of increasing international networking, which means isolated communities and economies are increasingly linked and affected by the rest of the world
what is the aim of the International Monetary Fund
to help member governments take advantage of the opportunities and manage the challenges posed by globalisation and economic development
what is the advantage of a large multinational organisation
it may lead to an improvement in the standard and range of products, and consistency of service
what is the negative of a large multinational organisation
undermines the local culture in those countries, do not like the depersonalisation that results from it
why do many financial services providers rely on good relationship management
to keep customers loyal and avoid the impression it does not adapt to local needs
what are the negatives of globalisation
supports offshoring
led to the emergence of multinational companies which dominate markets so that small businesses fall
big companies have bought smaller companies, which has led to redundancies
what are the 3 key effects of globalisation
means that uk face competition from overseas providers - local providers need to work out how to respond - increased competition should mean that consumers enjoy better services and Lower prices
U.K. providers may expand overseas - so must send some of their resources abroad - uk customers may see a decrease in standard of products and customer service
U.K. providers need to understand the cultural, regulatory and other constraints and how successful they will be overseas
what is outsourcing
where one provider pays another to carry out a certain business function
this benefits the provider as it can focus on the core business functions and may bring cost savings as the company doing the outsourced service may be able to achieve economies of scale
what 5 factors have fuelled globalisation
easier, quicker and cheaper international travel
improved faster communication due to ICT
businesses frequently trade across borders
increased migration and multiculturalism
many businesses have expanded internationally creating large multinational organisations
give 4 examples of functions which could be outsourced
payroll
call centre
data processing
basic accounts
what is offshoring
moving some/all of a company’s operational functions to an overseas location
can reduce overall operational costs due to cheaper wages and technology makes it a straightforward process
what are the benefits and drawbacks of offshoring and outsourcing
may lead to lower priced products and services but unpopular if call centre/helpdesk function is moved
also not liked by employees that are made redundant - risks reputation
why is reshoring happening
due to rising wage costs in emerging economies
what is an economy
all the economic activity that takes place between the people living in a certain region or country
this activity consists of producing and consuming of all the goods and services that people need and want
what is a global economy
aggregate (total) of all activity in the national or regional economies of which it is composed
financial providers are affected by local economy, but also the global economy because of what reasons
countries trade a lot internationally, the UK relies on other countries for goods and for abroad demand to create jobs
due to globalisation, providers are in global competition - so strategic decisions need to consider global events
if the euro became weak against the pound what would happen
UK goods would be more expensive to European buyers, even though price had not changed
UK manufacturers would have to cut their prices to try and boost sales
how would a strong and growing economy in the USA result in strengthening the dollars exchange rates
would have higher interest rates and rising stock market - which would be encouraging for investors
traders in the currency market would buy dollars with the expectation that the dollar will increase in value
the resulting increase in demand for dollars leads to strengthening of dollar
what was the reason for the pound rising in value against the euro
the value of the euro had fallen due to serious financial problems in some countries which threatened the existence of the euro
what was the negative result on the UK due to the euro rising
the goods the UK wanted to import became more expensive whilst the goods they exported became cheaper than previously
however this helped keep demand for goods higher - maybe one reason why unemployment had not risen as high as some experts predicted
what is protectionism
policies designed to protect countries own economy and labour force
examples of protectionist policies
this might involve the government giving money to one of its industries to preserve jobs, or imposing import taxes to make own goods seem more competitive
why were protectionist policies used
due to the economic recession mean that many people lost their jobs or had to take a paycut - protectionism was involved as each country prioritised their own population above others
why are protectionist policies not popular
in countries where they are not used, goes against the advantages of free trade, WW2 attributed the end of protectionism and the growth of free trade
what does the World Trade Organisation do
promotes co-operation and trade between its 160 members
it is the only international organisation dealing with the global rules of trade between nations
main function is to ensure that trade flows freely, smoothly and predictably
what does Gross Domestic Product measure
a country’s economic activity in terms of its total output of goods and services usually measured at their market prices
why is rising GDP generally seen as a good thing
reflects a higher standards of living of the people with higher employment and production
what is GDP per capita
the standard of living of the people of the country, total GDP divided by the number of people
what are the negative consequences of too much economic growth
economy may become ‘overheated’ - where businesses are unable to supply sufficient goods and services to meet the growing demand, so they increase their prices
why must rate of inflation be considered in measuring economic growth
because apparent increase in GDP may be the result of increased prices, not increased sales
what is the environmental impact of too much growth
increased fossil fuel use, shrinkage of green areas and increased congestion charges
what is meant by sustainable growth
growth that is controlled enough to be able to continue into the medium and long terms
what is said to be key to sustainable growth in living standards
higher productivity - producing more with same resources
how can businesses improve productivity
investing in more efficient equipment and latest technology
investing in education is vital for necessary knowledge, skills and abilities
what did the ONS 2013 happiness survey measure
asks households how satisfied they were with their lives, the aim is to get a fuller picture of how society is doing
what does the Human Development Index measure
goes beyond economics, measures a country’s life expectancy, education and income
a fall in economic growth is likely to be followed by what, what do providers not to do
be followed by falling share prices and lack of investors, providers need to offer products which will provide opportunity for growth in falling markets eg) pushing riskier investments
what did economic growth in BRIC and MINT countries lead to
high levels of demand for commodities which has increased commodity prices
causes rising inflation for countries that are net importers of commodities
what are the economic conditions a country must have to be able to join the euro
must meet certain standards of fiscal stability - raising money from taxes and spending on public services
central banks that are independent of the political process
low inflation and interest rates
established stable currencies over a certain period
who set the interest rate for euro users
the European Central Bank in Frankfurt
why did Greece encounter financial problems
Greek government borrowed lots of money to fund ambitious expansion of public spending
due to financial crisis, financial markets wanted their money back but couldn’t pay it
had to negotiate a financial rescue package with the EU and IMF to write off some debt
resulted in 26% unemployment
why did Ireland encounter financial problems
a collapse in property and banking sectors brought them close to near bankruptcy
UK loaned £3billion die to if they failed the UK would fail due to such close links
what 5 features do the Monetary Policy Committee consider when setting the interest rate
low inflation - sense of security and confidence
high inflation - uncertain for future, look for investments which will keep ahead of inflation
low interest - cheap borrowing, increased demand and price of houses
problems of high personal debt and increasing interest
poor performance of stock market = fallen demand for investment products
cost of inputs from Europe rise if the value of the pound falls against the euro, makes UK products relatively cheap
what are the 5 steps in the vicious cycle
1) banks, fearful of default, lend cautiously and only to creditworthy customers
2) individuals cannot get finance to spend money on consumption and investment
3) individuals do not spend money, demand falls
4) firms to do not spend money to expand, so do not create jobs but make redundancies
5) unemployment leads to falling behind on repayments
4)
what is a commodity
a resource or raw material that is bought and sold on formalised commodity markets and the price can fluctuate like shares
what are the financial and economic effects of war, which involves either raising money from taxed or increasing government spending
increasing income taxes impact take home pay of employees
increasing sales tax increases inflation
if they borrow money by issuing bonds, have to make sure the interest rate is high enough to sell enough
countries productivity may be diverted away from consumer goods to war products
war brings uncertainty
fall in stock markets, decreases value of investments such as pensions
many insurance policies do not pay out after war
how many properties are there at risk of flooding
2.4million
when are mergers ill advised
huge debts bought into acquisition which has to be written off
what is the problem when companies are bought with large debts,
means that the value of problem hit companies shares will fall sharply
what is the problem of a companies shares fall in value
loss in wealth for investors
stock market uncertainty, may withdraw shares from other companies
fall in confidence
calls for better controls on companies
what is the European Commission working towards
the application of a single set of accounting standards across the EU and single set of auditing standards
what three types of political leadership are commonly seen
wanting to protect consumers
‘business friendly’ and relax regulation and reduce taxes to make it easier and cheaper
specifically encourage financial activity eg pensions
at the beginning of global economic turn down, why was the euro being strong q problem
made goods less competitive that countries outside the euro zone
why did the value of the euro fall due to the emerging economic crisis in GIIPS
due to the cost to stronger members for bailing them out
being part of the EU is trying to establish a single financial market, what does this mean for providers and competition
outside providers compete with the U.K. and the U.K. should find it easier to sell in other countries
as new countries join the EU how does this benefit the uk
means the uk can start investing in new markets and new companies
name 4 aspects of social change
changing attitude towards money and financial provision
increasing ethnic and cultural diversity
increasing complexity
changing demographics
changing attitudes to debt
what have providers had to adapt since they are no longer trusted to meet the needs of new customer base
products
delivery methods
business models
what has cross pollination of ideas due to increasing multinational companies done for consumers
should improve what is available to customers
what is meant by increasing complexity
financial products are now able to meet a number of needs rather than just one need
what is a key example of changing demographics
the ageing population
what is meant by ethical considerations
concerns over the au in which people writhing a particular culture believe thing should be done
what big business activity is there much ethical concerns over
offshoring
what are the 5 branches of ethical business behaviour
human rights
environmental ethics
product sustainability
political ethics
animal welfare
why was comic relief seen as unethical in it investments
they invested in companies which the charity funded projects designed to help the victims of those industries
what does the UK Sustainable Investment and Finance (UKSIF) do
promotes responsible investment and sustainable economic development, enhance quality of life and safeguard the environment
what is corporate social responsibility
form of self regulation by which companies can demonstrate that they have a social conscience behind business activity
who are the stakeholders involved ins CSR Mindel
community
customers
investors
employees
environment
suppliers
government
how are CSR policies linked to public interest
the extent to which they recycle and reduce carbon foot print
General environmental issues
making environmentally friendly purchasing decisions
what is an ethically branded organisation
one that produces ethically branded products
what is a ethically branded financial product
one that is aimed at people who are able to afford it and for whom it is suitable
how to providers become unsustainable
if they do not fully consider the potential long term risks and rewards of activities and are unable to meet obligations
why is sustainability of financial services is vital for the sustainability of personal finances
if they fail to operate payment systems, shoppers can’t pay, can’t receive wages
lose deposits not covered by FSCS
not sure who will take over debt
if insurers fail cannot depend on risks being covered
because banks are all interlinked what does this interdependence mean
the weakness exposes them to systemic risk
what is a systemic failure
major failure of the financial system
