Q.1 The world economy is globalizing at an accelerating pace. Discuss this statement and list the benefits of globalization.

Ans:- The world economy is globalizing at an accelerating pace. The world economy is globalising at an accelerating pace as countries previously closed to foreign companies have opened up their markets. Geographic distance is shrinking because of the Internet, as the ambitious companies aim for global leadership. All this is possible because of booming international business. International business is mainly concerned with the issues that are related to international companies and governments cross border transactions. International business involves multiple countries to satisfy the objectives of every individual as well as the organisations. International business management is a process of achieving the global objectives of a firm by effectively managing the human, financial, intellectual and physical resources. Globalisation is a process where businesses are dealt in markets around the world, apart from the local and national markets. According to business terminologies, globalisation is defined as the worldwide trend of businesses expanding beyond their domestic boundaries. It is advantageous for the economy of countries because it promotes prosperity in the countries that embrace globalisation. In this section, we will understand globalisation, its benefits and challenges. Benefits of globalisation The merits and demerits of globalisation are highly debatable. While globalisation creates employment opportunities in the host countries, it also exploits labour at a very low cost compared to the home country. Let us consider the benefits and illeffects of globalisation. Some of the benefits of globalisation are as follows: Promotes foreign trade and liberalisation of economies. Increases the living standards of people in several developing countries through capital investments in developing countries by developed countries. Benefits customers as companies outsource to low wage countries. Outsourcing helps the companies to be competitive by keeping the cost low, with increased productivity. Promotes better education and jobs. Leads to free flow of information and wide acceptance of foreign products, ideas, ethics, best practices, and culture. Provides better quality of products, customer services, and standardised delivery models across countries. Gives better access to finance for corporate and sovereign borrowers. Increases business travel, which in turn leads to a flourishing travel and hospitality industry across the world. Increases sales as the availability of cutting edge technologies and production techniques decrease the cost of production. Provides several platforms for international dispute resolutions in business, which facilitates international trade.

Some of the ill-effects of globalisation are as follows: Leads to exploitation of labour in several cases. Causes unemployment in the developed countries due to outsourcing. Leads to the misuse of Intellectual Property Rights (IPR), copyrights and so on due to the easy availability of technology, digital communication, travel and so on. Influences political decisions in foreign countries. The MNCs increasingly use their economical powers to influence political decisions. Causes ecological damage as the companies set up polluting production plants in countries with limited or no regulations on pollution. Harms the local businesses of a country due to dumping of cheaper foreign goods. Leads to adverse health issues due to rapid expansion of fast food chains and increased consumption of junk food. Causes destruction of ethnicity and culture of several regions worldwide in favour of more accepted western culture.

In spite of its disadvantages, globalisation has improved our lives through various fields like communication, transportation, healthcare, and education. Q.2 Compare the Adam Smith and David Ricardos theories of international trade with examples. Ans:- Absolute advance Adam Smiths Theory:

nd accumulated experience and expertise in textile production. On the other hand, the French had one of the most efficient wine industries of the world. Thus, England had an absolute advantage in the manufacturing of textiles and France had an absolute advantage in the production of wine. Adam Smith argued that a country has an absolute advantage if it has one of the most efficient and cost effective product in comparison to any other country producing it. Smith argued that countries should specialise in production and manufacturing of goods and services in which they have an absolute advantage. Such cost effective and efficient products can be traded with goods from other countries in which that country has an absolute advantage. According to Smith, England should specialise in the production of textiles and France should specialise in the production of wine. Both countries should exchange such products of absolute advantage with each other, i.e. England should sell textiles to France and France should sell wine to England. The crux of Smiths absolute advantage theory is that a country should not produce goods at home in which it does not have cost advantage; instead it should import from other countries. Absolute advantage theory was based on positive sum game where countries benefit from trade unlike mercantilism theory which was based on zero game. Case let tabled as under illustrates the benefits of absolute advantage theory. Comparative advantage David Ricardos theory: David Ricardo, in his notable book Principles of Political Economy published in 1817 came up with an improvement on Adam Smiths absolute advantage theory. Ricardo argued what might happen if one country has an absolute advantage in the production of all goods. Adam Smiths theory suggests that such a country might not have benefitted from international trade as trade is positive sum game and countries prosper only if they exchange the goods in which they have absolute advantage. Ricardo argued that it was not the case and showed that countries should trade goods with each other where they have comparative cost advantage. For a sustainable economic system, Ricardo argued that a country should specialise in the production of those goods that it can produce most efficiently and import the goods which it produces less efficiently even if it has absolute cost advantage in the production of those goods. Practical case on comparative cost advantage is tabled as under: Comparative cost advantage: A practical case of England and France Ricardo used England and Portugal as examples in his demonstration, the two goods they produced being wine and cloth. Cost Comparison Labour cost of production (in hours) 1 unit of wine Portugal England 70 110 1 unit of cloth 80 90

According to him, Portugal has an advantage in both areas of manufacture. To demonstrate that trade between both countries will lead to gains, the concept of opportunity cost (OC) is introduced. The OC for good X is the amount of other goods that have to be given up in order to produce one additional unit of X. Opportunity costs and efficiency Cloth 80/70 =8/7= 1.14 90/110 = 9/11= 0.81

Wine Portugal England 70/80 = 7/8= 0.87 110/90 =11/9= 1.22

A country has a comparative advantage in producing goods if the opportunity cost is lower at home than in the other country. The table shows that Portugal has the lower opportunity cost in wine-making while England has the lower opportunity cost in making cloth. Thus Portugal has the comparative advantage in the production of wine whereas England in the production of cloth. Q.3 Regional Integration is helping the countries in growing their trade, Discuss this statement. Describe in brief the various types of regional integration Ans:- Regional Integration:

Regional integration can be defined as the unification of countries into a larger whole. It also reflects a countrys willingness to share or unify into a larger whole. The level of integration of a country with other countries is determined by what it shares and how it shares. Regional integration requires some compromise on the part of participating countries. It should aim to improve the general quality of life for the citizens of those countries. In recent years, we have seen more and more countries moving towards regional integration to strengthen their ties and relationship with other countries. This tendency towards integration was activated by the European Union (EU) market integration. This trend has influenced both developed and developing countries to form customs unions and Free Trade Areas (FTA). The World Trade Organisation (WTO) terms these agreements of integration as Regional Trade Agreements (RTA). Types of Integration: Different types of regional integration are discussed in this section. 1.Preferential trading agreement Preferential trading agreement is a trade pact between countries. It is the weakest type of economic integration and aims to reduce taxes on few products to the countries who sign the pact. The tariffs are not abolished completely but are lower than the tariffs charged to countries not party to the agreement. India is in PTA with countries like Afghanistan, Chile and South Common Market (MERCOSUR). The introduction of PTA has generated an increase in the market size and resulted in the availability and variety of new products. 2.Free trade area Free Trade Area (FTA) is a type of trade bloc and can be considered as the second stage of economic integration. It comprises of all countries that are willing to or agree to reduce preferences, tariffs and quotas on services and goods traded between them. Countries choose this kind of economic integration if their economical structures are similar. If countries compete among themselves, they are likely to choose customs union. The importers must obtain product information from all suppliers within the supply chain in order to determine the eligibility for a Free Trade Agreement (FTA). After receiving the supplier documentation, the importer must evaluate the eligibility of the product depending on the rules pertaining the products. The importers product is qualified individually by the FTA. The product should have a minimum percentage of local content for it to be qualified. 3.Custom union Custom Union is an agreement among two or more countries having already entered into a free trade agreement to further align their external tariff to help remove trade barriers. Custom union agreement among negotiating countries may encompass to reduce or eliminate customs duty on mutual trade. Under customs union agreement, countries generally impose a common external -tariff (CTF) on imports from non-member countries. Such Custom union Custom Union is an agreement among two or more countries having already entered into a free trade agreement to further align their external tariff to help remove trade barriers. Custom union agreement among negotiating countries may encompass to reduce or eliminate customs duty on mutual trade. Under customs union agreement, countries generally impose a common external -tariff (CTF) on imports from nonmember countries. Such common external tariff helps the member countries to reap the benefits of trade expansion, trade creation and trade diversification. In the absence of common external tariff, there is a possibility that countries with lower custom duties may become conduits for members which has higher custom duty. Custom union is third stage in level of economic integration and is followed only after free trade agreement among participating countries. 4.Common market Common market is a group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members. European community is an example of common market. Common markets levy common external tariff on imports from non-member countries. A single market is a type of trade bloc, comprising a free trade area with common policies on product regulation, and freedom of movement of goods, capital, labour and services, which are known as the four factors of production. This agreement aims at making the movement of four factors of production between the member countries easier. The technical, fiscal and physical barriers among the member countries are eliminated considerably as these barriers hinder the freedom of movement of the four factors of production. The member countries must come forward to eliminate these barriers, have a political will and formulate common economic policies. A common market is the first step towards a single market. It may be initially limited to a FTA with moderate free movement of capital and services, but it is not capable of removing the other trade barriers.

5. Economic union Economic union is a type of trade bloc and is instituted through a trade pact. It comprises of a common market with a customs union. The countries that are part of an economic union have common policies on the freedom of movement of four factors of production, common product regulations and a common external trade policy. The purpose of an economic union is to promote closer cultural and political ties while increasing the economic efficiency between the member countries. Economic unions are established by means of a formal intergovernmental legal agreement among independent countries with the intention of fostering greater economic integration. The members of an economic union share some elements associated with their national economic jurisdictions. These include the free movements of: Goods and services within the union along with a common taxing method for imports from non-member countries. Capital within the economic union. Persons within the economic union. Some forms of cooperation usually exist while framing fiscal and monetary policies.

6.Political union A political union is a type of country, which consists of smaller countries/nations. Here, the individual nations share a common government and the union is acknowledged internationally as a single political entity. A political union can also be termed as a legislative union or state union. Q.4 Write short note on: a) GATS (General Agreement on Trade in Services) b) ILO (International Labour Organization) Ans:a) GATS (General Agreement on Trade in Services) GATS is a framework agreement defining the rules under which trade in services must occur. GATS aims at extending the rules covering trade in goods to trade in services. A detailed rule has been included to take into account the differences between goods and services and the way in which trade in services is conducted. Trade in services cover a wide range of activities in the area of telecommunication, information, banking, insurance and education. WTO has recognised over 150 service sub-sectors. The main objective of GATS is to establish a framework for liberalising trade in services. It encourages countries to modify their domestic regulations. This modification results in elimination of restrictions applied to service products entering the country and is applicable to international service suppliers who are carrying out business in various modes. According to the GATS, MFN status and transparency is applicable to all services. Other commitments such as national treatment and market access are only applicable to services that are opened according to the specified negotiated commitments. GATS covers services known as consumption abroad where services such as e-commerce are used by the consumers in a host country and citizens of a country travel overseas to consume products such as tourism or education. b) ILO (International Labour Organization) International Labour Organisation (ILO) is a specialised agency of the United Nations which deals with labour issues. The headquarters is situated in Geneva, Switzerland. The secretariat comprises of the people employed by the organisation throughout the world. The secretariat is known as the International Labour Office. The ILO manages work through three main bodies. They are: International Labour Conference The members of the ILO meet at the International Labour Conference every year in June, in Geneva. Two government delegates along with an employer delegate and a worker delegate represents their respective member state. The technical advisors also accompany the delegates. The Cabinet Ministers are usually responsible for labour affairs, head the delegations and present the viewpoint of their government. The Conference

creates and implements standards for international labour. Social and labour issues are discussed in the Conference. It also assigns the budget of the organisation and elects the Governing Body. Governing Body The executive council of the ILO is known as the Governing Body. It meets thrice a year in Geneva and takes decisions on the ILO policies. It forms programmes and budgets which are submitted to the Conference for adoption. The Governing Body has 28 government members, 14 employer members and 14 worker members. Ten government seats are permanently held by states of chief industrial importance. Taking into consideration the geographical distribution, representatives of other member countries are elected at the Conference once in every three years. The representatives are elected by the employers and workers. International Labour Office The permanent secretariat of the International Labour Organisation is the International Labour Office. It is the central point for all activities that are administered by the governing body. The Office is a centre for administration, research and documentation. It employs more than 1,700 officials from 110 nationalities. The Office also organises certain programmes to extend technical help to all member nations. Under this programme of technical cooperation, around 600 experts undertake missions in all regions of the world.

Q.5 What is the difference between domestic and international accounting and how will you measure this difference? Ans:- Accounting is understood as the language of business. International Accounting Standards state how should different types of transactions and events be recorded in financial statements. International accounting refers to international comparative analysis, accounting measurements, and reporting issues distinctive to multinational business connections. It also refers to harmonisation of global accounting and financial reporting through political, organisational, professional, and standard-setting activities. Accounting Standards are the key mandatory and regulatory mechanisms for training on financial reports and conducting successful audit for the same. It is used almost in all countries throughout the world. They are concerned with the structure of measurement, rules for preparation and arrangement of financial statements. They emerge as a set of authoritative statements related to exact type of transactions, events, and other costs that are recognised and reported in the financial statements. They are designed to supply practical information to diverse users of the financial statements such as shareholders, creditors, lenders, organisation, investors, suppliers, competitors, researchers, regulatory bodies. These statements are designed and approved to develop and benchmark the quality of financial reporting. A financial reporting system of international standard is required to attract foreign and present and potential investors at home, which can be achieved by harmonising the accounting standards. Domestic vs. international accounting: Different countries whether domestic or international, have different accounting standards. A common belief is that these differences reduce the quality and importance of accounting information. Accounting standards determine the financial reporting quality and provides separately verified information about an organisation's financial performance to investors creditors. Though there are differences in accounting methods, domestic businesses are not affected. The accounting system of a domestic organisation must meet the specialised and regulatory standards of its home country. But, an MNC and its subsidiaries must meet differing accounting and auditing standards of all the countries in which it operates. This leads to a need for comparability between businesses in the group. In order to successfully manage and organise their operations, local managers require accounting information, which should be prepared according to the local accounting concepts and denomination in the local currency. Yet, for financial controllers, to measure the foreign subsidiarys performance and worth, the subsidiarys accounts must be translated into the organisations home currency. This translation is done using accounting concepts and measures, which are detailed by the organisation. Investors worldwide look for the highest possible returns on their capital, in order to interpret the track record, though they use a currency and an accounting system of their own. The organisation also has to pay taxes to the countries where it does business, based on the accounting statements prepared in these countries. Besides this, when a parent corporation tries to combine the accounting records of its subsidiaries to produce consolidated financial statements, extra complexities occur because of the changes in the value of the host and home currencies. There are many differences between International Accounting Standards (IAS) and Domestic Accounting Standards (DAS). On the basis of difference between the two, two indices, namely 'divergence' and 'absence', are created. Absence is the difference between DAS and IAS; the rules on certain accounting issues are missed out in DAS and covered in IAS. Divergence represents the differences between DAS and IAS; the rules on the same accounting issue differ in DAS and IAS.

Measurement of differences between IAS and DAS: You can measure the differences between IAS and DAS in the following way: Literature on international accounting differences Referring to earlier reports on international accounting could give more information about the subject. Most of the earlier reports understand international accounting differences as various options adopted by nations for the similar accounting problems, which correspond to divergence concept. Framework of analysis Links between variations in accounting standards and financial reporting quality of various countries could be clearly seen from the reports published earlier. We should consider the institutional determinants of accounting differences such as legal origin, governance structure, economic development, and equity market.

Q.6 Discuss the various payment terms in international trade. Which is the safest method and why? Ans:- Since international trade deals with exchange of goods, there are various ways in which the payment terms (finance) will be handled. Bothe seller and trader should be careful about the method of payment as they are at different locations and transactions happen without face-to-face interaction. There are four methods of payment for the international transactions. This includes the Cash-in-advance method, Letter of Credit, Documentary collections and the Open Account. Various modes of payment in international trade are as follows Cash-in-advance Cash-in-advance helps in removing the risks of credit by the exporter. By this method, exporter receives the payment before the transfer of goods. The options that are available with the cash-in-advance method include wire transfers and credit cards. This is the least attractive method for many of the buyers as it creates cash flow problems. The buyers are concerned about the quality/quantity and delivery of the goods that are not sent if the payment is made in advance. Letters of credit The letter of credit is the most secure instrument available for international traders. This is the commitment made by the bank that the payment will be made to the exporter if the terms and conditions are met. The terms and conditions of the payment are explained in the required documents. Documentary collections Documentary collection is a transaction in which, the exporter's bank (remitter bank) sends the documents to the importer's bank (collecting bank). The document contains information about the payment. The funds are collected from the importer and paid to the exporter through the banks involved in the collection, in exchange for the documents. Open account The open account transaction involves the shipping and delivery of goods in advance. The payment is due usually from 30 to 90 days. This is advantageous for the importer in cash flow and cost terms, but at the same time it is very risky for the exporters. Buyers from abroad stress on open accounts since the extension of credit from the seller to the buyer are more common in many countries. Exporters who avoid extending credit may face loss in the sale because of competitors in the market.

Letter of credit International Trade is affected by distance, laws, political instability and lack of familiarity by the transacting parties. Letter of credit assumes significance since it can be used to mitigate risk. It is a document that is issued by the bank that guarantees payment to a beneficiary. It is written by the financial institution in favour of the importer of goods to the seller. In the letter, the bank promises that it will honour the drafts drawn on it if the seller confirms to the specific conditions that are set forth in the letter of credit.