Business Environment Assignment 2

Salim Jabban 21082

Edexcel Professional Diploma in Business Administration

.............................................................................................................. 2 The Benefits of International Trade ................................................................... 3 Potential Export Markets .................................................................................................... 3 Free Trade and Barriers ...................................................... 4 The Central bank supporting International Trade ....................................................................................................................................................................................................................................................... 3 Currency Exchange Rates ............... 4 Trading with the European Union ..................... 5 The European Monetary Union ......................................................................................................... 3 Trans nationals and Multinationals ................................. 2 The Challenges of International Trade........................................ 5 European Policies influence on U...............................Table of Contents International Trade .................................................................................... 4 The balance of payments..........................K based businesses ............................................................................................................................................................................................................................................. 5 ...................

Some countries have absolute advantage in the production of certain goods and services. Swiss banking. With businesses increasing production they start to enjoy the benefits of economies of scale. and again giving these companies comparative advantage. Japanese technology. . some countries have the know-how and technology for producing more efficiently. International trade today has become much easier than before with advanced transportation and communication. It’s not only about costs but sometimes quality.International Trade The Benefits of International Trade International trade has paved the way for the optimal allocation and use of resources. on the other hand if the businesses were relying on one economy one country it would go out of businesses if the country was to face natural disaster. Businesses engaged in International trade no longer depend on one country or economy and are less likely to be affected if one of their markets decline for any matter. an economic crisis or war. multinationals tend to locate where they can enjoy the benefits of international trade. International trade has allowed business to tap into larger markets producing larger quantities for the larger demand on their products. International trade made it possible for countries to export what they produce best and import what they don’t. Some countries may possess the know-how and technology but lack the raw materials required so they’d import the raw material. That isn’t the case for those dealing globally. International trade has allowed for the variety in products we all enjoy today. even at higher costs. This means that they can produce more of a good or service than other countries given the same input. whether its German cars. Globalization. or American movies. lowering the average cost. process them to finish products and export them to foreign markets. they’ve got alternative markets that can keep them afloat. nothing would’ve been globally available without international trade. There are some many different scenarios that can take place. With labour and raw material costs less in certain areas. where fixed costs are spread over a larger number of products.

producers may choose to outsource their production to where it costs less. imports seem less expensive. generating more unemployment. On the other hand. it generates unemployment in their parent countries. a stronger dollar decreases exports.” (Econlink.The Challenges of International Trade Trans nationals and Multinationals Multinational corporations have exploited the benefits of international trade and have located wherever they can find cheap labour. While importers prefer a strong dollar. 2010) (About. because they appear more expensive to foreign consumers. 2010) .org. Labour saving technology used by multinationals also contributes to further unemployment. dollar.com. they may experience economic deterioration. leading to increased demand for imported products and the currency needed to purchase them.S. “When the U. a trade deficit develops as the result of a strong dollar. Free trade agreements are usually politically influenced and may not be a result pure economic cooperation or mutual economic benefit usually meaning that some countries may benefit whereas others may not or worse. which in turn increases unemployment. Free trade would mean that the country wouldn’t have control over its balance of payments unable to restrict imports and exports the country’s economy would be vulnerable.S. exporters prefer a weak dollar. The opposite effects result from a weak U. with materials and components imported from several countries and processes in another. (Prabhakarit. free trade may encourage local businesses to improve quality. Multinationals may contribute to pollution.net. When multinationals set up in less developed countries to enjoy the benefits of cheap labour. Currency fluctuations affect not only costs and revenues but assets and liabilities as well. 2010) Currency Exchange Rates Without fairly stable exchange rates it’s difficult for businesses to engage in international trade as it becomes difficult to predict import costs and export revenues. (Tutor2u. Currency exchange rates have immediate impact on any business engaging in international trade of any sort.) Free Trade and Barriers Free trade and lean trade barriers could have a devastating effect on local businesses and sometimes can lead to their closure. As trade barriers encourage the use of local made goods. but in developing countries this is highly unlikely. dollar is strong. and cause environmental complications for host countries. 2008) (Gardner-Webb University. Therefore.d. cut costs where possible to compete. costing becomes even more difficult and uncertainty arises. when abolished. Although this generates employment in one country. At the same time. many local businesses become unable to compete with the multinationals’ high-tech production methods and are usually forced out of business. n.

Then supply them from countries that possess a comparative advantage in their production. A country has comparative advantage in producing the product with least opportunity costs in terms of producing another. A country’s international trade success is measure by the current account if it’s in excess. it is successful.org. 2010) The balance of payments The balance of payments is the difference between a country’s exports and imports. Businesses produce in countries that have comparative advantage for the product of interest and export it to countries where its production would have high opportunity costs. increased investments and economic activity but will eventually lead to inflation deteriorating the value of the currency making imports more expensive and exports more affordable for other countries. When countries produce what products with comparative advantage. For example China has a comparative advantage of producing electronics over financial services and the U. 2010) The Central bank supporting International Trade The Central bank is responsible for the country’s monetary policy. influencing the country’s spending and saving habits. While a decrease in interest rates would cause more spending. . Interest rates are set by the central bank. and must start applying some trade barriers where possible. and a capital account accounting for foreign ownership of domestic assets and domestic ownership of foreign assets. Each Country has specialized in goods or services that have comparative advantage.K has comparative advantage in producing financial services over electronics. The balance of payments consists of a current account accounting for trade of goods and service. A country has a favourable balance of payments when its exports exceed its imports. (Ecoedlink. a record of one countries dealing with the rest of the world. For international trade the current account is more relevant than the capital account. Therefore the U. more money is being injected into the economy than being leaked out. an overall increase in output can be attained. if it’s in deficit it’s not. At high interest rates there is less to be spent and people are inclined to save creating a higher value for currency which in turn makes imports cheaper and exports more expensive to other countries. This will eventually lead to slow inflation as the yield income increase people would have more to spend.Potential Export Markets Exporters can evaluate potential export markets by studying their comparative advantage. The Central bank aims to set an interest rate that will make both imports and exports affordable while sustaining a stable exchange rate to encourage international trade aiming for a favourable balance of payments.K exports its financial services to and imports electronics from China. (EDEXCEL. Businesses asses which products countries produce at high opportunity costs.

Businesses in the U. Multinationals are also attracted to the EU as there are other benefits as well. fixed and stable exchange rates allow for more certainty. The European Monetary Union The European Monetary Union aims for a single currency. invest and sell freely in several countries. The European Monetary Union also allows for independent national monetary policies. The EU has common Agricultural. Free capital movement permits the optimum allocation of resources. The Schengen Agreement abolished passport control and some internal customs checks between some member states. The Common Commercial policy protects U. a unified interest rate and for 12 of the 25 members a single currency managed by the European Central Bank. capital and enterprise. There are disadvantages to the EU for businesses. This could have positive effects for businesses producing in a 0% inflation rate zone and selling in a high inflation rate zone in the long run. showing us a glimpse of what’s to come. The common commercial policy implies uniform conduct of trade relations with third countries. common technical standards and stable exchange rates are just a few. and Infrastructure. 2010) The Policy encourages the abolishment of trade barriers. meaning each country can choose the inflation rate that suits its preferences. All businesses In the EU benefit from this mobility. The European Union has created a Single European market ensuring free trade with free movement of labour. European Policies influence on U. as well as variation in labour cost and skills. businesses will enjoy the benefit of locating capital anywhere within the different members. and free movement of capital. The company taxation varies between countries creating uncertainty in costing. International Companies in the UK must adhere to the consumer protection policies set by the European Union meaning they may be forced to change their practices to those that empower customers. Businesses operating within member countries enjoy the benefits of a single currency as they deal in a single currency. Although the currency has been united taxation isn’t creating price variation from one country to another. Grants and subsidies.K based businesses “The UK as part of its membership in the European Union has agreed to join a customs union with other members. the risks of exchange rates are excluded.Trading with the European Union The European Union has changed the international trade scene forever.” (Europa. in particular by means of a common customs tariff and common import and export regimes. EU membership means (for most members). Trade and Fisheries policies. Different tax rates on purchases make prices vary between countries. .K are subject to EU legislation.EU. the ability to operate.K businesses using ant-dumping measures restricting cheap imports. Customer empowerment also leads to changes in demand for the goods and services provided by such companies.

com (2010). [Online].php?lesson=342&page=student.org (2010). Available: http://prabhakarit. .org/lessons/index. Available: http://tutor2u.com/.wordpress. EDEXCEL (2010) Business Environment : International Trade.eu/scadplus/glossary/commercial_policy_en.econedlink. [Online].net/economics/gcse/revision_notes/international_trade_protectionism_trade_b arriers_and_free_trade. [Online].References About. Econlink.edu/Faculty/craymond/Devdocs/DevMNCposneg.about. Prabhakarit (2008). [Online].gardnerwebb. Available: http://usliberals.htm. Available: http://www.econedlink.htm.EU (2010).net (2010). Gardner-Webb University. Available: http://www.com/od/theeconomyjobs/i/FreeTradeAgmts_2. [Online]. Available: http://www.htm.org (2010). Available: http://europa. [Online].org/lessons/index.socialscience. Europa. [Online]. [Online].php?lesson=342&page=student. Tutor2u.htm. Ecoedlink.

Sign up to vote on this title
UsefulNot useful