Question 1:

Firms can engage in International business through the following seven methods:
International Trade:
1) Relatively conservative approach that can be used by firms to
2)Penetrate markets (by exporting)
3)Obtain supplies at low cost (by importing)
4)Minimal risk –no capital at risk
Licensing:
1) Obligates a firm to provide its technology (copyrights, patents, trademarks, or trade names) in
exchange for fees or some other specified benefits
2)Allows firms to use their technology in foreign markets without major investment and without
transportation costs that result from exporting
3)Major disadvantage :Difficult to ensure quality control in foreign production process
Franchising and Joint Ventures
Franchising
1)Obligates a firm to provide a specialized sales or service strategy, support assistance, and
possibly an initial investment in the franchise in exchange for periodic fees
2)Allows penetration into foreign markets without a major investment in foreign countries
Joint Ventures
1)A venture that is jointly owned and operated by two or more firms. A firm may enter the
foreign market by engaging in a joint venture with firms that reside in those markets
2)Allows two firms to apply their respective advantages in a given project
Acquisitions of Existing Operations
1) Acquisitions of firms in foreign countries allows firms to have full control over their foreign
business and to quickly obtain a large portion of foreign market share
2) Subject to the risk of large losses because of larger investment
3) Liquidation may be difficult if the foreign subsidiary performs poorly
Establishing New Foreign Subsidiaries
1) Firms can penetrate markets by establishing new operations in foreign countries
2)Requires a large investment
3)Acquiring new as opposed to buying existing allows operations to be tailored exactly to the
firms needs
4)May require smaller investment than buying existing firm

Question 2:
Balance of Payments:
Balance of payments is the record of all the transactions made by occupants of a country with
the remainder of the world throughout a particular time span, sometimes called as balance of
international payment and is represented by BOP. The occupants of a country include firms,
government and people So, It sums up all installments and receipts by firms, people, and the
public authority.
Components of BOP
The Balance of payments consists of two accounts Number one is Current account and number
two is the Capital account. The details of each of them is given below:
Current Account
This account of Balance of payments contains all transaction arising from trade in currently
produced goods and services, from income accruing to capital by one country and invested in
another and from unilateral transfers, both private and official
The 4 components of current account are as follow:
Visible trade – Visible trade is a statement of the payments of the items that are visible that is by
export and imports of physical goods. This is also known as trade balance or balance of
merchandise. When imports are higher There is a trade deficit and in opposite case a trade
surplus.
Invisible trade – This records the balance of items that are invisible that of exports and imports
of services and includes mainly delivery of goods via ships, Information technology, banking
charges , tourism and insurance. It is called the balance of invisible trade.
Unilateral transfers to and from abroad – This is a statements of the transactions that are not
factor payments which includes presents/gifts or money received by the country’s occupants
from some foreigners.
Income receipts and payments – These mainly consist of property’s rent , interest and profits
etc that is transactions that are factor payments and receipts.
 
Capital Account
This account is used to account for deficit or surplus in the current account. The 3 components
of this account are as follow:
Loans to and borrowings from abroad – all borrowings and loans sent to or received from
foreign countries falls into this component. This contains all of Public and private sectors
loans .
Investments to/from abroad – These are investments made by nonresidents in shares in the
home country or investment in real estate in any other country.
Changes in foreign exchange reserves – To control exchange rates Central bank maintain
Foreign exchange reserves and ultimately balance of payment is balanced.
Surplus in Capital account made adjustments for deficit in Current account and deficit in capital
account for surplus in current account , done through lending or borrowing money from foreign
countries.
Question 3:
A weaker home currency will decrease the costs of exports of home country paid by other
countries’ businesses and will increase the costs of home country’s imports. this could reduce the
demands for imports within the home country and a rise within the foreign demand for the
home country’s exports, and thus increase this account. However, this relationship are
often distorted by alternative factors. Sometimes, despite a current account deficit the home
currency remains strong because of international capital flows can offset the forces placed on the
currency by the current account.