MBA-IV Semester

Assignment Set – I Note: Each question carries 10 Marks. Answer all the questions. Q.1 what is globalization? What are its benefits? How does globalization help in international business? Give some instances. Answer: Economic "globalization" is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. There are also broader cultural, political and environmental dimensions of globalization that are not covered here. At its most basic, there is nothing mysterious about globalization. The term has come into common usage since the 1980s, reflecting technological advances that have made it easier and quicker to complete international transactions – both trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity – village markets, urban industries, or financial centers. Benefits of globalization
We have moved from a world where the big eat the small to a world where the fast eat the slow, as observed by Klaus Schwab of the Davos World Economic Forum. All economic analysts must agree that the living standards of people have considerably improved through the market growth. With the development in technology and their introduction in the global markets, there is not only a steady increase in the demand for commodities but has also led to greater utilization. Investment sector is witnessing high infusions by more and more people connected to the world's trade happenings with the help of computers. As per statistics, everyday more than $1.5 trillion is now swapped in the world's currency markets and around one-fifth of products and services are generated per year are bought and sold. Buyers of products and services in all nations comprise one huge group who gain from world trade for reasons encompassing opportunity charge, comparative benefit, economical to purchase than to produce, trade's guidelines, stable business and alterations in consumption and production. Compared to others, consumers are likely to profit less from globalization.

Another factor which is often considered as a positive outcome of globalization is the lower inflation. This is because the market rivalry stops the businesses from increasing prices unless guaranteed by steady productivity. Technological advancement and productivity expansion are the other benefits of globalization because since 1970s growing international rivalry has triggered the industries to improvise increasingly.

MBA-IV Semester

Some other benefits of globalization as per statistics  Commerce as a percentage of gross world product has increased in 1986 from 15% to nearly 27% in recent years.  The stock of foreign direct investment resources has increased rapidly as a percentage of gross world product in the past twenty years.  For the purpose of commerce and pleasure, more and more people are crossing national borders. Globally, on average nations in 1950 witnessed just one overseas visitor for every 100 citizens. By the mid-1980s it increased to six and ever since the number has doubled to 12.  Worldwide telephone traffic has tripled since 1991. The number of mobile subscribers has elevated from almost zero to 1.8 billion indicating around 30% of the world population. Internet users will quickly touch 1 billion. Impact of globalization in international business:

 Trade: Developing countries as a whole have increased their share of world trade – from 19 percent in 1971 to 29 percent in 1999. But Chart 2b shows great variation among the major regions. For instance, the newly industrialized economies (NIEs) of Asia have done well, while Africa as a whole has fared poorly. The composition of what countries export is also important. The strongest rise by far has been in the export of manufactured goods. The share of primary commodities in world exports – such as food and raw materials – that are often produced by the poorest countries, has declined.  Capital movements: Chart 3 depicts what many people associate with globalization, sharply increased private capital flows to developing countries during much of the 1990s. It also shows that:
 The increase followed a particularly "dry" period in the 1980s;

 Net official flows of "aid" or development assistance have fallen significantly since the early 1980s; and  The composition of private flows has changed dramatically. Direct foreign investment has become the most important category. Both portfolio investment and bank credit rose but they have been more volatile, falling sharply in the wake of the financial crises of the late 1990s.

 Movement of people: Workers move from one country to another partly to find better employment opportunities. The numbers involved are still quite small, but in the period 1965-90, the proportion of labor forces round the world that was foreign born increased by about one-half. Most migration occurs between developing countries. But the flow of migrants to advanced economies is likely to provide a means through which global wages converge. There is also the potential for skills to be transferred back to the developing countries and for wages in those countries to rise.

MBA-IV Semester

Spread of knowledge (and technology): Information exchange is an integral, often overlooked, aspect of globalization. For instance, direct foreign investment brings not only an expansion of the physical capital stock, but also technical innovation. More generally, knowledge about production methods, management techniques, export markets and economic policies is available at very low cost, and it represents a highly valuable resource for the developing countries.

MBA-IV Semester

Q.2 What is culture and in the context of international business environment how does it impact international business decisions? Answer: Organizational culture is the set of values, beliefs, behaviors, customs, and attitudes that helps the members of the organization understand what it stands for, how it does things, and what it considers important. When the people comprising an organization represent different cultures, their differences in values, beliefs, behaviors, customs, and attitudes reflect multiculturalism. Diversity exists in a community of people when its members differ from one another along one or more important dimensions. In this new millennium, few executives can afford to turn a blind eye to global business opportunities. Japanese auto-executives monitor carefully what their European and Korean competitors are up to in getting a bigger slice of the Chinese auto-market. Executives of Hollywood movie studios need to weigh the appeal of an expensive movie in Europe and Asia as much as in the US before a firm commitment. The globalizing wind has broadened the mindsets of executives, extended the geographical reach of firms, and nudged international business (IB) research into some new trajectories. One such new trajectory is the concern with national culture. Whereas traditional IB research has been concerned with economic/ legal issues and organizational forms and structures, the importance of national culture – broadly defined as values, beliefs, norms, and behavioural patterns of a national group – has become increasingly important in the last two decades, largely as a result of the classic work of Hofstede (1980).
An issue of considerable theoretical significance is concerned with cultural changes and transformations taking place in different parts of the world. In fact, since the landmark study of Haire et al. (1966) and the publication of Industrialism and Industrial Man by Kerr et al. (1960), researchers have continued to search for similarities in culture-specific beliefs and attitudes in various aspects of work related attitudes and behaviours, consumption patterns, and the like. If cultures of the various locales of the world are indeed converging (e.g., Heuer et al., 1999), IBrelated practices would indeed become increasingly similar. Standard, culture-free business practices would eventually emerge, and inefficiencies and complexities associated with divergent beliefs and practices in the past era would disappear.

The broad ideological framework of a country, corporation, or situation is the most important determinant of the cultural identity that people develop in a given locale (Triandis, 1994). The ‘melting pot’ ideology suggests that each cultural group loses some of its dominant characteristics in order to become the mainstream: this is assimilation, or what Triandis (1994) calls subtractive multiculturalism. In contrast, when people from a cultural group add appropriate skills and characteristics of other groups, it may be called integration, or additive multiculturalism. Both of these processes are essential for cultural convergence to proceed. However, if there is a significant history of conflict between the cultural groups, it is hard to initiate these

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processes, as in the case of Israelis and Palestinians. In general, although there has been some research on the typology of animosity against other nations (e.g., Jung et al., 2002), we do not know much about how emotional antagonism against other cultural groups affects trade patterns and intercultural cooperation in a business context. The issues of cultural identity and emotional reactions to other cultural groups in an IB context constitute a significant gap in our research effort in this area.
Beyond exploring new cultural constructs and the dynamic nature of culture, we also argue for the importance of examining contingency factors that enhance or mitigate the effect of national culture. Consider the following scenario. A senior human resource manager in a multinational firm is charged with implementing an integrative training program in several of the firm’s subsidiaries around the globe. Over the term of her career, the manager has been educated about differences in national culture and is sensitive to intercultural opportunities and challenges. At the same time, she understands the strategic need to create a unified global program that serves to further integrate the firm’s basic processes, creating efficiencies and synergies across the remote sites. She approaches the implementation with trepidation. A key challenge is to determine whether the program should be implemented in the same manner in each subsidiary or modified according to the local culture at each site. Put another way, in this complex circumstance, does culture matter.

MBA-IV Semester

Q.3 Cosmos Limited wants to enter international markets. Will country risk analysis help Cosmos Limited to take correct decisions? Substantiate your answer. Answer: Yes, Country risk analysis will help Cosmos Limited to take correct decisions because Country risk analysis is the evaluation of possible risks and rewards from business experiences in a country. It is used to survey countries where the firm is engaged in international business, and avoids countries with excessive risk. With globalisation, country risk analysis has become essential for the international creditors and investors. Country Risk Analysis (CRA) identifies imbalances that increase the risks in a cross-border investment. CRA represents the potentially adverse impact of a country's environment on the multinational corporation's cash flows and is the probability of loss due to exposure to the political, economic, and social upheavals in a foreign country. All business dealings involve risks. An increasing number of companies involving in external trade indicate huge business opportunities and promising markets. Since the 1980s, the financial markets are being refined with the introduction of new products. When business transactions occur across international borders, they bring additional risks compared to those in domestic transactions. These additional risks are called country risks which include risks arising from national differences in socio-political institutions, economic structures, policies, currencies, and geography. The CRA monitors the potential for these risks to decrease the expected return of a cross-border investment. For example, a multinational enterprise (MNE) that sets up a plant in a foreign country faces different risks compared to bank lending to a foreign government. The MNE must consider the risks from a broader spectrum of country characteristics. Some categories relevant to a plant investment contain a much higher degree of risk because the MNE remains exposed to risk for a longer period of time. Analysts have categorised country risk into following groups:

• Economic risk – This type of risk is the important change in the economic structure that produces a change in the expected return of an investment. Risk arises from the negative changes in fundamental economic policy goals (fiscal, monetary, international, or wealth distribution or creation). • Transfer risk – Transfer risk arises from a decision by a foreign government to restrict capital movements. It is analysed as a function of a country's ability to earn foreign currency. Therefore, it implies that effort in earning foreign currency increases the possibility of capital controls. • Exchange risk – This risk occurs due to an unfavourable movement in the exchange rate. Exchange risk can be defined as a form of risk that arises from the change in price of one currency against another.

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Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

• Location risk – This type of risk is also referred to as neighborhood risk. It includes effects caused by problems in a region or in countries with similar characteristics. Location risk includes effects caused by troubles in a region, in trading partner of a country, or in countries with similar perceived characteristics. • Sovereign risk – This risk is based on a government’s inability to meet its loan obligations.
Sovereign risk is closely linked to transfer risk in which a government may run out of foreign exchange due to adverse developments in its balance of payments. It also relates to political risk in which a government may decide not to honor its commitments for political reasons.

• Political risk – This is the risk of loss that is caused due to change in the political structure or in the politics of country where the investment is made.
For example, tax laws, expropriation of assets, tariffs, or restriction in repatriation of profits, war, corruption and bureaucracy also contribute to the element of political risk. Risk assessment requires analysis of many factors, including the decision making process in the government, relationships of various groups in a country and the history of the country. Country risk is due to unpredicted events in a foreign country affecting the value of international assets, investment projects and their cash flows. The analysis of country risks distinguishes between the ability to pay and the willingness to pay. It is essential to analyse the sustainable amount of funds a country can borrow. Country risk is determined by the costs and benefits of a country’s repayment and default strategies. The ways of evaluating country risks by different firms and financial institutions differ from each other. The international trade growth and the financial programs development demand periodical improvement of risk methodology and analysis of country risks.

MBA-IV Semester

Q.4 How can managers in international companies adjust to the ethical factors influencing countries? Is it possible to establish international ethical codes? Briefly explain. Answer: The most prominent issues that managers in MNCs operating in foreign countries face are bribery and corruption and worker compensation. Bribery and corruption – Bribery can be defined as the act of offering, accepting, or soliciting something of value for the purpose of influencing the action of officials in the discharge of their duties. Corruption is the abuse of public office for personal gain. The issue arises when there are differences in perception in different countries. For example, in the Middle East, it is perfectly acceptable to offer an official a gift. In Britain it is considered as an attempt to bribe the official, and hence, considered unlawful.
Worker compensation – Businesses invest in production facilities abroad because of the availability of low-cost labour, which enables them to offer goods and services at a lower price than their competitors. The issue arises when workers are exploited and are underpaid compared to the workers in the parent country who are paid more for the same job. The disparity arises due to the differences in the regulatory standards in the two countries.

1 Managing ethics Earlier, we believed that ethics is a prerogative of individuals, but now this perception has immensely changed. Many companies use management techniques to encourage ethical behaviour at an organisational level. Various techniques of managing ethics like practicing ethics at the top level management, special training on ethics, forming committees to oversee ethical issues, and defining and implementing code of ethics are illustrated in figure

Techniques of Managing Ethics

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Let us discuss each technique in detail. Top management – The senior management of a company must be committed to ensure that ethical standards are met. The chief executive of the company must not engage in business practices harmful to employees, or the society. The top management must focus on ethical practices while informing employees of their intention. Code of ethics – One of the best practices for ethics is creating a ‘corporate ethical statement’ and communicating it within the company. Such practices enhance the company’s public image. Almost all Fortune 500 companies have such codes. Ethics committee – There are ethics committees in many firms to help them deal with and advise on work related ethical issues. The Chief Executive Officer can head the committee that includes the Board of Directors. Such a committee answers employee queries, helps the company to establish policies in uncertain areas, advises the Board on ethical issues, and oversees the enforcement of the code of ethics. Ethics hotline – A company’s ethical hotline helps its employees report any ethical issues they face at work. The ethics committee then investigates these issues. Such hotline calls are treated confidential, where the caller’s identity is protected to encourage employees to report on ethical issues. The act of reporting illegal, immoral, or illegitimate practices by former or current employees involving its employees is known as Whistle-blowing. Whistle-blowing is favourable to a company because employees can alert the management on possibly deviant behaviour rather than reporting it to the media, which adversely affects the company. A case of whistle-blowing in Xerox corporation (a pioneer in copier machines), led its Chief Financial Officer to be fined $ 5.5 million and banned from practicing accountancy after reports of falsified financial statements emerged. Ethics training programs – Most firms take ethics seriously and provide training for its managers and employees. Such training programs help the employees become familiar with the official policy on ethical issues. These programs demonstrate the use of these ethic policies in everyday decision making. Ethics training is most effective when conducted by managers and when focused on work environment. Ethics and law – Both law and ethics focus on defining the perfect human behaviour, but they are not the same. Law is the government’s attempt to formalise rightful behaviour, but it is rarely possible to enforce written laws. It depends on individual or business ethics to reduce unlawful incidents. Ethical concepts are more complex than written rules since it deals with human dilemmas that go beyond the formal language of law. Legal rules seek to promote ethical behaviour in companies. The following are some of the Acts which seek to ensure fair business practices in India:

MBA-IV Semester

• Foreign Exchange Management Act (FEMA) of 1999 - FEMA regulates the cross border movement of foreign and local currencies. • Companies Act of 1956 - Companies Act provides the complete legal framework for the formation, running, and winding up of a company. • Consumer Protection Act of 1986 (CPA) - CPA provides and regulates the framework for the protection of consumer rights. • Essential Commodities Act of 1955 - This act defines the goods and services that are essential for the people at all times and provides a legal framework for the uninterrupted supply of the same. 2 Free market ethics: Competition is an important element that differentiates free market from command market. Competition is a mechanism for free market production and distribution of goods and services that are in demand. Competition in business is seen as an essential cultural trait of a free market society. Most activities of the free market can be viewed as a competitive contest in which businesses engage to provide products and services for a profit.
In addition to the economic nature of the free market system, there are ethic- related issues as well. The three widely accepted factors of ethics in the free market are market ethics, the Protestant ethics, and the liberty ethics. These three ethics set the stage for the industrial revolution and the accompanying growth in business. During this period, industrial capitalists were allowed to freely operate businesses, build large organisations, exploit workers, and engage in fiercely competitive practices for profit and economic expansion.

Market ethics – Market ethics is the basic system of ethics followed by a business in a free market scenario. It covers the entire spectrum of business including sales, pricing, and competitor issues. The Protestant ethics – The Protestant ethics considered ideology as an important factor along with the moral aspects in a capitalist scenario. As an ideology, this ethic served to legitimise the capitalistic system by providing a moral justification for the pursuit of profit and distribution of income. Liberty ethics – Liberty ethics encourages a person to play a participatory role on government, encourages private property, and introduces more freedom and individualism in all spheres of life.

MBA-IV Semester

Q.5 Discuss the international marketing strategies. How is it different from domestic marketing strategies? Answer: International marketing refers to marketing of goods and products by companies overseas or across national borderlines. The techniques used while dealing overseas is an extension of the techniques used in the home country by the company. International marketing can be defined as marketing of goods and services outside the firm’s home country. International marketing has the following two forms of marketing: • Multinational marketing. • Global marketing.
Multinational marketing is very complex as a firm engages in marketing operations in many countries. In multinational marketing, a firm visualizes different countries as one market and build their brand or service according to the business environment of the foreign countries. A regiocentric approach is taken to plan a product and consolidate the manufacturing processes. Therefore, international marketing is beneficial in preparing a firm to deal globally as it establishes a business stronghold on various foreign markets. Global marketing indicates the integrated and coordinated marketing activities across many different markets.

1 Domestic vs. International marketing Domestic marketing refers to the practice of marketing within a firm’s home country. Whereas International or foreign marketing is the practice of marketing in a foreign country; the marketing is for the domestic operations of the firm in that country. Domestic marketing finds the "how" and "why" a product succeeds or fails within the firm’s home country and how the marketing activity affects the outcome. Whereas, foreign marketing deals with these questions and tries to find answers according to the foreign market conditions and it provides a micro view of the market at the firm’s level. In domestic marketing a firm has insight of the marketing practices, culture, customer preferences, climate and so on of its home country, while it is not totally aware of the policies and the market conditions of the foreign country. The stages that have led to achieve global marketing are:

• Domestic marketing - Firms manufacture and sell products within the country. Hence, there is no international phenomenon. • Export marketing - Firms start exporting products to other countries. This is a very basic stage of global marketing. Here, the products are developed based on the company’s domestic market although the goods are exported to foreign countries. • International marketing - Now, Firms start to sell products to various countries and the approach is ‘polycentric’, that is, making different products for different countries.

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• Multinational marketing - In this stage, the number of countries in which the firm is doing business gets bigger than that in the earlier stage. And hence, the company identifies the regions to which the company can deliver same product instead of producing different goods for different countries. For example, a firm may decide to sell same products in India, Sri lanka and Pakistan, assuming that the people living in this region have similar choice and at the same time offering different product for American countries. This approach is termed ‘regiocentric approach’. • Global marketing - Company operating in various countries opts for a common single product in order to achieve cost efficiencies. This is achieved by analysing the requirements and the choice of the customers in those countries. This approach is called ‘Geocentric approach’.
The practice of marketing at the international stage does not designate any country as domestic or foreign. The firm is not considered as the corporate citizen of the world as it has a home base. The firm must not have a 'single marketing plan', because there are differences between the target markets (that is domestic or international markets). There should never be a rigid marketing campaign. A firm that is successful internationally first obtains success locally. Few approaches that you can consider for an international marketing are:

• Advertise as a foreign product - By doing so, the product will be considered as genuine and original in some countries. • Joint partnership with a local firm - finding a firm that has already established credibility will benefit a lot. The product will be considered as a local product by following this marketing approach. • Licensing - You can sell the rights of your product to a foreign firm.
Here the problem is that the firm may not maintain the quality standard and therefore may hurt the image of the brand.
Culture is a major factor which influences marketing decisions and practices in a foreign country. For example, in the middle-eastern countries the prior approval of the governing authorities should be taken if a firm plans to advertise a product related to women’s apparel, as showcasing some aspects of women clothing is considered immodest and immoral.

MBA-IV Semester

Q.6 Explain briefly the international financial management components with examples and applicability. Answer: The components like foreign exchange market, foreign currency derivatives, international monetary markets and international financial markets are essential to the international financial management, which is as follows: 1 Foreign exchange market The Foreign exchange or the forex markets facilitates the participants to obtain, trade, exchange and speculate foreign currency. The foreign exchange market consists of banks, central banks, commercial companies, hedge funds, investment management firms and retail foreign exchange brokers and investors. It is considered to be the leading financial market in the world. It is vital to realise that the foreign exchange is not a single exchange, but is created from a global network of computers that connects the participants from all over the world. The foreign exchange market is immense in size and survives to serve a number of functions ranging from the funding of cross-border investment, loans, trade in goods, trade in services and currency speculation. The participant in a foreign exchange market will normally ask for a price. The trading in the foreign exchange market may take place in the following forms:

• Outright cash or ready – foreign exchange currency deals that take place on the date of the deal. • Next day - foreign exchange currency deals that take place on the next working day. • Swap – Simultaneous sale and purchase of identical amounts of currency for different maturities. • “Spot” and “Forward” contracts - A Spot contract is a binding obligation to buy or sell a definite amount of foreign currency at the existing or spot market rate. A forward contract is a binding obligation to buy or sell a definite amount of foreign currency at the pre-agreed rate of exchange, on or before a certain date.
The advantage of spot dealing has resulted in a simplest way to deal with all foreign currency requirements. It carries the greatest risk of exchange rate fluctuations due to lack of certainty of the rate until the deal is carried out. The spot rate that is intended to receive will be set by current market conditions, the demand and supply of currency being traded and the amount to be dealt. In general, a better spot rate can be received if the amount of dealing is high. The spot deal will come to an end in two working days after the deal is struck.
A forward market needs a more complex calculation. A forward rate is based on the existing spot rate plus a premium or discounts which are determined by the interest rate connecting

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the two currencies that are involved. For example, the interest rates of UK are higher than that of US and therefore a modification is made to the spot rate to reflect the financial effect of this differential over the period of the forward contract. The duration will be up to two years for a forward contract. A variation in foreign exchange markets can be affected to any company whether or not they are directly involved in the international trade or not. This is often referred to as ‘Economic’ foreign exchange and most difficult to protect a business. The three ways of managing risks are as follows: • Choosing to manage risk by dealing with the spot market whenever the need of cash flow rises. This will result in a high risk and speculative strategy since one will not know the rate at which a transaction is dealt until the day and time it occurs. Managing the business becomes difficult if it depends on the selling or buying the currency in the spot market. • The decision must be made to book a foreign exchange contract with the bank whenever the foreign exchange risk is likely to occur. This will help to fix the exchange rate immediately and will give a clear idea of knowing the exact cost of foreign currency and the amount to be received at the time of settlement whenever this due occurs. • A currency option will prevent unfavourable exchange rate movements in the similar way as a forward contract does. It will permit gains if the markets move as per the expectations. For this base, a currency option is often demonstrated as a forward contract that can be left if it is not followed. Often banks provide currency options which will ensure protection and flexibility, but the likely problem to arise is the involvement of premium of particular kind. The premium involved might be a cash amount or it could also influence into the charge of the transaction. 2 Foreign currency derivatives Currency derivative is defined as a financial contract in order to swap two currencies at a predestined rate. It can also be termed as the agreement where the value can be determined from the rate of exchange of two currencies at the spot. The currency derivative trades in markets correspond to the spot (cash) market. Hence, the spot market exposures can be enclosed with the currency derivatives. The main advantage from derivative hedging is the basket of currency available.
Figure describes the examples of currency derivatives. The derivatives can be hedged with other derivatives. In the foreign exchange market, currency derivatives like the currency features, currency options and currency swaps are usually traded. The standard agreement made in order to buy or sell foreign currencies in future is termed as currency futures. These are usually traded through organised exchanges. The authority to buy or sell the foreign currencies in future at a specified rate is provided by currency option. These will help the businessmen to enhance their foreign exchange dealings. The agreement undertaken to exchange cash flow streams in one currency for cash flow streams in another currency in

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future is provided by currency swaps. These will help to increase the funds of foreign currency from the cheapest sources.

Example for Foreign Currency Derivatives Some of the risks associated with currency derivatives are: • Credit risk takes place, arising from the parties involved in a contract. • Market risk occurs due to adverse moves in the overall market. • Liquidity risks occur due to the requirement of available counterparties to take the other side of the trade. • Settlement risks similar to the credit risks occur when the parties involved in the contract fail to provide the currency at the agreed time. • Operational risks are one of the biggest risks that occur in trading derivatives due to human error. • Legal risks pertain to the counterparties of currency swaps that go into receivership while the swap is taking place. 3. International monetary systems The international monetary systems represent the set of rules that are agreed internationally along with its conventions. It also consists of set of rules that govern international scenario, supporting institutions which will facilitate the worldwide trade, the investment across cross-borders and the reallocation of capital between the states.

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International monetary systems provide the mode of payment acceptable between buyers and sellers of different nationality, with addition to deferred payment. The global balance can be corrected by providing sufficient liquidity for the variations occurring in trade. Thereby it can be operated successfully. The gold and gold bullion standards
The gold standard was the first modern international system. It was operating during the late 19th and early 20th centuries, the standard provided for the free circulation between nations of gold coins of standard specification. The gold happened to be the only standard of value under the system. The advantages of this system depend in its stabilising influence. Any nation which exports more than its import would receive gold in payment of the balance. This in turn has resulted in the lowered value of domestic currency. The higher prices lead to the decreased demands for exports. The sudden increase in the supply of gold may be due to the discovery of rich deposit, which in turn will result in the increase of price abruptly.

This standard was substituted by the gold bullion standard during the 1920s; thereby the nations no longer minted gold coins. Instead, reversed their currencies with gold bullion and determined to buy and sell the bullion at a fixed cost. This system was also discarded in the 1930s. The gold-exchange system Trading was conducted internationally with respect to the gold-exchange standard following World War II. In this system, the value of the currency is fixed by the nations with respect to some foreign currency but not with respect to gold. Most of the nations fixed their currency to the US dollar funds in the United States. With a view to maintain a stable exchange rate at the global level, the International Monetary Fund (IMF) was created at the ‘Bretton Woods international Conference’ held in 1944. The drain on the US gold reserves continued up to the 1970s. Later in 1971, the gold convertibility was abandoned by the United States leaving the world without a single international monetary system. Floating exchange rates and recent development After the abundance of the gold convertibility by the US, the IMF in 1976 decided to be in agreement on the float exchange rates. The gold standard was suspended and the values of different currencies were determined in the market. The ‘Japanese yen’ and the ‘German Deutschmark’ strengthened and turned out to be increasingly important in international financial market, at the same time the US dollar diminished its significance.
The Euro was set up in financial market in 1999 as a replacement for the currencies. Hence, it became the second most commonly used currency after the dollar in the international market. Many large companies opt to use euro rather than the dollar in bond trading with a goal to receive better exchange rates. Very recently the some of the members of

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Organisation of Petroleum Exporting Countries (OPEC) such as Saudi Arabia, Iraq have opted to trade petroleum in Euro than in Dollar. 4 International financial markets International foreign markets provide links connecting the financial markets of each country and independent markets external to the authority of any one country. The heart of the international financial market is being governed by the market of currency where the foreign currency is denominated by the international trade and investment. Hence the purchase of goods and services is preceded by the purchase of currency. The purpose of the foreign currency markets, international money markets, international capital markets and international securities markets are as follows:

• The foreign currency markets - The foreign currency market is an international market that is familiar in structure. This means that there exists no central place where the trading can take place. The ’market’ is actually the telecommunications like among financial institutions around the globe and opens for business at any time. The greater part of the worlds that deal in foreign currencies is still taking position in the cities where international financial activity is centred. • International money markets - A money market can be conventionally defined as a market for accounts, deposits or deposits that include maturities of one year or less. This is also termed as the Euro currency markets which constitute an enormous financial market that is beyond the influence and supervision of world financial and government authorities. The Euro currency market is a money market for depositing and borrowing money located outside the country where that money is officially permitted tender. Also, Euro currencies are bank deposits and loans existing outside any particular country. • International capital markets - The international capital provides links among the capital markets of individual countries. It also comprises a separate market of their own, the capital market that flows in to the Euro markets. The firms enjoy the freedom to raise capital, debit, fixed or floating interest rates and maturities varying from one month to thirty years in an international capital markets. • International security markets - The banks have experienced the greatest growth in the past decade because of the continuity in providing large portion of the international financial needs of the government and business. The private placements, bonds and equities are included in the international security market.
The following are the reasons given for the enormous growth in the trading of foreign currency:

• Deregulation of international capital flows - Without the major government restrictions, it is extremely simple to move the currencies and capital around the globe. The majority of the deregulation that has differentiated government policy over the past 10 to 15 years. • Gain in technology and transaction cost efficiency – The advancements in technology is
not only taking place in the distribution of information, in addition to the performance of

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exchange or trading. This has resulted greatly to the capacity of individuals on these markets to accomplish instantaneous arbitrage. • Market upwings - The financial markets have become increasingly unstable over recent years. There are faster swings in the stock values and interest rates, adding to the enthusiasm for moving further capital at faster rates. Scope of International Financial Management The list of all functions, activities and the decision regarding the management of international business defines the scope of IFM. 1 Management of working capital The device of finance is the working capital management. The management of current assets and current liabilities are associated with the working capital. The main goal of working capital management is to guarantee that the firms maintain its operations normally and has adequate cash flow to satisfy short-term debt and forthcoming operational expenses. some of the working capital policies which serve as guidelines to business. They are as follows:

• Liquidity policy - The manager can increase the amount of liquidity in order to reduce the risk of business. If the production has high amount of cash and bank balance, then business can simply pay its dues at maturity. It is the responsibility of the finance manager to know that the excess cash will not produce the required earnings. Instead, return on investment will decrease. Therefore liquidity policy should be optimised. • Profitability policy - In this case the finance manager will maintain low amount of cash in business and aim to invest maximum amount of cash and bank balance. It will guarantee that the profit of business will rise due to increasing of investment in a correct way. But the risk of business will also increase because liquidity of business will reduce and can ruin the business. So, profitability policy must be done following the liquidity policy and provide for proper management of the working capital.
Need for working capital management After understanding the nature of production, we can make an estimation of the working capital. If the company produces under a large scale and continues producing goods, then in that case we need a high amount of working capital. The high amount of working capital will decrease the return on investment, whereas low amount will increase the risk of business. Therefore it is necessary to get optimum level of working capital where both the profit and risk will be balanced. If the manager supervises the cash, nonpayer and inventory, then the working capital will repeatedly optimise.

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2. Financing decisions The way of arranging finance refers to the raising of capital. The financing decision has to consider the following factors:

• Flexibility - The financing decisions made today will have an impact on the future. If the business anticipates increasing its capital in the future, it cannot exploit the use of debt today. Hence correct flexibility with future financing decisions must be taken. • Risk - There are chances to increase risk by financing with the use of debt. There exists a limit on the amount of debt to be used to finance our business. A high amount of debt can result in economic failure. • Income - Financing can persuade earnings and thus influence return on equity. If we are anxious concerning returns to equity shareholders, then the financing decision will require to be adjusted. Income is also influenced by the capability to receive benefit of tax deductions for interest on debt. • Control - If we have concerns regarding control over the organisation, in that case we have to judge how financing will change control. Financing decisions are associated to either ownership (equity) or creditors (debt). • Time - To take the advantage of market place, the financing decision needs to be timed. The type of securities to be sold, length of maturity to be used for debt financing should be decided.
Refinancing risk One of the main aims of financing decisions is to go with the maturity of liabilities with the life expectancy of assets. This will allow the liabilities to be self-liquidating. There are chances of facing refinancing risk if the maturity of liabilities is less than the life expectancy of assets. Here, the capital has to be raised to pay off liabilities. In the either case there will be abundance of assets around to pay off debts if the maturity of liabilities is longer than the life expectancy of assets. Inflation As a result of using debt financing in periods of high inflation, one will pay back the debt with currencies that are worthless. While expectations of inflation increase, the rate of borrowing will raise since creditors must be compensated for a loss in value. Since inflation is a main motivating force behind interest rates, the financing decision should be aware of inflationary development. 3. Taxation For the worldwide operation of firms, taxation plays a vital role. Taxation has become the core of various financing decisions which includes international investment decisions, international working capital decisions, fund raising decisions and the decisions related to dividend and other payments. The tax decision is also relevant in domestic firms also.

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The managing of taxation is an extremely difficult issue for the international corporations. The various reasons are given as follows: • The firms are supposed to work in several tax jurisdiction or authorities where the tax rates are diverse and also the administration of the tax system is not uniform. • The ultimate load of tax in the framework of international firms is determined by means of a more complex interaction of varying descriptions of the tax base. • The difference in tax treatment in different nations will direct to distortions in worldwide trade and investment. The companies which are situated in the low-tax country can have a periphery over other firms in worldwide market. There are possibilities to divert the investment to those countries that have low cost rates. • The overlapping takes place between the international firms with different tax jurisdictions, utilise the arbitrage opportunities and retain an edge over the domestic firms. The bases of international tax system are:

• Tax neutrality - The neutrality of international tax system is important because it must not affect the economic efficiency. If the tax is neutral then it will not influence the locality of the investment or nationality of the investor. The capital can shift from a nation with lesser return to a nation with higher return. Therefore, resources will be allocated well, and the gross world output in turn will be high. • Tax equity - The principle of tax equity states that all equally positioned tax players contribute in the cost of operating the government according to the equal rules. The idea of equity can be understood in two ways. The first one states that the input of each tax player must be consistent with the amount of public services as received. The second idea is that the contribution of each tax player must be in terms of their ability to pay. The ability to pay means the one with greater ability is likely to pay a larger amount of tax. • Avoidance of double taxation - The avoidance of double income states that one must not be taxed twice for the same income. However, if the post-tax income is sent to the foreign countries then in that case the receiver of such income is taxed again. This implies the same income is subjected to double taxation. As an alternative, the requirements of foreign tax credits may be formed in the domestic tax system.
There also exist some tax laws which prevent the tax through artificial transactions such as transfer pricing. In addition, the corporate structures will help to reduce the overall tax burden to the enterprise.

MBA-IV Semester

Assignment Set – Il Note: Each question carries 10 Marks. Answer all the questions. Q.1 What is WTO? Explain its objectives, functions and structure. Answer: The World Trade Organisation (WTO) was established on 1st January 1995. In April 1994, the Final Act was signed at a meeting in Marrakesh, Morocco. The Marrakesh Declaration of 15th April 1994 was formed to strengthen the world economy that would lead to better investment, trade, income growth and employment throughout the world. The WTO is the successor to the General Agreement of Tariffs and Trade (GATT). India is one of the founder members of WTO. WTO represents the latest attempts to create an organisational focal point for liberal trade management and to consolidate a global organizational structure to govern world affairs. WTO has attempted to create various organisational attentions for regulation of international trade. WTO created a qualitative change in international trade. It is the only international body that deals with the rules of trades between nations. 1. Objectives and functions The key objective of WTO is to promote and ensure international trade in developing countries. The other major functions include: • Helping trade flows by encouraging nations to adopt discriminatory trade policies. • Promoting employment, expanding productions and trade and raising standard of living and income and utilising the world’s resources. • Ensuring that developing countries secure a better share of growth in world trade. • Providing forum for trade negotiations. • Resolving trade disputes. The important functions of the WTO as stated in the WTO agreement are the following: • Developing transitional economies – Majority of the WTO members belong to developing countries. The developing countries such as India, China, Mexico, Brazil and others have an important role in the organisation. The WTO helps in solving the problems of developing economies. The developing states are provided with trade and tariff data. This depends on the country’s individual export interest and their participation in WTObodies. The new members benefit hugely from these services.
• Providing help for export promotion – The WTO provides specialized help for export promotion to its members. The export promotion is done through the International Trade Center established by the GATT in 1964. It is operated by the WTO and the United Nations. The center accepts requests from member countries, usually developing countries for

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support in formulating and implementing export promotion programmes. The center provides information on export market and marketing techniques. The center also provides assistance in establishing export promotion and marketing services. Through this WTO proves its commitment in the upliftment of the world economy.

• Cooperating in global economic policy-making – The main function of the WTO is to cooperate in global economic policy-making. In the Marrakesh Ministerial Meeting in April 1994, a separate declaration was adopted to achieve this objective. The declaration specifies the responsibility of WTO as, to improve and maintain the cooperation with international organisations such as the World Bank, International Monetary Fund (IMF) that are involved in monetary and financial matters. WTO analyses the impact of liberalisation on the growth and development of national economies which is the important factor in the success of the economy. • Monitoring implementation of the agreement – The WTO administers sixty different agreements that have the statue of international legal documents. The membergovernments sign and confirm all WTO agreements on attainment. • Providing forum for negotiations – The WTO provides a permanent forum for negotiations among members. The negotiations can be on matters already in the WTO agreements or matters not addressed in the WTO law. • Administrating dispute settlement – The important function of WTO is the administration of the WTO dispute settlement system. It helps in settling multilateral trading dispute. A dispute arises when a member country adopts a trade policy and other fellow members consider it as a violation of WTO agreements. The Dispute Settlement Body (DSB) is responsible for the settlement of disputes. The dispute settlement system is prohibited from adding or deleting the rights and obligations provided in the WTO agreements. The WTO dispute settlement system helps to:
• Preserve the rights and responsibilities of the members. • Clarify the current provisions of the agreements. 2. Structure The structure of the WTO consists of the Ministerial Conference, which is the highest authority. This body consists of the representatives from all WTO members. The WTO members meet in every two years and take decisions on all matters under the multilateral trade agreements. The daily activities of the WTO are conducted by subsidiary bodies and principally by the General Council which is composed of WTO members. The members report to the Ministerial Conference. The General Council on behalf of the Ministerial Conference administers as the Dispute Settlement Body to manage the dispute settlement procedures. It also acts as the Trade Policy Review Body that conducts regular reviews of the trade policies of the individual WTO members. The General Council delegates responsibility to other major bodies. They are:

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• Council for Trade in Goods manages the implementation and functioning of all agreements covering trade in goods. • Trade in Services and Trade of Intellectual Property Rights are the two councils that have responsibility for their respective WTO agreements and can establish their own subsidiary bodies if required. • The Committee on Trade and Development manages issues relating to the developing countries.
• The Committee on Balance of Payments conducts consultations between WTO members and countries that take trade-restrictive measures to handle balance-of-payments difficulties.

• Committee on Budget and Administration manages issues relating to financing and budget of WTO.

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Q.2 Explain briefly the nature of e-business and the challenges involved. Answer: Nature of E-Business E-business can be defined as "the use of networks and information technology in order to electronically design, market, buy, sell and deliver products and services worldwide". Ebusiness, meaning ‘electronic business’, deals with application of information and communication technologies, in short an electronic medium in support of all the activities of business. The e-business mainly stands for the internet enabled business. There are four entities in the internet enabled business. These four entities are as shown in the figure.

Entities of Internet Enabled Business The four entities of internet enabled business are explained as follows:

• Information (Access to data) – We often use internet for retrieving the information. This low cost data access is provided for a wide number of people across the world. For many of the organisations the internet is required to list down the things in the e-pages. To find any information on the net, the customer must use search engines like the well known and widely used Google, Yahoo, MSN and portals like AOL, iGoogle, MSNBC, and Netvibes. • Communication (Bi or multilateral exchange of information) – Internet is a basic mode of communication. The bilateral exchange of information involves communication between two people with exchange of information. The multilateral exchange of information involves one person communicating with two or many people. The multilateral exchange of information can be explained by considering the conference calls that helps to communicate with two or many number of people at the same time. Bi or multilateral exchange of information is possible by e-mail based services that act as the customer interaction centre for the customer questions as well as the complaints. It helps business people to keep in touch with their business partners across the world. • Community (Mutual support by knowledge transfer) – Internet plays an important role in sharing knowledge as well. This is helpful for processes like the research and development of systems, development of open source projects, and also the development of software. The members of the community such as the participants in the open source projects will help in the mutual transfer of the information.

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• Commerce (Contract based transactions with the customers) – The internet helps in facilitating the transactions. The aim of commerce is to satisfy the needs of the customers. This further helps the customers to pay their bills online. In e-business, the initial stages are tentative and not very secure. As we all know that most of the business process work in an insecure environment, the pressure is more on the base of an organisation or the management of an organisation. In the traditional business, the trust plays an important role with respect to suppliers and consumers. Trust is also important for performing business with other sectors. As the e-business is growing rapidly, it is becoming difficult to establish and maintain the trust during all stages of the business process. There are more chances of losing trust in ebusiness as it lacks face to face interaction. When it comes to trust in e-business, Daughtrey (2001) has suggested some conditions that consumers expect while performing e-business or purchasing things online. These conditions include: • The general reputation of the company. • The expectations of the customers for security, privacy, and confidentiality. • The assurances that the supplier must provide like certifications, guarantees, and so on. • The reports of the other customers and if the customer has the history of previous transactions then additional factors that are considered include: • Accuracy in fulfilling the placed order. • Timeliness of order fulfilment. • The kind of interactions with customer relations. • The resolution for any kind of problems. • The subsequent communications from the supplier. • The need for communication from the other supplier with whom the customer relation was shared.
There are some factors that build a good trust that include good media, brand name, and logo. Many of the companies have become successful organisations because of the new business environment that they have adopted specially with the electronic and technological development. The companies become successful due to the consumer trust. There are some situations where there is a lack of trust in the e-business sector and sometimes it is considered as the secure system. The transfer of payment information online is more secure than sending the cheques and money orders as online transactions include the actions like encryption and developing the digital certificates which adds the security.

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There are many risks that are associated with online transaction, hence can be minimised by technical process like encryption and developing the digital certificates. The Challenges of E-Business As the ebusiness is growing, there are many technical and business trends that are associated with it. Some important trends in e-business are explained below. E-business is crucial to business success. Many companies come out with changes that are necessary for e-business to become profitable. The process of e-business is long lasting than that of the re-engineering. There are some important trends in the e-business that are described as follows:

• Technology focus is on e-business - The hardware, software, and network vendors, focus on providing the tools for e-business. The ebusiness is mainly the extension of the products and services. • E-business produces cumulative effects - E-business is long lasting.
The relationship with customers, suppliers, and employees changes as we implement ebusiness. • E-business implementation effects success and failure of a business - There will be both the success and the failures that are associated with any kind of business. The failures become dramatic with e-business as it is more visible externally. There are some major success factors for e-business. These factors include the strategic factors, structural factors and the management oriented factors. These factors are explained as follows: • Strategic factors. • The technologies related to the internet are used as a complement for the existing technologies. • The basis of competition that is not shifted from traditional competitive advantages such as cost, profit, quality, service and features. • The new competitors and market shares are tracked. • The web centric marketing strategy. • The strategic position of the company in the market has strengthened. • The frequent review of the distribution and supply chain model is done in order to maximise the company's gain. • The buyer’s behaviour and the customer personalisation. • The first-mover advantage and quick time to start.

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• The e-business offered good products and services. • The innovation was allowed when risks are low. • The customer’s and partner's expectations from the well managed. • Structural factors. • Correct digital infrastructure. • Good e-business education and training to employees, management and customers. • Current systems expanded to cover entire supply chain. • Good cost control. • Management-oriented factors. • The organisation wide commitment to e-business leadership. • The necessary support for e-business from the top management. • The awareness and understanding of capabilities of technology by executives. • The top management has to communicate about the value of ebusiness throughout the organisation. The e-business is facing challenges mainly in the areas of technology, logistics, and legal issues. These areas are explained in the following sections 1. Technology The technology plays a major role in the concept of new economy. The technology has two dimensions; one is the shift from manufacturing to services and second is the shift from physical resources to the knowledge resources. There are so many mechanisms for technology innovation and diffusion, both within and outside the countries. Many of the organizations will include different technologies both for quantitative and qualitative terms. Small scale enterprises play a vital role in the implementation of new technologies. They have added more value in terms of population, employment, and services that they are offering. Internet also plays a vital role as it helps the small and medium enterprises in providing the cost effective possibilities to advertise their products. Internet also provides the contacts to buyers and suppliers on a global basis. E-business is helps the radical transformation in the way that the business is done. The introduction of technologies like the common database, electronic networks and value added services are helpful for speeding up the transactions and these are fundamental at the industrial level. The ebusiness has to undergo lot of challenges in implementing the technologies that are helpful for the organisation since many of the people in the organisation will not be interested to shift to the new technology and learn the new skills.

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2. Logistics The logistics is defined as the planning framework for maintaining the material, information, and capital flow. The logistics includes the complex information, communication and control systems required in the business environment. The logistics presents e-business with challenges that exceeds the expectations of the customers with a reasonable cost. Now– aday, attempt has been made to reduce the inventory costs. In order to meet the high expectations of the customers, an e-business needs the special infrastructure for tuning and managing the interactions. The interactions can be in between the shippers, logistic providers, shipping companies, and also the customers. 3. Legal concerns As there is tremendous usage of internet, it is better to consider the legal concerns behind the internet. This is because whatever is printed on the net will be accessed by public throughout the world. We also have an option of going back and seeing the basics of that information. Now-–a-day with the help of wireless phones, Personal Digital Assistants (PDAs), internet can be accessed from anywhere in the world. As a result the customers must be provided proper security and privacy to access internet. It becomes very difficult to trust the actual with the unethical, illegal, internet marketing and advertising frauds and ebusiness email scams and hence one must be careful while performing e-business. It is necessary to concern the privacy and legal matters while writing a copy and maintaining a client's e-business. There are uncertainties in e-business when compared with direct business. The uncertainties are related to the security, privacy, credit and debit card handling. The security is the primary concern in e-business. The PCI Data Security standard (PCI DSS) needs to be followed by one who handles the credit card information. E-business is all about the trust between buyer and the seller so one must be careful while dealing with the transactions which involve the handling of credit and debit cards. There will also be copyright issues that is copying something from other sites and presenting the same content as their own. It is important to check for plagiarism when the company is publishing their own articles. When some concepts are copyright then it is necessary to credit the original authors. Disclaimer notice is required at the start of any business website. If the webmasters include some unethical information about the client then that can cause everlasting negative consequences for the client. The legal action is taken against the false advertisements also. The risks associated with conducting e-business over the internet are explained as follows: • Jurisdiction - Contracting over the cyberspace is a challenge for the website owners and the internet is the form of communication that rises above the spatial boundaries. There is a jurisdiction problem in the disputes between the buyer and seller regarding where the contract was formed and which state law applies for the contract.

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• Contact validity - The emerging issue is the legal validity of web wrap or click on contracts. This type of contract is mainly found on the web site that offers goods and services for the sale. This e-business creates the legal relationship between the seller and buyer. • Contract information - The advent of the e-business over the net is responsible for various legal issues regarding the formation of the electronic contracts.
• There is a need for matching both the e-customers and e-merchants with the legally responsible parties in the real world. There is a need for on cryptographic methods for reducing the risks associated with the identification and authentication. The cryptographic methods for eliminating the risks those are associated with the non repudiation and security.

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Q.3 Mention the relevance of these terms in International business - Letter of credit, Bill of Lading and Factoring. Answer: Letter of credit International Trade is affected by distance, laws, political instability and lack of familiarity by the parties who transact. Letter of credit assumes significance since it can be used to mitigate risk. The letter of credit is a document that is issued by the bank that guarantees payment to a beneficiary. The letter of credit 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. We can say that the letter of credit is the financial contract between the issuing bank and the designated beneficiary. The following are the elements of the letter of credit: • The payment undertaking given by the issuing bank. • The issuing bank makes agreement on behalf of the buyer. • The letter of credit is used to pay a seller for a given amount of money. • The presentation of the specified documents that shows the supply of goods. • The time limits for the payment are specified.
• The document needs to confirm the terms and conditions that are set In the letter of credit.

• The documents need to be presented at the specified place. Bill of lading The legal document that is given by the shipping agency for the goods that are shipped from one destination to the other destination is called as the bill of lading. The bill of lading is signed by the representatives of the carrying vessel. It contains the details of type, quantity and destination of the goods that are being carried. Several times, the bill of lading is issued as a set of two, three or more. The number present on each bill of lading is to ensure security.. The bill of lading has to be signed by the shipping company or its agent and it should also show the number of signed originals. The bill of lading indicates whether the cost of carriage is paid or not. This will be of the following two types • Freight prepaid - This is paid for the shipper. • Freight collect - This is to be paid by the buyer at the port of discharge.

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To be acceptable by the buyer, the bill of lading should: • Carry on the board of notation that shows the correct date of shipment.
• Have the notation of the shipping company to the effect that the goods are damaged. The main parties that are involved in the bill of lading are mentioned below:

• Shipper - person sending the goods. • Consignee - person who delivers the goods. • Notify party - person, usually the importer to whom the shipping company informs on the arrival of goods. • Carrier - This can be a person or company, who has ended up in contract with the shipper for conveyance of the goods. The bill of lading has to meet the following requirements of the credit: • The exact shipper, consignee and the notifying party need to be known. • The carrying vessel and ports of the loading and release need to be stated. • The description of the goods needs to be consistent with the other as shown on the documents. • The measures need to match with the measures that are on the other documents. • The shipping marks and numbers need to match with the numbers that are shown on the other documents. • The bill of lading has to state whether the goods are paid or if it needs to be paid at the destination. • The bill of lading has to state before the last date for the shipment that is specified in the credit. • The bill of lading has to state actual name of the carrier. Factoring The term factoring is the financial transaction in which the factoring organisation buys the exporter’s foreign accounts receivable at a discount. In this, the factor assumes all the credit and political risks that are present with the importer. In the perspective of the exporter, factoring is advantageous as it serves to help the firm realise cash immediately. The following are three ways in which factoring differs from bank loan:

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• Factoring mainly focuses on the value of the receivables but not on the worth of the organisation's credit. • Factoring is the purchase of the financial asset, which refers to the receivable but, it is not a loan. • Whilst bank involves just two parties for a loan, factoring involves three parties which involve the seller, debtor and factor.

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Q.4

a) Explain the role played by EXIM bank. b) What are B2B and C2B business models?

Answer: The EXIM bank is the export import bank that has been set up by the Government of India. This is set up to perform many functions to finance, promote and develop the trade. This was established on Jan 1, 1982. This has the power to borrow from the RBI as well as from abroad. This plays an important role in the export financing. This bank provides the financial assistance for promoting the Indian exports. This provides the financial assistance through the direct financial assistance, abroad investment finance, pre-ship credit, buyers lines, export bills discounting and so on. This also extends the help through the non funded facility for the exporters in the form of guarantees. This aims at export of the manufactured goods, export of technology, export of software. The financing programmes of the Exim bank are the most comprehensive among the export credit agencies across the globe. Business to business model
The business to business (B2B) model describes the transactions between the buyers, suppliers, manufactures, resellers, distributors, and trading partners. This involves the transactions that involve the products, services, and the information. Internet based e-business is carried out through the industry sponsored marketplaces and private exchanges that are conducted by the large companies. The B2B model is shown in the figure.

Business to Business Model The above diagram indicates direct business to business model. In this direct business, the selling enterprise includes wholesaler, retailer or manufacturers who sell to the buyers of other business.
The main reason behind introducing this B2B model is to overcome the problems met by industry sponsored marketplaces in approaching buyers and sellers. Most of the companies do not want to get customised designs through marketplaces as they do not want to expose proprietary information on a site that is shared by competitors. Therefore, companies use such marketplaces mainly to purchase products, manage their supply chains, and conduct indirect procurement transactions, as these are not related to their core business. B2B e-commerce differs from business-to-consumer e-commerce in many ways. Business to consumer merchants sells on a first-come, first-serve basis. Most B2B transactions are done through negotiated contracts that allow the seller to think and plan for how much the buyer is

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likely to purchase. In most of the cases, B2B model mainly focus on maintaining relationship with the business partners. Consumer to business model A consumer to business (C2B) model is the electronic business model, in which the consumers offer products and services to the enterprises. This is called as the inverted business model since the process operates completely in the opposite direction of the traditional e-business model, in which the organisations offer the goods and services to the consumers. The C2B model involves consumers themselves presenting as a group and provides the goods and services to the enterprise. For example, www.speakout.com. This site provides consumers market strategies and businesses and it also makes them familiar with the requirements of the various businesses. A concrete example of this is when competing airlines gives a traveler best travel and ticket offers in response to the traveler’s post. This C2B model is advantageous because of the following reasons. The model helps: • In connecting large group of people by the bidirectional network. Many of the traditional media is of unidirectional but the internet is the bidirectional media. • Individuals to access the technologies that were once available only for the large companies.

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Q.5 What kind of impact will globalization and international business environment create on Indian businesses? Answer: In India, globalisation refers to the opening up of the economy to foreign direct investment by providing facilities to foreign companies to invest in different areas of economic activity in India. Globalisation is the integration of economies of the world through trade and mutual exchange of technology and knowledge. In India, globalisation refers to the opening up of the economy to foreign direct investment by offering facilities to foreign companies to invest in various areas of economic activity. Globalisation had a strong impact in all sectors and business in India. It has created challenge for technical manpower in India. Globalisation has helped India in the following ways to: • Open up Indian economy to foreign direct investments and to facilitate foreign companies to invest in different sectors of economic activities. • Enable Indian companies to enter into foreign collaboration. • Remove restrictions for the entry of multinational companies. • Have a direct and indirect impact on Indian currency and enable inflow of foreign exchange into India. For India, globalisation is not something new. One of the first instances of globalisation in India was in 1647 A.D, when the Kings in India had a foreign collaboration with East India Company. However, the incidents that occurred post the foreign collaboration, until India attained independence in 1947, is an example of collaboration without any sufficient control. During 1947, India had placed restrictions on Foreign Direct Investments (FDI) which restricted the flow of FDI in India.
Globalisation with respect to India was seen in terms of how the Government of India allowed the foreign business entities to operate in India and the amount of foreign direct investments entered India. Globalisation in India became prominent after 1991. The early policies from 1962 to 1977 were mainly driven by the needs of the local industry and economy. From 1978, the policies promoted liberalisation of the economy and several steps were taken to implement these policies. Over a period of time, the whole entrepreneurial abilities of a people were restricted with a set of regulations and licenses and the Indian economy was called a “License Raj”. In the year 1991, a major restructuring of the Indian economy called LPG (Liberalisation, Privatisation and Globalisation) was welcomed.

Liberalisation of economy in 1991
Liberalisation is the process to reduce unnecessary restrictions on business units that are imposed by the government. Before 1991, the government had imposed many restrictions and controls on the economy such as import license, foreign exchange control, and industrial licensing system and so on. These restrictions discouraged entrepreneurs to establish new

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industries. The economic liberalisation in India began in July 1991 which paved way for a rapid progress in India. Trade liberalisation provided flexible exchange rate. Liberalisation of policies towards foreign direct investments (FDI) helped in opening up the economy. The reforms brought changes in the opinion about the role of public sector. The areas that were reserved exclusively for public sector were now open to the private sector, example, telecommunications, air transport, steel, petroleum and so on. Since 1991, the Government of India took many policy measures to bring the country out of economic crisis and to accelerate the growth of the economy. The important policy measures are the following: • Reducing controls and promoting liberalisation. • Encouraging private sector. • Promoting foreign direct investment. • Introducing improved technology. • Introducing changes in trade and monetary policy. Various policy measures were undertaken since July 1991 to increase the productivity and efficiency of the economy. In addition to liberalising the economic policies, the other major change that occurred in the legislation front was the repealing of Foreign Exchange Regulation Act (1973) [FERA] to Foreign Exchange Management Act (1999) [FEMA]. In case of other laws everything is allowed unless specifically prohibited, under FERA nothing was permitted unless specifically permitted. FERA was more of regulation of the foreign exchange containing stricter rules and policies. The Enforcement Directorate that operated under FERA had enormous powers to order imprisonment for minor offences. However the scenario was changed after 1999, when FEMA was passed. FEMA was more of foreign exchange management legislation with less stringent rules when compared to FERA. International business environment: • The different factors affecting the environment of international business like political, economical and legal are discussed. • The economic environment refers to the conditions under which a business operates and takes into account all factors that have affected it. • Political factors influence the economic and legal environment in which the business operates to a larger extent, especially in contract law and rules on advertising and consumer protection. • The legal systems of some countries are much better developed than others, particularly the mechanisms for the administration of justice and the enforcement of court rulings. Most nations base their legal systems on either comman law, code law or Islamic law.

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• Different trade theories of international trade have been discussed. Individually, none of the theories might be relevant in today’s business environment, but a collective understanding of all these theories gives a multiple dimenson on the way trade has been practiced.

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Q.6 Discuss any 3 regional trading agreements and its effect on international business. Answer: The different regional trading agreements that are in existence today among various countries spread across different continents are: 1. The European Union (EU) The European Union (EU) is an economic and political union established in 1993. This came into effect because of the Treaty of Maastricht, signed on 7th February 1992 by the European Communities. The EU comprises of 27 member states committed to regional integration. The EU has developed a single market for all the member states and sixteen member states have adopted a common currency called the Euro. The member states sign an agreement called Schengen Agreement, which ensures the free movement of people, goods, capital and services, including the abolition of passport controls. The agreement enacts legislation in justice and home affairs, and maintains common policies on trade, agriculture, fisheries and regional development. EU has also devised a common foreign and security policy for its member states. The EU has established diplomatic missions around the world and they represent the member states at the United Nations, WTO, G8 and G-20 summits. EU ambassadors head the EU delegations.
Important organisations of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, and the European Central Bank. The EU citizens elect the European Parliament every five years.

2. European Free Trade Association (EFTA)
The European Free Trade Association (EFTA) is a free trade organization established in 1960 between four European counties, Norway, Switzerland, Iceland and Liechtenstein. The EFTA was formed at the Stockholm Convention between seven countries, presently only four countries remain as the members of EFTA. The EFTA was formed as an alternative to EU, allowing countries to join EFTA if they were not willing to join EU. It operates parallel to the EU. The Stockholm Convention was replaced by the Vaduz Convention. This Convention provides a framework for a free and liberal trade amongst its member states. In 1994, three of the EFTA countries signed European Economic Area (EEA) agreement and became a part of the European Union Internal Market. Switzerland opted to arrange bilateral agreements with the EU. In addition, the EFTA states have jointly arranged free trade agreements with many other countries. In 1999, Switzerland established a number of bilateral agreements with the EU, covering a wide range of areas, including movement of persons, transport and technical barriers to trade. This agreement prompted the EFTA states

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to modernise their convention to guarantee that it will continue to provide guidelines for the expansion and liberalisation of trade among them and with the rest of the world. 3. North American Free Trade Agreement (NAFTA) The North American Free Trade Agreement (NAFTA) was signed in 1994 by three governments, Canada, Mexico, and the United States. This trade agreement is the largest in the world in terms of combined purchasing power parity Gross Domestic Product (GDP) and second largest by nominal GDP comparison.
The NAFTA is divided into two sections, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labour Cooperation (NAALC).

The North American Agreement on Environmental Cooperation (NAAEC) was established in 1994. It is an environmental agreement between the United States of America, Mexico and Canada. The agreement comprises of a declaration of objectives and principles regarding conservation and the protection of the environment. The Commission for Environmental Cooperation (CEC) was set up as part of the agreement. North American Agreement on Labour Cooperation (NAALC) was also established in 1994 to achieve the following goals: • Improve working conditions and living standards. • Promote a set of guiding labour principles. • Encourage cooperation to promote innovation. • Improve the levels of productivity and quality. NAALC provides various means such as exchanges of information, technical assistance, and consultations for achieving the above goals.

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