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.

Diversity exists in a community of people when its members differ from one another along one or more important dimensions. how it does things. Both of these processes are essential for cultural convergence to proceed. and inefficiencies and complexities associated with divergent beliefs and practices in the past era would disappear. and attitudes reflect multiculturalism. The ‘melting pot’ ideology suggests that each cultural group loses some of its dominant characteristics in order to become the mainstream: this is assimilation. beliefs. largely as a result of the classic work of Hofstede (1980). few executives can afford to turn a blind eye to global business opportunities. extended the geographical reach of firms. the importance of national culture – broadly defined as values. it may be called integration. and the like. when people from a cultural group add appropriate skills and characteristics of other groups. their differences in values. customs. customs. However. and nudged international business (IB) research into some new trajectories.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. One such new trajectory is the concern with national culture. The broad ideological framework of a country. and behavioural patterns of a national group – has become increasingly important in the last two decades. 1999). or situation is the most important determinant of the cultural identity that people develop in a given locale (Triandis. and what it considers important. If cultures of the various locales of the world are indeed converging (e. culture-free business practices would eventually emerge. researchers have continued to search for similarities in culture-specific beliefs and attitudes in various aspects of work related attitudes and behaviours.g. or what Triandis (1994) calls subtractive multiculturalism. it is hard to initiate these . beliefs. Whereas traditional IB research has been concerned with economic/ legal issues and organizational forms and structures. In fact. behaviors.. Japanese auto-executives monitor carefully what their European and Korean competitors are up to in getting a bigger slice of the Chinese auto-market. When the people comprising an organization represent different cultures. (1960). (1966) and the publication of Industrialism and Industrial Man by Kerr et al. beliefs. corporation. Standard. The globalizing wind has broadened the mindsets of executives. Heuer et al. In this new millennium. or additive multiculturalism.. An issue of considerable theoretical significance is concerned with cultural changes and transformations taking place in different parts of the world. In contrast. and attitudes that helps the members of the organization understand what it stands for.MBA-IV Semester Q. 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. behaviors. if there is a significant history of conflict between the cultural groups. IBrelated practices would indeed become increasingly similar. 1994). consumption patterns. norms. since the landmark study of Haire et al.

in this complex circumstance. 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. 2002). In general. Jung et al. although there has been some research on the typology of animosity against other nations (e.. the manager has been educated about differences in national culture and is sensitive to intercultural opportunities and challenges.MBA-IV Semester processes. 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. 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.g. 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. as in the case of Israelis and Palestinians. does culture matter. we do not know much about how emotional antagonism against other cultural groups affects trade patterns and intercultural cooperation in a business context. She approaches the implementation with trepidation. Consider the following scenario.. Over the term of her career. 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. At the same time. . Put another way.

a multinational enterprise (MNE) that sets up a plant in a foreign country faces different risks compared to bank lending to a foreign government. they bring additional risks compared to those in domestic transactions. or wealth distribution or creation). currencies. Since the 1980s. Will country risk analysis help Cosmos Limited to take correct decisions? Substantiate your answer. These additional risks are called country risks which include risks arising from national differences in socio-political institutions. and avoids countries with excessive risk. international. Therefore. It is analysed as a function of a country's ability to earn foreign currency. Country Risk Analysis (CRA) identifies imbalances that increase the risks in a cross-border investment. economic. For example. . All business dealings involve risks. An increasing number of companies involving in external trade indicate huge business opportunities and promising markets.3 Cosmos Limited wants to enter international markets. and geography. and social upheavals in a foreign country. 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.MBA-IV Semester Q. monetary. country risk analysis has become essential for the international creditors and investors. it implies that effort in earning foreign currency increases the possibility of capital controls. With globalisation. 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. 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. Answer: Yes. Risk arises from the negative changes in fundamental economic policy goals (fiscal. When business transactions occur across international borders. Exchange risk can be defined as a form of risk that arises from the change in price of one currency against another. The CRA monitors the potential for these risks to decrease the expected return of a cross-border investment. • Transfer risk – Transfer risk arises from a decision by a foreign government to restrict capital movements. the financial markets are being refined with the introduction of new products. policies. 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. • Exchange risk – This risk occurs due to an unfavourable movement in the exchange rate. The MNE must consider the risks from a broader spectrum of country characteristics. economic structures.

Country risk is due to unpredicted events in a foreign country affecting the value of international assets. or restriction in repatriation of profits. Risk assessment requires analysis of many factors. The ways of evaluating country risks by different firms and financial institutions differ from each other. relationships of various groups in a country and the history of the country. 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. they face currency risk if their positions are not hedged. • Location risk – This type of risk is also referred to as neighborhood risk. It also relates to political risk in which a government may decide not to honor its commitments for political reasons. Country risk is determined by the costs and benefits of a country’s repayment and default strategies. . or in countries with similar perceived characteristics. corruption and bureaucracy also contribute to the element of political risk. tariffs. including the decision making process in the government. The analysis of country risks distinguishes between the ability to pay and the willingness to pay. investment projects and their cash flows.MBA-IV Semester Whenever investors or companies have assets or business operations across national borders. • Sovereign risk – This risk is based on a government’s inability to meet its loan obligations. For example. tax laws. It includes effects caused by problems in a region or in countries with similar characteristics. in trading partner of a country. The international trade growth and the financial programs development demand periodical improvement of risk methodology and analysis of country risks. • 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. expropriation of assets. war. Location risk includes effects caused by troubles in a region. It is essential to analyse the sustainable amount of funds a country can borrow.

4 How can managers in international companies adjust to the ethical factors influencing countries? Is it possible to establish international ethical codes? Briefly explain. The issue arises when there are differences in perception in different countries. Corruption is the abuse of public office for personal gain. For example. considered unlawful. but now this perception has immensely changed. or soliciting something of value for the purpose of influencing the action of officials in the discharge of their duties. Many companies use management techniques to encourage ethical behaviour at an organisational level. Worker compensation – Businesses invest in production facilities abroad because of the availability of low-cost labour.MBA-IV Semester Q. The disparity arises due to the differences in the regulatory standards in the two countries. it is perfectly acceptable to offer an official a gift. Bribery and corruption – Bribery can be defined as the act of offering. special training on ethics. and hence. Various techniques of managing ethics like practicing ethics at the top level management. Answer: The most prominent issues that managers in MNCs operating in foreign countries face are bribery and corruption and worker compensation. 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. and defining and implementing code of ethics are illustrated in figure Techniques of Managing Ethics . which enables them to offer goods and services at a lower price than their competitors. in the Middle East. 1 Managing ethics Earlier. forming committees to oversee ethical issues. In Britain it is considered as an attempt to bribe the official. we believed that ethics is a prerogative of individuals. accepting.

or the society. Such training programs help the employees become familiar with the official policy on ethical issues. advises the Board on ethical issues. Ethics hotline – A company’s ethical hotline helps its employees report any ethical issues they face at work. Almost all Fortune 500 companies have such codes. but they are not the same. led its Chief Financial Officer to be fined $ 5. where the caller’s identity is protected to encourage employees to report on ethical issues. Ethical concepts are more complex than written rules since it deals with human dilemmas that go beyond the formal language of law. Top management – The senior management of a company must be committed to ensure that ethical standards are met. Such a committee answers employee queries. The ethics committee then investigates these issues. A case of whistle-blowing in Xerox corporation (a pioneer in copier machines). These programs demonstrate the use of these ethic policies in everyday decision making. The chief executive of the company must not engage in business practices harmful to employees. It depends on individual or business ethics to reduce unlawful incidents. Ethics and law – Both law and ethics focus on defining the perfect human behaviour. The act of reporting illegal. The Chief Executive Officer can head the committee that includes the Board of Directors. helps the company to establish policies in uncertain areas. but it is rarely possible to enforce written laws. Ethics committee – There are ethics committees in many firms to help them deal with and advise on work related ethical issues. Such hotline calls are treated confidential.5 million and banned from practicing accountancy after reports of falsified financial statements emerged. immoral. The top management must focus on ethical practices while informing employees of their intention. and oversees the enforcement of the code of ethics. which adversely affects the company.MBA-IV Semester Let us discuss each technique in detail. Code of ethics – One of the best practices for ethics is creating a ‘corporate ethical statement’ and communicating it within the company. Ethics training is most effective when conducted by managers and when focused on work environment. Such practices enhance the company’s public image. The following are some of the Acts which seek to ensure fair business practices in India: . or illegitimate practices by former or current employees involving its employees is known as Whistle-blowing. Legal rules seek to promote ethical behaviour in companies. Law is the government’s attempt to formalise rightful behaviour. Ethics training programs – Most firms take ethics seriously and provide training for its managers and employees. Whistle-blowing is favourable to a company because employees can alert the management on possibly deviant behaviour rather than reporting it to the media.

• Essential Commodities Act of 1955 . 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. These three ethics set the stage for the industrial revolution and the accompanying growth in business. Market ethics – Market ethics is the basic system of ethics followed by a business in a free market scenario. and competitor issues. The three widely accepted factors of ethics in the free market are market ethics. . encourages private property. running. exploit workers. the Protestant ethics. and introduces more freedom and individualism in all spheres of life.related issues as well. build large organisations. In addition to the economic nature of the free market system. this ethic served to legitimise the capitalistic system by providing a moral justification for the pursuit of profit and distribution of income. During this period. 2 Free market ethics: Competition is an important element that differentiates free market from command market. industrial capitalists were allowed to freely operate businesses. The Protestant ethics – The Protestant ethics considered ideology as an important factor along with the moral aspects in a capitalist scenario.FEMA regulates the cross border movement of foreign and local currencies. there are ethic. and the liberty ethics. Competition is a mechanism for free market production and distribution of goods and services that are in demand. • Companies Act of 1956 . and engage in fiercely competitive practices for profit and economic expansion. Competition in business is seen as an essential cultural trait of a free market society. • Consumer Protection Act of 1986 (CPA) .Companies Act provides the complete legal framework for the formation. pricing.MBA-IV Semester • Foreign Exchange Management Act (FEMA) of 1999 . Liberty ethics – Liberty ethics encourages a person to play a participatory role on government. It covers the entire spectrum of business including sales. and winding up of a company. As an ideology.CPA provides and regulates the framework for the protection of consumer rights.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.

Whereas International or foreign marketing is the practice of marketing in a foreign country. International marketing has the following two forms of marketing: • Multinational marketing. A regiocentric approach is taken to plan a product and consolidate the manufacturing processes. Multinational marketing is very complex as a firm engages in marketing operations in many countries. Hence.MBA-IV Semester Q. Here. international marketing is beneficial in preparing a firm to deal globally as it establishes a business stronghold on various foreign markets. International marketing can be defined as marketing of goods and services outside the firm’s home country.Now. while it is not totally aware of the policies and the market conditions of the foreign country. making different products for different countries. International marketing Domestic marketing refers to the practice of marketing within a firm’s home country. 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. . customer preferences. • Export marketing . 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. climate and so on of its home country. • Global marketing. In multinational marketing.Firms start exporting products to other countries. The techniques used while dealing overseas is an extension of the techniques used in the home country by the company. The stages that have led to achieve global marketing are: • Domestic marketing . In domestic marketing a firm has insight of the marketing practices. the products are developed based on the company’s domestic market although the goods are exported to foreign countries. 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. that is. culture. Whereas. Therefore.5 Discuss the international marketing strategies. 1 Domestic vs. This is a very basic stage of global marketing. a firm visualizes different countries as one market and build their brand or service according to the business environment of the foreign countries.Firms manufacture and sell products within the country. • International marketing . Firms start to sell products to various countries and the approach is ‘polycentric’. there is no international phenomenon. Global marketing indicates the integrated and coordinated marketing activities across many different markets. the marketing is for the domestic operations of the firm in that country.

Culture is a major factor which influences marketing decisions and practices in a foreign country. This is achieved by analysing the requirements and the choice of the customers in those countries. the product will be considered as genuine and original in some countries.Company operating in various countries opts for a common single product in order to achieve cost efficiencies. And hence. This approach is called ‘Geocentric approach’. This approach is termed ‘regiocentric approach’. • Licensing . There should never be a rigid marketing campaign.finding a firm that has already established credibility will benefit a lot.By doing so. The firm is not considered as the corporate citizen of the world as it has a home base. • Joint partnership with a local firm . 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. A firm that is successful internationally first obtains success locally. • Global marketing .In this stage. a firm may decide to sell same products in India. Few approaches that you can consider for an international marketing are: • Advertise as a foreign product . assuming that the people living in this region have similar choice and at the same time offering different product for American countries. The firm must not have a 'single marketing plan'. Here the problem is that the firm may not maintain the quality standard and therefore may hurt the image of the brand. The product will be considered as a local product by following this marketing approach. For example. because there are differences between the target markets (that is domestic or international markets).You can sell the rights of your product to a foreign firm.MBA-IV Semester • Multinational marketing . Sri lanka and Pakistan. . the company identifies the regions to which the company can deliver same product instead of producing different goods for different countries. the number of countries in which the firm is doing business gets bigger than that in the earlier stage. as showcasing some aspects of women clothing is considered immodest and immoral. The practice of marketing at the international stage does not designate any country as domestic or foreign.

The foreign exchange market consists of banks.MBA-IV Semester Q. • “Spot” and “Forward” contracts . trade in goods. on or before a certain date. commercial companies. • Next day . The spot deal will come to an end in two working days after the deal is struck. It is vital to realise that the foreign exchange is not a single exchange. The advantage of spot dealing has resulted in a simplest way to deal with all foreign currency requirements. The spot rate that is intended to receive will be set by current market conditions. It is considered to be the leading financial market in the world. • Swap – Simultaneous sale and purchase of identical amounts of currency for different maturities. investment management firms and retail foreign exchange brokers and investors. A forward market needs a more complex calculation.6 Explain briefly the international financial management components with examples and applicability. A forward rate is based on the existing spot rate plus a premium or discounts which are determined by the interest rate connecting . a better spot rate can be received if the amount of dealing is high.A Spot contract is a binding obligation to buy or sell a definite amount of foreign currency at the existing or spot market rate. The participant in a foreign exchange market will normally ask for a price. loans. the demand and supply of currency being traded and the amount to be dealt. A forward contract is a binding obligation to buy or sell a definite amount of foreign currency at the pre-agreed rate of exchange. central banks. The foreign exchange market is immense in size and survives to serve a number of functions ranging from the funding of cross-border investment. In general. trade in services and currency speculation. but is created from a global network of computers that connects the participants from all over the world. hedge funds. foreign currency derivatives. It carries the greatest risk of exchange rate fluctuations due to lack of certainty of the rate until the deal is carried out. which is as follows: 1 Foreign exchange market The Foreign exchange or the forex markets facilitates the participants to obtain.foreign exchange currency deals that take place on the next working day. exchange and speculate foreign currency. Answer: The components like foreign exchange market. trade. 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. international monetary markets and international financial markets are essential to the international financial management.

The standard agreement made in order to buy or sell foreign currencies in future is termed as currency futures. For example. but the likely problem to arise is the involvement of premium of particular kind. currency options and currency swaps are usually traded. • The decision must be made to book a foreign exchange contract with the bank whenever the foreign exchange risk is likely to occur. 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. It will permit gains if the markets move as per the expectations. The derivatives can be hedged with other derivatives.MBA-IV Semester the two currencies that are involved. This is often referred to as ‘Economic’ foreign exchange and most difficult to protect a business. 2 Foreign currency derivatives Currency derivative is defined as a financial contract in order to swap two currencies at a predestined rate. 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. a currency option is often demonstrated as a forward contract that can be left if it is not followed. These will help the businessmen to enhance their foreign exchange dealings. the spot market exposures can be enclosed with the currency derivatives. For this base. The main advantage from derivative hedging is the basket of currency available. The duration will be up to two years for a forward contract. The authority to buy or sell the foreign currencies in future at a specified rate is provided by currency option. These are usually traded through organised exchanges. Hence. The agreement undertaken to exchange cash flow streams in one currency for cash flow streams in another currency in . In the foreign exchange market. Figure describes the examples of currency derivatives. 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. Often banks provide currency options which will ensure protection and flexibility. 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. The currency derivative trades in markets correspond to the spot (cash) market. 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. Managing the business becomes difficult if it depends on the selling or buying the currency in the spot market. currency derivatives like the currency features. 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 premium involved might be a cash amount or it could also influence into the charge of the transaction. • A currency option will prevent unfavourable exchange rate movements in the similar way as a forward contract does.

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. 3. . • Legal risks pertain to the counterparties of currency swaps that go into receivership while the swap is taking place. the investment across cross-borders and the reallocation of capital between the states. These will help to increase the funds of foreign currency from the cheapest sources. supporting institutions which will facilitate the worldwide trade.MBA-IV Semester future is provided by currency swaps. arising from the parties involved in a contract. • Operational risks are one of the biggest risks that occur in trading derivatives due to human error. Example for Foreign Currency Derivatives Some of the risks associated with currency derivatives are: • Credit risk takes place. • Settlement risks similar to the credit risks occur when the parties involved in the contract fail to provide the currency at the agreed time. • 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.

The advantages of this system depend in its stabilising influence. This standard was substituted by the gold bullion standard during the 1920s. The drain on the US gold reserves continued up to the 1970s. In this system. This system was also discarded in the 1930s. at the same time the US dollar diminished its significance. Most of the nations fixed their currency to the US dollar funds in the United States. This in turn has resulted in the lowered value of domestic currency. The sudden increase in the supply of gold may be due to the discovery of rich deposit. The gold-exchange system Trading was conducted internationally with respect to the gold-exchange standard following World War II. The Euro was set up in financial market in 1999 as a replacement for the currencies. The ‘Japanese yen’ and the ‘German Deutschmark’ strengthened and turned out to be increasingly important in international financial market. The higher prices lead to the decreased demands for exports. Any nation which exports more than its import would receive gold in payment of the balance. With a view to maintain a stable exchange rate at the global level. which in turn will result in the increase of price abruptly. The gold happened to be the only standard of value under the system. the value of the currency is fixed by the nations with respect to some foreign currency but not with respect to gold. thereby the nations no longer minted gold coins. it became the second most commonly used currency after the dollar in the international market. The gold and gold bullion standards The gold standard was the first modern international system. Thereby it can be operated successfully. Instead. It was operating during the late 19th and early 20th centuries. Floating exchange rates and recent development After the abundance of the gold convertibility by the US. the standard provided for the free circulation between nations of gold coins of standard specification. Very recently the some of the members of .MBA-IV Semester International monetary systems provide the mode of payment acceptable between buyers and sellers of different nationality. The gold standard was suspended and the values of different currencies were determined in the market. Hence. with addition to deferred payment. reversed their currencies with gold bullion and determined to buy and sell the bullion at a fixed cost. Many large companies opt to use euro rather than the dollar in bond trading with a goal to receive better exchange rates. Later in 1971. the gold convertibility was abandoned by the United States leaving the world without a single international monetary system. the IMF in 1976 decided to be in agreement on the float exchange rates. the International Monetary Fund (IMF) was created at the ‘Bretton Woods international Conference’ held in 1944. The global balance can be corrected by providing sufficient liquidity for the variations occurring in trade.

This means that there exists no central place where the trading can take place. Hence the purchase of goods and services is preceded by the purchase of currency. international money markets.MBA-IV Semester Organisation of Petroleum Exporting Countries (OPEC) such as Saudi Arabia.The foreign currency market is an international market that is familiar in structure. in addition to the performance of . The Euro currency market is a money market for depositing and borrowing money located outside the country where that money is officially permitted tender. fixed or floating interest rates and maturities varying from one month to thirty years in an international capital markets. Also. international capital markets and international securities markets are as follows: • The foreign currency markets . 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 capital markets . 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. the capital market that flows in to the Euro markets. The ’market’ is actually the telecommunications like among financial institutions around the globe and opens for business at any time. • International money markets . The private placements. Euro currencies are bank deposits and loans existing outside any particular country.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 following are the reasons given for the enormous growth in the trading of foreign currency: • Deregulation of international capital flows .A money market can be conventionally defined as a market for accounts. 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.The international capital provides links among the capital markets of individual countries. It also comprises a separate market of their own. 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. Iraq have opted to trade petroleum in Euro than in Dollar. bonds and equities are included in the international security market. • International security markets . deposits or deposits that include maturities of one year or less. The purpose of the foreign currency markets. debit. The firms enjoy the freedom to raise capital.Without the major government restrictions. 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. • Gain in technology and transaction cost efficiency – The advancements in technology is not only taking place in the distribution of information.

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If the production has high amount of cash and bank balance.The financial markets have become increasingly unstable over recent years. If the company produces under a large scale and continues producing goods.MBA-IV Semester exchange or trading. whereas low amount will increase the risk of business. There are faster swings in the stock values and interest rates. This has resulted greatly to the capacity of individuals on these markets to accomplish instantaneous arbitrage. It will guarantee that the profit of business will rise due to increasing of investment in a correct way. Therefore it is necessary to get optimum level of working capital where both the profit and risk will be balanced. Need for working capital management After understanding the nature of production. But the risk of business will also increase because liquidity of business will reduce and can ruin the business. • Market upwings . The high amount of working capital will decrease the return on investment. The management of current assets and current liabilities are associated with the working capital. some of the working capital policies which serve as guidelines to business. then in that case we need a high amount of working capital. profitability policy must be done following the liquidity policy and provide for proper management of the working capital. we can make an estimation of the working capital. nonpayer and inventory.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.The manager can increase the amount of liquidity in order to reduce the risk of business. Therefore liquidity policy should be optimised. If the manager supervises the cash. It is the responsibility of the finance manager to know that the excess cash will not produce the required earnings. then the working capital will repeatedly optimise. activities and the decision regarding the management of international business defines the scope of IFM. 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. . 1 Management of working capital The device of finance is the working capital management. • Profitability policy . return on investment will decrease. adding to the enthusiasm for moving further capital at faster rates. Instead. So. They are as follows: • Liquidity policy . then business can simply pay its dues at maturity. Scope of International Financial Management The list of all functions.

fund raising decisions and the decisions related to dividend and other payments. Income is also influenced by the capability to receive benefit of tax deductions for interest on debt. There are chances of facing refinancing risk if the maturity of liabilities is less than the life expectancy of assets. • Time . 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. the financing decision should be aware of inflationary development. The financing decision has to consider the following factors: • Flexibility . 3. A high amount of debt can result in economic failure. length of maturity to be used for debt financing should be decided. This will allow the liabilities to be self-liquidating. international working capital decisions.To take the advantage of market place. the financing decision needs to be timed. Financing decisions The way of arranging finance refers to the raising of capital. Refinancing risk One of the main aims of financing decisions is to go with the maturity of liabilities with the life expectancy of assets. Taxation has become the core of various financing decisions which includes international investment decisions. • Income .Financing can persuade earnings and thus influence return on equity. • Control . Since inflation is a main motivating force behind interest rates. then the financing decision will require to be adjusted. the capital has to be raised to pay off liabilities. in that case we have to judge how financing will change control.The financing decisions made today will have an impact on the future.MBA-IV Semester 2. The type of securities to be sold.If we have concerns regarding control over the organisation. . Taxation For the worldwide operation of firms. it cannot exploit the use of debt today. Here. Inflation As a result of using debt financing in periods of high inflation. If we are anxious concerning returns to equity shareholders. The tax decision is also relevant in domestic firms also. While expectations of inflation increase. taxation plays a vital role. Hence correct flexibility with future financing decisions must be taken.There are chances to increase risk by financing with the use of debt. Financing decisions are associated to either ownership (equity) or creditors (debt). If the business anticipates increasing its capital in the future. • Risk . the rate of borrowing will raise since creditors must be compensated for a loss in value. one will pay back the debt with currencies that are worthless. There exists a limit on the amount of debt to be used to finance our business.

MBA-IV Semester The managing of taxation is an extremely difficult issue for the international corporations. Therefore. The ability to pay means the one with greater ability is likely to pay a larger amount of tax. There are possibilities to divert the investment to those countries that have low cost rates. The first one states that the input of each tax player must be consistent with the amount of public services as received.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. if the post-tax income is sent to the foreign countries then in that case the receiver of such income is taxed again. • Avoidance of double taxation . The capital can shift from a nation with lesser return to a nation with higher return. The companies which are situated in the low-tax country can have a periphery over other firms in worldwide market. However. • The overlapping takes place between the international firms with different tax jurisdictions. the corporate structures will help to reduce the overall tax burden to the enterprise. and the gross world output in turn will be high. As an alternative. • Tax equity .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 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. . In addition. • The difference in tax treatment in different nations will direct to distortions in worldwide trade and investment. resources will be allocated well. utilise the arbitrage opportunities and retain an edge over the domestic firms. • 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 requirements of foreign tax credits may be formed in the domestic tax system.The avoidance of double income states that one must not be taxed twice for the same income. The bases of international tax system are: • Tax neutrality . There also exist some tax laws which prevent the tax through artificial transactions such as transfer pricing. This implies the same income is subjected to double taxation. The second idea is that the contribution of each tax player must be in terms of their ability to pay. The idea of equity can be understood in two ways.

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

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

• The Committee on Trade and Development manages issues relating to the developing countries. • 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. .MBA-IV Semester • Council for Trade in Goods manages the implementation and functioning of all agreements covering trade in goods. • Committee on Budget and Administration manages issues relating to financing and budget of WTO. • The Committee on Balance of Payments conducts consultations between WTO members and countries that take trade-restrictive measures to handle balance-of-payments difficulties.

This is helpful for processes like the research and development of systems. iGoogle. MSN and portals like AOL. development of open source projects. deals with application of information and communication technologies. and also the development of software. buy. • Community (Mutual support by knowledge transfer) – Internet plays an important role in sharing knowledge as well. The e-business mainly stands for the internet enabled business. . meaning ‘electronic 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. Ebusiness. There are four entities in the internet enabled business.MBA-IV Semester Q. The members of the community such as the participants in the open source projects will help in the mutual transfer of the information. To find any information on the net. This low cost data access is provided for a wide number of people across the world. The multilateral exchange of information involves one person communicating with two or many people. MSNBC. 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. and Netvibes. Answer: Nature of E-Business E-business can be defined as "the use of networks and information technology in order to electronically design.2 Explain briefly the nature of e-business and the challenges involved. For many of the organisations the internet is required to list down the things in the e-pages. It helps business people to keep in touch with their business partners across the world. sell and deliver products and services worldwide". market. the customer must use search engines like the well known and widely used Google. 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. Yahoo. The bilateral exchange of information involves communication between two people with exchange of information. in short an electronic medium in support of all the activities of business. • Communication (Bi or multilateral exchange of information) – Internet is a basic mode of communication.

brand name. 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. When it comes to trust in e-business. There are some factors that build a good trust that include good media. • The assurances that the supplier must provide like certifications. and confidentiality. • Timeliness of order fulfilment. In the traditional business. 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. the initial stages are tentative and not very secure. the trust plays an important role with respect to suppliers and consumers. This further helps the customers to pay their bills online. 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. privacy. guarantees. . • The expectations of the customers for security. These conditions include: • The general reputation of the company. Daughtrey (2001) has suggested some conditions that consumers expect while performing e-business or purchasing things online. it is becoming difficult to establish and maintain the trust during all stages of the business process. • The need for communication from the other supplier with whom the customer relation was shared. • The resolution for any kind of problems. and logo. In e-business. As we all know that most of the business process work in an insecure environment. • The subsequent communications from the supplier. The aim of commerce is to satisfy the needs of the customers. There are more chances of losing trust in ebusiness as it lacks face to face interaction. • The kind of interactions with customer relations. the pressure is more on the base of an organisation or the management of an organisation. and so on. The companies become successful due to the consumer trust. • 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. As the e-business is growing rapidly. Trust is also important for performing business with other sectors.MBA-IV Semester • Commerce (Contract based transactions with the customers) – The internet helps in facilitating the transactions.

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There are some major success factors for e-business. The process of e-business is long lasting than that of the re-engineering. • The first-mover advantage and quick time to start. • The buyer’s behaviour and the customer personalisation.E-business is long lasting. Many companies come out with changes that are necessary for e-business to become profitable. profit. Some important trends in e-business are explained below. The ebusiness is mainly the extension of the products and services. service and features. there are many technical and business trends that are associated with it. • The strategic position of the company in the market has strengthened. The failures become dramatic with e-business as it is more visible externally. These factors include the strategic factors. and network vendors.The hardware. . focus on providing the tools for e-business. The Challenges of E-Business As the ebusiness is growing. software. • The web centric marketing strategy. structural factors and the management oriented factors. The relationship with customers. There are some important trends in the e-business that are described as follows: • Technology focus is on e-business . hence can be minimised by technical process like encryption and developing the digital certificates. quality.There will be both the success and the failures that are associated with any kind of business. • E-business produces cumulative effects . suppliers. E-business is crucial to business success. • The new competitors and market shares are tracked.MBA-IV Semester There are many risks that are associated with online transaction. • The basis of competition that is not shifted from traditional competitive advantages such as cost. • The frequent review of the distribution and supply chain model is done in order to maximise the company's gain. • E-business implementation effects success and failure of a business . • The technologies related to the internet are used as a complement for the existing technologies. and employees changes as we implement ebusiness. These factors are explained as follows: • Strategic factors.

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logistics. both within and outside the countries. and services that they are offering. • Management-oriented factors. The introduction of technologies like the common database. • The awareness and understanding of capabilities of technology by executives. • The necessary support for e-business from the top management. • Current systems expanded to cover entire supply chain. and legal issues. Internet also plays a vital role as it helps the small and medium enterprises in providing the cost effective possibilities to advertise their products. Many of the organizations will include different technologies both for quantitative and qualitative terms. . • Structural factors. • Good cost control. 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. The technology has two dimensions. • The customer’s and partner's expectations from the well managed. There are so many mechanisms for technology innovation and diffusion. • The top management has to communicate about the value of ebusiness throughout the organisation. Technology The technology plays a major role in the concept of new economy. Small scale enterprises play a vital role in the implementation of new technologies. electronic networks and value added services are helpful for speeding up the transactions and these are fundamental at the industrial level. • The innovation was allowed when risks are low.MBA-IV Semester • The e-business offered good products and services. • Correct digital infrastructure. • Good e-business education and training to employees. • The organisation wide commitment to e-business leadership. management and customers. 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 e-business is facing challenges mainly in the areas of technology. employment. one is the shift from manufacturing to services and second is the shift from physical resources to the knowledge resources. These areas are explained in the following sections 1. They have added more value in terms of population.

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

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

The letter of credit is a document that is issued by the bank that guarantees payment to a beneficiary.This is paid for the shipper. Bill of Lading and Factoring. quantity and destination of the goods that are being carried. three or more. . 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.MBA-IV Semester Q. • The document needs to confirm the terms and conditions that are set In the letter of credit..This is to be paid by the buyer at the port of discharge. • The documents need to be presented at the specified place. The number present on each bill of lading is to ensure security.Letter of credit. Letter of credit assumes significance since it can be used to mitigate risk. This will be of the following two types • Freight prepaid . Answer: Letter of credit International Trade is affected by distance. laws. The bill of lading indicates whether the cost of carriage is paid or not. It contains the details of type. • The issuing bank makes agreement on behalf of the buyer. 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 issued as a set of two. • The letter of credit is used to pay a seller for a given amount of money. 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. Several times. • Freight collect . We can say that the letter of credit is the financial contract between the issuing bank and the designated beneficiary. In the letter. The bill of lading is signed by the representatives of the carrying vessel. The letter of credit is written by the financial institution in favour of the importer of goods to the seller. • The time limits for the payment are specified. • The presentation of the specified documents that shows the supply of goods.3 Mention the relevance of these terms in International business . political instability and lack of familiarity by the parties who transact. The following are the elements of the letter of credit: • The payment undertaking given by the issuing bank.

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

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

export of software. Business to Business Model The above diagram indicates direct business to business model. Business to consumer merchants sells on a first-come. This bank provides the financial assistance for promoting the Indian exports. manufactures.4 a) Explain the role played by EXIM bank. and conduct indirect procurement transactions. as these are not related to their core business. export of technology.MBA-IV Semester Q. The B2B model is shown in the figure. This was established on Jan 1. resellers. This involves the transactions that involve the products. In this direct business. 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. This provides the financial assistance through the direct financial assistance. promote and develop the trade. B2B e-commerce differs from business-to-consumer e-commerce in many ways. This also extends the help through the non funded facility for the exporters in the form of guarantees. This plays an important role in the export financing. 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 . This has the power to borrow from the RBI as well as from abroad. distributors. Therefore. retailer or manufacturers who sell to the buyers of other business. Business to business model The business to business (B2B) model describes the transactions between the buyers. buyers lines. 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. abroad investment finance. services. The main reason behind introducing this B2B model is to overcome the problems met by industry sponsored marketplaces in approaching buyers and sellers. The financing programmes of the Exim bank are the most comprehensive among the export credit agencies across the globe. This aims at export of the manufactured goods. export bills discounting and so on. pre-ship credit. companies use such marketplaces mainly to purchase products. This is set up to perform many functions to finance. 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. 1982. the selling enterprise includes wholesaler. suppliers. manage their supply chains. and trading partners.

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

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”. foreign exchange control. One of the first instances of globalisation in India was in 1647 A. • Remove restrictions for the entry of multinational companies.D. Privatisation and Globalisation) was welcomed. • Enable Indian companies to enter into foreign collaboration. and industrial licensing system and so on. However. 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. until India attained independence in 1947. During 1947. Over a period of time.5 What kind of impact will globalization and international business environment create on Indian businesses? Answer: In India. In India. In the year 1991. the government had imposed many restrictions and controls on the economy such as import license. Globalisation in India became prominent after 1991.MBA-IV Semester Q. For India. The early policies from 1962 to 1977 were mainly driven by the needs of the local industry and economy. India had placed restrictions on Foreign Direct Investments (FDI) which restricted the flow of FDI in India. the incidents that occurred post the foreign collaboration. From 1978. Globalisation had a strong impact in all sectors and business in India. when the Kings in India had a foreign collaboration with East India Company. 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. Liberalisation of economy in 1991 Liberalisation is the process to reduce unnecessary restrictions on business units that are imposed by the government. a major restructuring of the Indian economy called LPG (Liberalisation. These restrictions discouraged entrepreneurs to establish new . 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. It has created challenge for technical manpower in India. globalisation is not something new. Before 1991. is an example of collaboration without any sufficient control. • Have a direct and indirect impact on Indian currency and enable inflow of foreign exchange into India. the policies promoted liberalisation of the economy and several steps were taken to implement these policies. Globalisation is the integration of economies of the world through trade and mutual exchange of technology and knowledge. 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.

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

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

The EU has developed a single market for all the member states and sixteen member states have adopted a common currency called the Euro. This Convention provides a framework for a free and liberal trade amongst its member states. The EU citizens elect the European Parliament every five years. Important organisations of the EU include the European Commission. This agreement prompted the EFTA states . fisheries and regional development. and maintains common policies on trade. Switzerland established a number of bilateral agreements with the EU. capital and services. agriculture. EU has also devised a common foreign and security policy for its member states. The EFTA was formed at the Stockholm Convention between seven countries. European Free Trade Association (EFTA) The European Free Trade Association (EFTA) is a free trade organization established in 1960 between four European counties. the Council of the European Union. signed on 7th February 1992 by the European Communities. the European Council. Answer: The different regional trading agreements that are in existence today among various countries spread across different continents are: 1. presently only four countries remain as the members of EFTA. EU ambassadors head the EU delegations. transport and technical barriers to trade. allowing countries to join EFTA if they were not willing to join EU. 2. three of the EFTA countries signed European Economic Area (EEA) agreement and became a part of the European Union Internal Market. In addition. Norway. and the European Central Bank. The EFTA was formed as an alternative to EU. which ensures the free movement of people. In 1994. G8 and G-20 summits. This came into effect because of the Treaty of Maastricht. The EU has established diplomatic missions around the world and they represent the member states at the United Nations.6 Discuss any 3 regional trading agreements and its effect on international business. The Stockholm Convention was replaced by the Vaduz Convention. the EFTA states have jointly arranged free trade agreements with many other countries. It operates parallel to the EU. Switzerland opted to arrange bilateral agreements with the EU.MBA-IV Semester Q. covering a wide range of areas. The European Union (EU) The European Union (EU) is an economic and political union established in 1993. WTO. including movement of persons. The EU comprises of 27 member states committed to regional integration. In 1999. The agreement enacts legislation in justice and home affairs. The member states sign an agreement called Schengen Agreement. goods. the Court of Justice of the European Union. Switzerland. including the abolition of passport controls. Iceland and Liechtenstein.

the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labour Cooperation (NAALC). Mexico. . • Improve the levels of productivity and quality. and the United States. • Promote a set of guiding labour principles. It is an environmental agreement between the United States of America. and consultations for achieving the above goals. The agreement comprises of a declaration of objectives and principles regarding conservation and the protection of the environment.MBA-IV Semester 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. The Commission for Environmental Cooperation (CEC) was set up as part of the agreement. The NAFTA is divided into two sections. North American Free Trade Agreement (NAFTA) The North American Free Trade Agreement (NAFTA) was signed in 1994 by three governments. • Encourage cooperation to promote innovation. Mexico and Canada. technical assistance. 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. 3. NAALC provides various means such as exchanges of information. The North American Agreement on Environmental Cooperation (NAAEC) was established in 1994. Canada. North American Agreement on Labour Cooperation (NAALC) was also established in 1994 to achieve the following goals: • Improve working conditions and living standards.

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