Economics of International Business
- a).What are the factors that explain the reasons why trading nations across the world have increasingly become interdependent after the World War II?
There are several factors that have played a role in increasing interdependence among the global trading countries. These factors have both the economic and political perspectives. Development of economic bodies or entities in various regions whose focus is to promote interactions past the boundaries of a country is among the critical factors that have led to this interdependence. An example of this is the establishment of the EC or the European community which has increased interdependence among different trading countries worldwide.
Additionally, multinational corporations have continued to acquire increasing significance. This has also enhanced interdependence between trading corporations and countries. Interdependence was also enhanced in the 1970s by the global oil markets’ power. Finally, global trading bodies are maximizing globalization by using common currencies such as the way the Euro was used during the 21st century. Infrastructural development, economic disparities and technological advancement are also the other factors that are increasing interdependence among trading countries.
- b).What disadvantages and advantages do globalization has? Illustrate with examples.
Globalization is the process of cultural, political and economic integration and unification of huge enterprises and different nations. There are diverse implications of globalization on nations, consumers and business entities. A major benefit that people enjoy from globalization is the enhancement of development of the international companies and trade. For example, the Coca-Cola Company has grown because globalization expanded its market’s coverage.
Additionally, the speed of acquiring and disseminating information is promoted by globalization due to technological advancements. Globalization is also important because it reduces the probability of the trading nations going into wars. This is because such nations have effective social, political and economic relationships (Kale et al. 286).
However, globalization increases unemployment. This is due to the fact that most multinationals send professionals and staffs to work in their branches in other countries. This reduces employment opportunities for the local people. Globalization has also led to increased dependence of some countries on the others to realize development objectives (Tajgardoon 137). Additionally, globalization is among the contributors of environmental destruction and pollution.
How does transportation cost affects the patterns of international trade?
There are different effects of transportation costs on the patterns of the international trade in the contemporary economy that is being influenced by globalization. When compared to domestic trade, transportation costs are higher for international trade. This is due to the fact that one has to go beyond the boundaries of a country. Patterns of the international trade are limited by an increase in the transportation costs and this decreases trade volume. This is due to the fact that executing business ideas past the border becomes expensive. Therefore, international companies evaluate transportation means that include ocean/sea, air and road.
Most patterns of the international trade are affected by transportation costs and this is integrated in the cost of the final services and products. The international trade volume is increased by reduced transportation costs because nations and investors are able to ship more services and goods across the world. Additionally, the international trade’s course is dictated by transportation cost in relation to volume and sequence of international transactions or trade volume.
- What are the factors that underlie the values of currency exchange within a free market?
The vital factors underlying the value of currency exchange within a free market include currency demand and supply levels. When the demand for a currency is high, exchange value will improve or transform as long as other factors remain constant. This is related to the desire that services and goods of a country get from the other countries. This is an indication that currency demand is important for exchange value within a free market.
The amount of services and goods that a country is willing or wishing to import or export is another factor. How money flows is important in determining the value of currency exchange. Additionally, the influence or outcome of import or export to other countries also determines the value of currency exchange within a free market.
- What factors apply in short- and long-term exchange rates?
Short- and long-term exchange rates are affected by several factors under globalization’s influence. Among them is the importance of the differentials in regards to inflation. When there are low rates of inflation, the value of a currency increases and its purchasing power also increases as compared to the other currencies. Differentials in regards to interest rates are also another factor.
When the central banks manipulate interest rates, they influence exchange rates and inflation. When the interest rates change, they manipulate currency values and inflation. A deficit in the current account also affects short as well as long term values and exchange rates of a currency. The other important factors that affect values and exchange rates of a currency include economic performance, public debt, monetary policy, trade terms, market judgment, speculation and political stability (Benigno 248).
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Benigno, Gianluca, Pierpaolo Benigno, and Salvatore Nisticò. “Risk, Monetary Policy, and the Exchange Rate.” NBER/Macroeconomics Annual (University Of Chicago Press) 26.(2012): 247-309.
Kale, Sudhir H., and Sangita De. “The Impact Of Globalization On Individual Customers: Implications For Marketing.” International Journal Of Management 30.3 Part 1 (2013): 286-293.
Tajgardoon, Gholamreza, Mehdi Behname, and Khosro Noormohamadi. “Globalization Effect On Employment: An Evidence Form Islamic Countries.” Journal of Business & Retail Management Research 7.1 (2012): 130-137.