Essay Questions

ESSAY QUESTIONS

Question 1

Outcomes of Bretton Wood Agreement

The creation of International Monetary Fund (IMF) which was to act as an international lender of last resort.

Creation of the World Bank which was to focus on loans for developing countries

It also instituted a fixed exchange-rate system which saw all currencies linked to the dollar and the dollar linked to the gold

How are currency value determined?

The currency value are determined through considering the following:

The economic state of the market. This is the determination of currency value by consiferin1g majorly the growth rate of the economy, changes in the tax system of the country, the level of economic stability of the country as a whole.

The relative interest rate. If the rates go up the currency become attractive for deposited. So the price of a currency of a given country increases in relation to other currencies.

The demand and supply of the capital.

Through considering political changes. This is the determination of currency price level by considering the stability of the country. Therefore, whenthe country is stable political the value of their currency is likely to be high.

Natural factors. This is the determination of currency prices bt considering natural disasters and natural phenomenal.

Factors influencing currency prices.

The current account deficit. A deficit in the current account shows that the country is spending more on foreign trade than it is earning that its is borrowing capital from foreign source to make up the deficit. Therefore the excess borrowing of foreign source lowers the currency of the borrowing country.

Terms of trade. When the country’s export is higher than its import makes the demand for its currency increase. When a country’s currency demand is high, its prices increase.

Differential in interest rate. High interest rate offers the lending country a higher return relative to other countries. High interest rate attracts foreign investors making the price of the currency to go high.

Differentials in inflation. Countries with high inflation rate always see depreciation in their currency in relation to currencies of their trading partners.

Question 2 .Basic features of typical global change

Production are standardized across national markets. This means that the production are made easier based on the consensus of different organizations

Decision regarding business level strategy are centralized in the home office. This means that power is not delegated and the administrators of the businesses get instruction from the main office.

Emphasizes economies of scale. There is attempt of the businesses to expand their operation and have the larger share of the market.

Requires resources sharing and coordination across borders. The resourcesof the organization are used by all the sub-branches of the business

Question 3. Explain the factors which are most important in determining the desirability of a country for marketing and production opportunities.

The political stability of the country. A country with a stablepolitical environment allow free movement of commodities to the market and also provides a strong currency.

Interest rate of the country. When the interest rates of the country are low, then investment becomes easy since the banks can offer loans enabling productivity.

Infrastructure of the country. Countries with good infrastructure eases transportation of raw materials to the factory and final products to the market.

Policies of the country regarding marketing and production- it is important to consider a country with friendly policies to provide easy operations.

Trade balance.- a country with a strong export is an indicator of a strong domestic industry, hence chances of prospering.

Question 4.What modes of entry are available for entering a foreign market? Which is best?

Exporting- the process of selling commodities produced in one country to another country

Licensing. A legal agreement allowing a firm to sell manufacture a product and deliver them to the consumers.

Franchising. This is a system in which a semi-independent business owner pays fees and royalties to a parent company in right to become identified with its trade market.

Turnkey projects. This is away in which aforeigncompany exports its process and technology to another c3ountry by building a plant in that country.

The best. Licensing is the best since it is cheap and it does not involve a long legal procedure.

Question5. How might each of the 4 P’s in the marketing mix differ in the global marketplace?

Price. The price of the same commodity for example a car differ in global market/ the difference in price is brought about by the materials used in making the product. Expensive materials make the price of the final product expensive.

Promotion. The promotion method may differ globally depending on the target market. Market developed technology tend to dwell mostly in using advertisements.

Place. The place where the commodity is going to be sold differ in many ways the level of infrastructure may be the point of difference or the demographic of the place.

Product. Products in the global market differ depending on the company that produce it. Manufacturing companies produce different products from processing companies. Another point of difference is the raw materials used in production.

Question6. Explain how import/export transactions are conducted, including the financing of those operations.

Firstly is to analyze the potential customer.- a company can get information through credit reporting firms which provides information about the customer’s credit worthiness.

Determination of the appropriate method of payment- the selection of a method of payment involves a tradeoff between credit risk exposure for sellers and convenience of the buyer.

Documentation, shipping and logistics.- this involves the transportationoption . i.e the method of delivery that will be used.

Financing pf export/ import transaction

Pre-shipment finance-this is to fund the inventory and production cost associated with the manufacturing of the product.

Post- shipment finance-this is done to cover the overseas account payables and receivables which tend to involve longer payment terms

Structured finance-this is done to address the needs of capital goods buyers, particularly for construction projects.

Question7.  What is countertrade and why does it exist? What different forms can be found?

Countertrade. This is the exchanging of goods or services which are paid for with other goods or services other than money.

Why does counter trade exist?

Because of foreign exchange problems faced by the East Block

Counter trade exist among countries to enhance their selling of obsolete products

Counter trade exist among countries because it provides the opportunity for those countries to penetrate foreignmarkets since it increases sale volume.

It eases the under cutting of cartel process

Forms of counter trade

-Barter trade. This the direct exchange of goods and / or services.

-Counter purchase. This involves two sales of roughly equal amounts.

-Offset- this is an example where the government purchases expensive military equipment where importing country reduces irs costs by locally manufacturing parts of the equipment.

– Pay-back trading

A country sells a manufacturing plant or power plant, but buys back all or part of its production.

Question8. Advantages of using international capital market over domestic markets

It benefits both borrowers and investors- it benefits borrowers by increasing the supply of funds available for borrowing by lowering the cost of capital. It benefits investors by providing a wide variety of investment opportunities. Unlike domestic markets which provides minimum investment options for investors.

International capital markets provides a cheaper cost of capital compared to that of the domestic market.

International capital markets provides ready liquidity opportunities. This is because there is compulsory marketing making by the sponsors for the every scrip that ensures that buy and sell quotes are available every day for a period of three years.

Strategies available for managing foreign exchange risk.

Manage and mitigate. This involves identifying the risk, coming up with a plan and objectives to reduce the risk and implementing the plan

Taking ownership. Tis involves taking responsibility when risks occur so as to prevent the impact of the risk from spreading in the organization.

Prioritizing the risk- prioritizing of risks involves grouping the risks from those that are of high chances of occurring and way of handling them to those that are not likely to occur and how to manage them.

Trustee engagement. Trustee agreement is the when and after prioritizing the risk, you come up with the method of handling the risk.

Quetion9. How do accounting and finance differ globally?

Accounting focusses on day-to-day flow of money in and out of the company whereas finance is a broader term for managingassets and liabilities for future growth.

Accounting is more of giving report on what has already happened while finance is based on the future

Accounting aims at collecting and presenting financial information while finance mainly deals with decision making on the information retrieved through accounting.

In accounting the income and expenditure is based on accrual system. In financing the system of determination of funds is based on cash flows.

Question10. What can be done to improve the chance of a successful expatriate experience?

Provision of cultural training

A good way to achieve this is to organize briefings on the history, the geography, the religion and the economy of this country.

Bringing of experts and local employees closer

Expats are likely to adjust when they are given social support. Therefore he or she should be given a local staff as a mentor.

Offering of rewards.- the company should offer rewards in the form of home leaves to help them maintain contacts with families and friends.

Provision of repatriation. It is important that companies pay attention to this to prevent issues such as voluntary resignation from expatriates.