306 Ibe Karan Kanade

M.B.A.
306 : INTERNATIONAL BUSINESS

ECONOMICS (2021 Pattern)
(Semester - III)
(GE-UL-13)
@KARAN KANADE MBA 1ST YEAR
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2MARKS QUESTION
1) Define future market.
A future market, also known as a futures market, is a financial market where participants can
buy and sell contracts for the delivery of a specific asset or commodity at a predetermined
price, on a specified future date. These contracts are standardized in terms of quantity,
quality, and delivery date. Futures markets provide a way for producers and consumers of
commodities, as well as speculators and investors, to hedge against price fluctuations or to
profit from price movements in the underlying asset.
2) Define IMF.
The IMF, or International Monetary Fund, is an international organization established in 1944
with the goal of fostering global monetary cooperation, securing financial stability,
facilitating international trade, promoting high employment and sustainable economic
growth, and reducing poverty around the world. The IMF achieves these objectives by
providing financial assistance to member countries facing balance of payments problems,
offering policy advice and technical assistance to help countries build strong economic
institutions and policies, and conducting research and analysis on global economic issues.
The IMF's membership consists of 190 countries, and it operates as a specialized agency of
the United Nations.
3) What is anti-dumping duty under W.T.O.?

Anti-dumping duty, as regulated by the World Trade Organization (WTO), is a tariff imposed
by a government on imported goods that are believed to be priced below fair market value.
Dumping occurs when a foreign producer exports goods to another country at a price lower
than what it charges in its domestic market or below the cost of production.
WTO rules allow member countries to impose anti-dumping duties on dumped imports if it is
determined that they cause material injury or threaten to cause material injury to domestic
industries producing similar goods. The purpose of anti-dumping duties is to protect domestic
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industries from unfair competition and to prevent market distortions that could harm domestic
producers.
Before imposing anti-dumping duties, the importing country must conduct an investigation to
determine whether dumping has occurred and whether it has caused injury to domestic
producers. If dumping and injury are established, the importing country can levy anti-
dumping duties on the imported goods to bring their price closer to fair market value and
mitigate the harm to domestic industries.
4) Define Special Drawing Rights.

Special Drawing Rights (SDRs) are an international monetary reserve asset created by the
International Monetary Fund (IMF) to supplement its member countries' official reserves.
SDRs were established in 1969 as a response to the growing need for additional international
liquidity.
SDRs are not a currency themselves, but rather a potential claim on the freely usable
currencies of IMF member countries. The value of SDRs is determined by a basket of major
international currencies, including the US dollar, euro, Chinese renminbi, Japanese yen, and
British pound sterling. This basket is reviewed and adjusted periodically to reflect changes in
the global economy.
SDRs are allocated to IMF member countries based on their quotas, which are determined by
their relative size and importance in the global economy. Member countries can use SDRs in
various ways, such as to supplement their reserves, settle international transactions, or
provide liquidity support to other countries facing balance of payments problems.
Overall, SDRs serve as a global reserve asset that helps stabilize the international monetary
system and provide liquidity during times of economic stress.
5) What is Gold exchange standard?

The gold exchange standard is a monetary system where a country's currency is directly
convertible into gold at a fixed exchange rate. Under this system, central banks hold gold
reserves as backing for their currency, and they stand ready to exchange their currency for
gold at the specified rate. However, instead of individuals being able to exchange currency
directly for gold, the exchange is typically conducted by other central banks or governments.
One key feature of the gold exchange standard is that it allows for international settlements to
be made in gold or in currencies that are convertible into gold at the fixed rate. This system
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was prevalent during the late 19th and early 20th centuries, particularly before World War I,
as a way to promote stability in international trade and finance.
The gold exchange standard differed from the classical gold standard in that not all currencies
were directly convertible into gold. Instead, only certain major currencies were fully
convertible, while others were convertible into these major currencies at fixed exchange rates.
The gold exchange standard faced challenges and ultimately collapsed during the Great
Depression and World War II, leading to the Bretton Woods Agreement in 1944, which
established a new international monetary system based on fixed exchange rates pegged to the
US dollar, which in turn was convertible into gold.
6) Meaning of foreign exchange market.

The foreign exchange market, often abbreviated as the Forex market or FX market, is a
global decentralized marketplace where currencies are traded. It is the largest and most liquid
financial market in the world, with a daily trading volume exceeding trillions of dollars.
In the foreign exchange market, participants such as banks, financial institutions,

corporations, governments, speculators, and individual traders buy and sell currencies with
the aim of making a profit or managing risks associated with currency fluctuations. Unlike
other financial markets, the Forex market operates 24 hours a day, five days a week, across
different time zones.
Transactions in the foreign exchange market are conducted over-the-counter (OTC), meaning
they take place directly between parties through electronic trading platforms, telephone, or
other communication networks, rather than through a centralized exchange. The main
currencies traded in the Forex market include the US dollar (USD), euro (EUR), Japanese yen
(JPY), British pound sterling (GBP), Swiss franc (CHF), Canadian dollar (CAD), Australian
dollar (AUD), and others.
The foreign exchange market plays a crucial role in facilitating international trade and
investment by providing a mechanism for converting one currency into another. It also serves
as a barometer for global economic health, reflecting factors such as interest rates, inflation,
geopolitical events, and market sentiment. Additionally, central banks and governments use
the Forex market to implement monetary policies and manage exchange rate regimes.
7) Define the concept International Trade.

International trade refers to the exchange of goods, services, and capital between countries. It
involves the buying and selling of goods and services across international borders, often
facilitated by the specialization of production and differences in comparative advantage
among nations.
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The concept of international trade is based on the principle of comparative advantage, which
suggests that countries can benefit from trading with one another even if one country is more
efficient in producing all goods than another country. By specializing in the production of
goods and services in which they have a comparative advantage and trading them for goods
and services produced more efficiently elsewhere, countries can increase their overall
economic welfare.
International trade encompasses a wide range of transactions, including the export and import
of tangible goods such as cars, electronics, and agricultural products, as well as intangible
services such as financial services, tourism, and telecommunications. It is facilitated by
various trade agreements, treaties, and organizations that aim to reduce barriers to trade, such
as tariffs, quotas, and trade restrictions, thereby promoting economic growth, development,
and cooperation among nations.
Overall, international trade plays a crucial role in the global economy by fostering
specialization, promoting efficiency, expanding markets, and enhancing productivity, while
also contributing to higher standards of living, job creation, and economic interdependence
among countries.
8) State the participants in foreign exchange market.

The foreign exchange market involves a wide range of participants, including:
1. Commercial banks: Commercial banks play a central role in the Forex market, both
as market makers and participants. They facilitate currency transactions for their
clients, including corporations, institutions, and individual traders, and also engage in
proprietary trading to profit from currency fluctuations.
2. Central banks: Central banks, such as the Federal Reserve (Fed) in the United States,
the European Central Bank (ECB), and the Bank of Japan (BOJ), are key participants
in the Forex market. They conduct monetary policy operations, intervene in currency
markets to stabilize exchange rates, and manage foreign exchange reserves.
3. Investment banks: Investment banks engage in currency trading on behalf of their
clients, including large corporations, institutional investors, and hedge funds. They
also provide liquidity to the market and participate in speculative trading strategies.
4. Hedge funds and asset managers: Hedge funds and asset managers trade currencies
as part of their investment strategies to generate returns for their clients. They may
engage in speculative trading, arbitrage, or hedging activities to manage currency risk.
5. Corporations: Multinational corporations engage in currency transactions to
facilitate international trade, manage foreign exchange risk, and repatriate profits
earned in foreign currencies. They may use derivatives, such as forward contracts and
options, to hedge their currency exposure.
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6. Retail traders: Individual traders participate in the Forex market through retail
brokers and online trading platforms. They speculate on currency movements, aiming
to profit from short-term price fluctuations by buying and selling currencies.
7. Governments and sovereign wealth funds: Governments and sovereign wealth
funds trade currencies to manage foreign exchange reserves, finance international
transactions, and influence exchange rates. They may intervene in currency markets to
stabilize their domestic currency or achieve policy objectives.
8. International corporations: Large multinational corporations with operations in
multiple countries may engage in currency trading to optimize cash flows, manage
currency risk, and enhance profitability. They may use sophisticated treasury
management systems and financial instruments to hedge their exposure to foreign
exchange fluctuations.
9) What is the multilateral trade?

Multilateral trade refers to trade agreements or arrangements involving multiple countries.
Unlike bilateral trade agreements, which involve trade negotiations and agreements between
two countries, multilateral trade agreements involve multiple countries negotiating and
agreeing on trade rules, regulations, and commitments.
The most prominent example of multilateral trade agreements is the World Trade
Organization (WTO), which serves as the global forum for negotiating and enforcing
multilateral trade rules. The WTO's primary objective is to promote free and fair trade by
reducing trade barriers, such as tariffs, quotas, and discriminatory practices, and by
facilitating negotiations on trade liberalization and market access.
Multilateral trade agreements cover a wide range of issues related to trade in goods, services,
and intellectual property rights, as well as rules governing trade remedies, dispute resolution,
and the accession of new members. They aim to create a level playing field for all member
countries, promote economic growth and development, and ensure that the benefits of trade
are shared more equitably among nations.
Multilateral trade agreements require extensive negotiations and consensus-building among

participating countries, which can be challenging due to differences in economic interests,
priorities, and development levels. However, they offer the potential for greater trade
integration, cooperation, and stability among countries, as well as opportunities for expanding
market access, fostering competition, and stimulating innovation and investment.
10) What is subsidy?

A subsidy is a financial assistance or benefit provided by the government or another
organization to individuals, businesses, or other entities to support or promote certain
activities, industries, or outcomes. Subsidies are typically provided in the form of cash
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payments, tax breaks, grants, loans at preferential interest rates, price supports, or other forms
of financial incentives.
Subsidies can serve various purposes, including:
1. Promoting economic development: Governments may provide subsidies to

encourage investment, innovation, and job creation in specific industries or regions,
such as technology, agriculture, or renewable energy.
2. Supporting disadvantaged groups: Subsidies may be targeted at vulnerable or low-
income populations to help them afford basic necessities such as food, housing,
healthcare, or education.
3. Fostering competitiveness: Subsidies can be used to help domestic industries
compete with foreign producers by lowering their production costs or leveling the
playing field in international trade.
4. Addressing market failures: Subsidies may be used to correct market failures or
address externalities, such as pollution or environmental degradation, by incentivizing
more sustainable or socially beneficial behavior.
5. Achieving policy objectives: Subsidies may be employed to achieve specific policy
objectives, such as promoting cultural activities, preserving historical sites, or
supporting research and development in strategic areas.
While subsidies can provide important economic and social benefits, they can also have
drawbacks, such as distorting market incentives, creating inefficiencies, and leading to
budgetary strains. Moreover, subsidies may disproportionately benefit certain groups or
industries at the expense of others, raising concerns about fairness, transparency, and the
allocation of resources. As such, policymakers must carefully evaluate the costs and benefits
of subsidies and design them in a way that achieves their intended objectives while
minimizing unintended consequences.
11) What is Countervailing duties?

Countervailing duties (CVDs) are tariffs imposed by a government on imported goods to
offset the subsidies provided by foreign governments to their domestic producers.
Countervailing duties are designed to level the playing field between domestic producers and
foreign competitors by neutralizing the unfair advantage created by foreign subsidies.
When a government believes that imported goods benefit from subsidies provided by foreign
governments and are being sold at unfairly low prices that harm domestic industries, it may
initiate an investigation to determine whether countervailing duties should be imposed. The
investigation typically examines whether the subsidies are specific to certain industries or
producers, whether they cause injury or threat of injury to domestic industries, and whether
the subsidies are actionable under the trade rules of the World Trade Organization (WTO).
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If the investigating authority finds evidence of subsidization and resulting harm to domestic
industries, it may recommend the imposition of countervailing duties on the imported goods.
The amount of the countervailing duties is typically calculated to offset the value of the
subsidies provided to the foreign producers.
Countervailing duties are intended to restore fair competition in the domestic market and
protect domestic industries from unfair trade practices. However, they can also lead to trade
disputes and tensions between trading partners, especially if they are perceived as
protectionist measures. As such, countervailing duties are subject to international trade rules
and may be challenged through dispute settlement mechanisms, such as those provided by the
WTO.
12) What is the full form of FDI and FII?

A value chain is a concept used in business management to describe the series of activities
that a company undertakes in order to deliver a product or service to its customers. It
encompasses all the steps involved in the production process, from the initial acquisition of
raw materials to the final delivery of the finished product to the end consumer.
The value chain model helps businesses analyze their operations and identify areas where
they can add value and improve efficiency. It is often depicted as a series of interconnected
activities, each of which contributes to the overall value of the product or service.
There are typically two main types of activities within a value chain:
1. Primary activities: These are directly involved in the production and delivery of the
product or service. They include activities such as inbound logistics (procurement of
raw materials), operations (manufacturing or service provision), outbound logistics
(distribution), marketing and sales, and customer service.
2. Support activities: These are not directly involved in production but provide support
to the primary activities, enabling them to function effectively. Support activities can
include functions such as procurement, technology development, human resource
management, and infrastructure.
By analyzing each of these activities and optimizing them for efficiency and effectiveness,
businesses can create value for their customers while also improving their own
competitiveness and profitability. Additionally, the value chain concept can be applied across
industries and sectors, allowing businesses to identify opportunities for collaboration and
partnership along the supply chain.
13) What is value chain.
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The value chain is a framework that helps businesses analyze their activities and understand
how they create value for their customers. It encompasses all the processes involved in the
production and delivery of a product or service, from the initial stages of sourcing raw
materials to the final delivery to the end consumer.
A value chain consists of two main types of activities:
1. Primary activities: These are directly related to the production and distribution of the
product or service. They include activities such as inbound logistics (procuring raw
materials), operations (manufacturing or service provision), outbound logistics
(distribution), marketing and sales, and customer service.
2. Support activities: These activities are necessary to support the primary activities and
the overall functioning of the business. They include functions such as procurement,
technology development, human resource management, and infrastructure.
By understanding the value chain, businesses can identify opportunities to optimize their
processes, reduce costs, and improve the quality of their products or services. It also helps
them to understand their competitive position within the industry and identify areas for
strategic improvement.
14) Define Greenfield Investment.

A Greenfield investment refers to a type of foreign direct investment (FDI) where a company
establishes new operations in a foreign country from the ground up, typically by constructing
new facilities, buildings, or infrastructure.
In a Greenfield investment, the investing company begins its operations in a new market with
a clean slate, without acquiring existing businesses or assets from local companies. This
approach allows the investor to have full control over the design, development, and
management of the new operations, tailoring them to fit their specific needs and objectives.
Greenfield investments are often seen as a way for companies to enter new markets, expand
their global presence, and gain access to new customers, resources, or talent pools. While
they can involve higher initial costs and risks compared to other forms of FDI, such as
mergers and acquisitions, Greenfield investments offer the potential for long-term growth and
profitability by establishing a strong foothold in the target market.
15) What is IFRS?

IFRS stands for International Financial Reporting Standards. It is a set of accounting
standards developed by the International Accounting Standards Board (IASB) to provide a
common global framework for the preparation and presentation of financial statements.
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IFRS aims to enhance the comparability, transparency, and reliability of financial reporting
across different countries and industries, thereby facilitating international business
transactions and investment decisions. It is widely adopted by companies in many countries
around the world, including those listed on major stock exchanges.
Key features of IFRS include:
1. Principle-based approach: IFRS is based on principles rather than strict rules,

allowing for flexibility in application and interpretation.
2. Fair value measurement: IFRS often requires assets and liabilities to be measured at
fair value, reflecting their current market value.
3. Comprehensive financial statements: IFRS prescribes the preparation of four primary
financial statements - the balance sheet, income statement, statement of changes in
equity, and statement of cash flows - along with additional disclosures to provide a
comprehensive view of a company's financial performance and position.
4. Continual evolution: IFRS is subject to ongoing review and updates by the IASB to
reflect changes in business practices, regulatory requirements, and financial reporting
needs.
Adopting IFRS can bring benefits such as improved financial transparency, comparability
with global peers, and access to international capital markets. However, it also requires
companies to invest in training, systems, and processes to ensure compliance with the
standards.
17) NAFTA means (full form)

NAFTA stands for the North American Free Trade Agreement. It is an agreement signed by
Canada, Mexico, and the United States, creating a trilateral trade bloc in North America.
NAFTA came into effect on January 1, 1994, with the aim of eliminating barriers to trade and
investment among the three countries, promoting economic growth, and enhancing
cooperation on various issues related to trade and commerce.
18) Define Brexit

Brexit is a portmanteau of "British" and "exit" and refers to the United Kingdom's (UK)
decision to leave the European Union (EU). The term gained widespread usage after the UK
held a referendum on June 23, 2016, in which voters chose to leave the EU by a margin of
51.9% to 48.1%.
Brexit initiated a complex process of disentangling the UK from the various political,
economic, and legal frameworks of the EU. This process involved negotiations between the
UK and the EU on issues such as trade, immigration, security, and regulatory alignment.
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On January 31, 2020, the UK officially left the EU, marking the end of its membership in the
political and economic union after 47 years. However, a transition period was in place until
December 31, 2020, during which most EU rules and regulations continued to apply in the
UK.
Brexit has had far-reaching implications for both the UK and the EU, affecting areas such as
trade relations, immigration policies, financial markets, and geopolitical dynamics. The full
extent of these impacts continues to unfold as the UK and the EU navigate their post-Brexit
relationship and negotiate new agreements governing their interactions.
19) Define FPI

FPI stands for Foreign Portfolio Investment. It refers to investments made by foreign
individuals, institutions, or funds in financial assets such as stocks, bonds, and other
securities in a country other than their own. FPI differs from Foreign Direct Investment (FDI)
in that it involves investments in financial assets and does not entail ownership or control of
the underlying business or assets.
Foreign portfolio investors may invest in a variety of assets and markets globally, seeking
opportunities for diversification, higher returns, or exposure to specific sectors or regions.
These investments can have significant impacts on financial markets, exchange rates, and the
overall economy of the recipient country.
FPI flows are influenced by factors such as economic conditions, interest rates, political
stability, and investor sentiment. Governments and central banks often monitor FPI closely
due to its potential to affect market stability and capital flows. Regulatory frameworks
governing FPI vary between countries and may include restrictions on foreign ownership,
investment limits, and disclosure requirements.
MCQ
1) W.T.O. was established on
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i) Jan. 1, 1996
ii) Jan. 1, 1947
iii) Jan. 1, 1994
iv) Jan. 1, 1995
2) It is the price of buying something. For example : foreign

currency, in one place and selling it in another place where the
price is higher, in order to generate profit.
i) Arbitrage
ii) Spot
iii) Forward
iv) Future
3) Environment a ___________ process.

i) Dynamic
ii) Complex
iii) Interactive
iv) All of the above
4) Macro environment is also known as _________.

i) Outside Environment
ii) Indirect Environment
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iii) General Environment
iv) Social Environment
5) NAFT is an example of
i) Common Market
ii) Customers Union
iii) Economic Community
iv) Free Trade Area
6) Which is the right sequence of stages of Internationalization.

i) Domestic, Transnational, Global, International, Multinational
ii) Domestic, International, Multinational, Global, Transnational
iii) Domestic, Multinational, International, Transnational, Global
iv) Domestic, International, Transnational, Multinational, Global
5-10MARKS QUESTION
1) Distinguish between Forward and Future market.

Forward and futures markets are both used for trading financial assets or commodities at a
future date, but they have some key differences:
1. Definition:
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Forward Market: In the forward market, two parties agree to buy or sell an
o
asset at a specified price on a future date. These contracts are customized
agreements between two parties, typically traded over-the-counter (OTC), and
are not standardized.
o Futures Market: In the futures market, standardized contracts are traded on
organized exchanges. These contracts specify the quantity, quality, delivery
date, and delivery location of the underlying asset. Futures contracts are traded
publicly, and the exchange acts as an intermediary, guaranteeing the
performance of the contract.
2. Standardization:
o Forward Market: Forward contracts are customizable, allowing parties to
tailor the terms of the contract to their specific needs.
o Futures Market: Futures contracts are standardized, meaning all contracts of
the same type (e.g., crude oil futures, S&P 500 futures) have the same
specifications regarding quantity, quality, expiration date, and delivery terms.
3. Trading Venue:
o Forward Market: Forward contracts are traded over-the-counter (OTC),
meaning they are privately negotiated between two parties and are not traded
on centralized exchanges.
o Futures Market: Futures contracts are traded on organized exchanges, such
as the Chicago Mercantile Exchange (CME) or the Intercontinental Exchange
(ICE), providing liquidity and transparency to market participants.
4. Counterparty Risk:
o Forward Market: Since forward contracts are privately negotiated, they are
subject to counterparty risk, meaning the risk that one party may default on its
obligations.
o Futures Market: Futures contracts are cleared through a central
clearinghouse, which acts as the counterparty to both buyers and sellers. This
reduces counterparty risk, as the clearinghouse guarantees the performance of
the contracts.
5. Regulation:
o Forward Market: Forward contracts are less regulated compared to futures
contracts, as they are traded OTC.
o Futures Market: Futures contracts are subject to regulatory oversight by
government authorities and exchange regulators to ensure fair and orderly
trading.
Overall, while both forward and futures markets allow investors to hedge against price
fluctuations and speculate on future price movements, their differences in customization,
standardization, trading venue, counterparty risk, and regulation make each suitable for
different types of market participants and trading strategies.
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2) What is the concept of arbitrage and speculation in forex
market.
Arbitrage and speculation are two fundamental concepts in the forex (foreign exchange)
market, each with its own approach and purpose:
1. Arbitrage:
o Arbitrage refers to the simultaneous purchase and sale of an asset or currency
in different markets to profit from price discrepancies. In the forex market,
arbitrage opportunities arise when the same currency pair is priced differently
across different exchanges or brokers.
o For example, if EUR/USD is priced at 1.10 on one exchange and 1.09 on
another, an arbitrageur could buy EUR/USD at 1.09 and sell it immediately at
1.10, making a risk-free profit from the price difference.
o However, in modern financial markets, arbitrage opportunities are usually
short-lived and quickly exploited by automated trading systems, leaving little
room for manual traders to capitalize on them.
2. Speculation:
o Speculation involves making bets on the future direction of currency prices,
aiming to profit from anticipated movements in exchange rates. Unlike
arbitrage, speculation involves taking on risk in the hope of earning a return.
o Forex speculators analyze various factors such as economic indicators,
geopolitical events, interest rate decisions, and market sentiment to forecast
whether a currency will strengthen or weaken against another.
o Speculators take positions in the forex market based on their predictions,
buying a currency pair if they believe it will appreciate in value (going long)
or selling it if they expect it to depreciate (going short).
o Unlike arbitrage, speculation involves taking a directional view on the market
and assuming the associated risks. Traders may use various tools and
strategies, such as technical analysis or fundamental analysis, to inform their
speculative decisions.
In essence, while both arbitrage and speculation aim to profit from movements in currency
prices, arbitrage seeks to exploit price inefficiencies across different markets, while
speculation involves forecasting and taking positions based on expected market movements.
3) Explain the role of International monetary fund.

The International Monetary Fund (IMF) plays a crucial role in the global financial system by
promoting international monetary cooperation, ensuring exchange rate stability, facilitating
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balanced growth of international trade, providing resources to member countries facing
balance of payments difficulties, and offering policy advice and technical assistance to
promote economic stability and development. Here's a breakdown of its key roles:
1. Surveillance:
o The IMF conducts regular surveillance of the global economy and member
countries' economies to assess their economic and financial developments,
policies, and vulnerabilities.
o Through its surveillance activities, the IMF identifies risks to global economic
stability, provides policy recommendations to address these risks, and
promotes policies that foster sustainable and balanced economic growth.
2. Financial Assistance:
o One of the primary functions of the IMF is to provide financial assistance to
member countries facing balance of payments crises or economic difficulties.
o Member countries can request financial support from the IMF through various
lending facilities, such as Stand-By Arrangements, Extended Fund Facility,
and Rapid Financing Instrument.
o IMF loans often come with conditions attached, known as conditionality,
which require recipient countries to implement policy reforms aimed at
restoring macroeconomic stability and promoting sustainable growth.
3. Capacity Development and Technical Assistance:
o The IMF provides technical assistance and capacity development support to
member countries to help them strengthen their institutions, build human and
institutional capacity, and improve economic policymaking and governance.
o This assistance covers a wide range of areas, including monetary policy, fiscal
policy, financial sector regulation and supervision, exchange rate
management, statistics, and macroeconomic forecasting.
4. Research and Policy Analysis:
o The IMF conducts research and analysis on a wide range of economic and
financial issues, including global economic trends, exchange rate regimes,
fiscal and monetary policies, financial stability, and structural reforms.
o The IMF's research and analysis help shape international economic policy
debates, provide guidance to policymakers, and contribute to the development
of best practices in economic policymaking.
5. Capacity Building in Macroeconomic Policy Coordination:
o The IMF works to promote macroeconomic policy coordination among its
member countries to address global economic imbalances, enhance the
stability of the international financial system, and promote sustainable and
inclusive growth.
o Through its policy advice and technical assistance, the IMF helps countries
strengthen their policy frameworks and institutions for effective
macroeconomic policy coordination at the national and international levels.
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Overall, the IMF plays a central role in promoting global economic stability, facilitating
international cooperation, and providing financial and technical support to help countries
address economic challenges and achieve sustainable development.
4) Discuss Flexible exchange rate system.

A flexible exchange rate system, also known as a floating exchange rate system, is a type of
exchange rate regime where the value of a currency is determined by supply and demand in
the foreign exchange market, without direct intervention by the government or central bank.
In a flexible exchange rate system:
1. Market Forces Determine Exchange Rates:

o Under a flexible exchange rate system, exchange rates are determined by the
forces of supply and demand in the foreign exchange market. This means that
currency values fluctuate continuously based on factors such as changes in
interest rates, inflation rates, trade balances, capital flows, and market
sentiment.
o The exchange rate adjusts freely to reflect changes in the underlying economic
fundamentals of the countries involved. For example, if demand for a
country's exports increases, its currency may appreciate as foreign buyers
demand more of its currency to purchase goods and services.
2. Limited Government Intervention:
o In a flexible exchange rate system, governments and central banks typically
have limited or no direct intervention in the foreign exchange market to
influence the value of their currency.
o While governments may intervene occasionally to smooth excessive exchange
rate volatility or address disorderly market conditions, such interventions are
relatively infrequent and aimed at maintaining orderly market functioning
rather than targeting specific exchange rate levels.
3. Automatic Adjustment Mechanism:
o Flexible exchange rates provide an automatic adjustment mechanism that
helps to restore equilibrium in the balance of payments. If a country runs a
trade deficit, for example, its currency will depreciate, making its exports
cheaper and imports more expensive. This, in turn, helps to reduce the trade
deficit over time by stimulating exports and curbing imports.
o Similarly, if a country experiences an increase in capital inflows, its currency
may appreciate, which can help to prevent overheating of the economy by
making imports cheaper and exports more expensive.
4. Market Efficiency and Absence of External Constraints:
o Flexible exchange rates are often associated with market efficiency because
they allow exchange rates to adjust freely to reflect changes in economic
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fundamentals. This can help to prevent imbalances and distortions in the
economy.
o Moreover, countries with flexible exchange rate regimes are not subject to
external constraints such as fixed exchange rate commitments or currency
pegs, which can limit their ability to pursue independent monetary and fiscal
policies.
5. Exposure to Exchange Rate Volatility:
o One of the main drawbacks of a flexible exchange rate system is the potential
for exchange rate volatility. Exchange rates can fluctuate widely in response to
changes in market sentiment, economic data releases, geopolitical events, and
other factors, which can create uncertainty for businesses, investors, and
consumers.
o Exchange rate volatility can also pose challenges for policymakers in
managing inflation, interest rates, and economic stability.
In summary, a flexible exchange rate system allows exchange rates to fluctuate freely based
on market forces, providing automatic adjustment mechanisms to help maintain equilibrium
in the balance of payments. While flexible exchange rates offer benefits such as market
efficiency and independence for monetary policy, they can also lead to exchange rate
volatility and uncertainty.
5) Explain gold exchange standard.

The gold exchange standard is a monetary system that combines aspects of both the gold
standard and a flexible exchange rate regime. In a gold exchange standard:
1. Gold Backing:
o Like the gold standard, the monetary system is based on the principle of
having gold as the ultimate reserve asset backing the currency. However,
under the gold exchange standard, not all currency in circulation is directly
backed by gold.
o Instead of all currency being directly convertible into gold, only a portion of a
country's reserves are held in gold, while the remainder consists of foreign
currencies, particularly the currency of a major economic power that is itself
on the gold standard.
2. Fixed Exchange Rates with Gold-Backed Currencies:
o Countries participating in the gold exchange standard agree to fix the
exchange rates of their currencies to a specific amount of gold or to the
currency of the country with the dominant gold reserves.
o The fixed exchange rates provide stability in international trade and finance, as
they reduce uncertainty about exchange rate fluctuations. However, the actual
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convertibility of currencies into gold may be limited to certain transactions or
for central banks only.
3. Reserve Currency Role:
o Under the gold exchange standard, one or more countries typically serve as
key holders of gold reserves and act as central players in the international
monetary system. Their currencies become the primary reserve currencies held
by other countries and central banks.
o These reserve currencies are used for settling international transactions and are
held as reserves by other countries to back their own currencies.
4. Flexibility in Reserves:
o Unlike the strict gold standard, where all currency issuance must be backed by
gold reserves, the gold exchange standard allows for greater flexibility in the
composition of a country's reserves.
o Countries can hold a combination of gold and foreign currencies as reserves,
providing them with more flexibility in managing their monetary policy and
responding to changes in international economic conditions.
5. Constraints and Challenges:
o While the gold exchange standard provided a degree of stability and
predictability in international finance, it also had limitations and
vulnerabilities.
o Dependence on a single reserve currency, such as the British pound or the U.S.
dollar, could expose countries to the monetary policies and economic
conditions of the reserve currency issuer.
o Moreover, the fixed exchange rates could become unsustainable if economic
conditions diverged significantly among participating countries, leading to
pressures for adjustments or speculative attacks on currencies.
Overall, the gold exchange standard represented an intermediate monetary system between
the strict gold standard and the fully flexible exchange rate regimes that emerged later in the
20th century. It aimed to provide stability in international finance while allowing for some
degree of flexibility in the management of reserves and exchange rates. However, like other
fixed exchange rate systems, it faced challenges and eventually gave way to more flexible
exchange rate arrangements.
6) Identify the functions of W.T.O.

The World Trade Organization (WTO) serves several key functions in the realm of
international trade and commerce. These functions include:
1. Negotiating Trade Agreements:
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The WTO provides a platform for member countries to negotiate trade
o
agreements aimed at reducing barriers to trade and harmonizing trade rules
and regulations.
o These negotiations cover various areas such as tariff reductions, non-tariff
barriers, agricultural subsidies, intellectual property rights, and services trade.
2. Administering Trade Agreements:
o Once negotiated, the WTO administers and monitors the implementation of
trade agreements among its members.
o The WTO oversees the implementation of commitments made by member
countries, ensuring that they adhere to the rules and obligations set out in the
agreements.
3. Dispute Resolution:
o The WTO operates a dispute settlement mechanism to resolve trade disputes
between member countries.
o This mechanism provides a forum for member countries to resolve disputes
through consultations, mediation, and adjudication by impartial panels.
o The rulings of WTO dispute settlement panels are binding and enforceable,
helping to ensure compliance with WTO rules and agreements.
4. Trade Policy Review:
o The WTO conducts regular reviews of member countries' trade policies and
practices through its Trade Policy Review Mechanism (TPRM).
o These reviews provide a platform for member countries to discuss their trade
policies and practices transparently and receive feedback from other members.
o The TPRM helps promote greater transparency, predictability, and
accountability in members' trade policies.
5. Technical Assistance and Capacity Building:
o The WTO provides technical assistance and capacity-building support to help
developing and least developed countries participate effectively in the
multilateral trading system.
o This assistance includes training programs, workshops, and advisory services
aimed at strengthening institutional capacity, enhancing trade-related
infrastructure, and building expertise in trade negotiations and
implementation.
6. Promoting Cooperation and Dialogue:
o The WTO serves as a forum for member countries to engage in dialogue,
exchange information, and address common challenges related to international
trade.
o Through regular meetings, committees, and working groups, the WTO
facilitates cooperation among members on various trade-related issues,
including trade facilitation, trade and environment, and trade and
development.
Overall, the WTO plays a central role in promoting an open, rules-based, and predictable
international trading system, facilitating trade negotiations, resolving disputes, and providing
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support to member countries to ensure that the benefits of trade are realized more widely and
equitably
7) Distinguish between Greenfield & brownfield Investments.

Greenfield and brownfield investments are two different approaches to foreign direct
investment (FDI), each involving distinct strategies and considerations:
1. Greenfield Investment:
o Greenfield investment involves establishing a new business or facility in a
foreign country from the ground up, often involving the construction of new
facilities, infrastructure, and operations.
o Key characteristics of greenfield investments include:
▪ Starting with a clean slate: Greenfield investments entail building new
operations and facilities, allowing the investor to design and implement
processes, systems, and infrastructure according to their preferences
and specifications.
▪ Higher risk and uncertainty: Greenfield investments typically involve
greater risk and uncertainty compared to brownfield investments
because they require significant upfront capital investment and may
face challenges such as obtaining permits, hiring local staff, and
navigating regulatory requirements.
▪ Potential for long-term growth: Greenfield investments offer the
potential for long-term growth and profitability, as they enable
investors to establish a presence in new markets and capture market
share from competitors.
2. Brownfield Investment:
o Brownfield investment involves acquiring or investing in an existing business
or facility in a foreign country, often with the aim of expanding or upgrading
its operations.
o Key characteristics of brownfield investments include:
▪ Acquisition of existing assets: Brownfield investments involve
acquiring existing assets, such as land, buildings, equipment, and
workforce, which may already be operational or in various stages of
development.
▪ Lower entry barriers: Brownfield investments typically involve lower
entry barriers compared to greenfield investments because they
leverage existing infrastructure, operations, and market presence.
▪ Faster market entry: Brownfield investments allow investors to enter
new markets more quickly and with less uncertainty compared to
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greenfield investments, as they can capitalize on existing assets,
relationships, and market knowledge.
▪ Potential for cost savings and synergies: Brownfield investments offer
the potential for cost savings and synergies through the integration of
acquired assets with existing operations or leveraging economies of
scale.
In summary, greenfield investments involve establishing new operations or facilities in a

foreign country, while brownfield investments involve acquiring or investing in existing
assets or businesses. Each approach has its own advantages and challenges, and the choice
between greenfield and brownfield investment depends on factors such as market conditions,
investment objectives, risk tolerance, and resource availability.
8) Distinguish between FDI and FPI.

Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) are two distinct
forms of international investment, each with its own characteristics, objectives, and
implications:
1. Foreign Direct Investment (FDI):

o FDI involves the acquisition of a significant ownership stake (usually 10% or
more) in a foreign company or the establishment of new business operations in
a foreign country.
o Key characteristics of FDI include:
▪ Long-term investment: FDI typically involves long-term investment
commitments aimed at establishing a lasting presence in foreign
markets, either through ownership or control of assets or operations.
▪ Strategic control: FDI allows investors to exercise significant control
and influence over the management, operations, and strategic decisions
of the foreign entity in which they invest.
▪ Transfer of technology and know-how: FDI often involves the transfer
of technology, know-how, managerial expertise, and best practices
from the investor to the foreign entity, contributing to economic
development and capacity-building in the host country.
▪ Direct linkages to the real economy: FDI creates direct linkages to the
real economy by generating employment, promoting industrial
development, fostering technology transfer, and enhancing
productivity in the host country.
2. Foreign Portfolio Investment (FPI):
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o FPI involves the purchase of financial assets such as stocks, bonds, and other
securities issued by foreign entities, without acquiring significant ownership
stakes or exercising control over the issuing companies.
o Key characteristics of FPI include:
▪ Short- to medium-term investment: FPI typically involves shorter
investment horizons compared to FDI, as investors seek to capitalize
on market opportunities, generate capital gains, or earn interest or
dividends on their investments.
▪ Passive investment approach: FPI is often characterized by a passive
investment approach, where investors rely on market trends, asset
allocation strategies, and portfolio diversification to maximize returns,
without actively participating in the management or operations of the
underlying assets.
▪ Liquidity and flexibility: FPI offers investors liquidity and flexibility,
as they can easily buy or sell financial assets in the secondary market,
allowing them to adjust their investment portfolios in response to
changing market conditions or investment objectives.
▪ Indirect exposure to the real economy: Unlike FDI, which creates
direct linkages to the real economy, FPI provides investors with
indirect exposure to the performance of foreign companies and
economies through their financial assets.
In summary, FDI involves direct investment in foreign companies or operations with the aim
of establishing a lasting presence and exercising strategic control, while FPI involves passive
investment in financial assets issued by foreign entities, with shorter investment horizons and
indirect exposure to the real economy.
9) Ethical business practices hare taken a centre stage in modern

businesses. Interpret.
The prominence of ethical business practices in modern business reflects a growing
recognition of the importance of social responsibility, sustainability, transparency, and
integrity in corporate conduct. Several factors contribute to the increasing emphasis on
ethical business practices:
1. Consumer Awareness and Demand:

o Consumers today are more informed and conscious about the social and
environmental impact of businesses. They often prefer to support companies
that demonstrate ethical behavior, such as fair labor practices, environmental
sustainability, and ethical sourcing.
2. Investor Expectations:
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Investors, including institutional investors and socially responsible investment
o
funds, are increasingly incorporating environmental, social, and governance
(ESG) criteria into their investment decisions. They seek to invest in
companies that uphold ethical standards and demonstrate a commitment to
sustainability and long-term value creation.
3. Regulatory Scrutiny:
o Governments and regulatory bodies are placing greater scrutiny on corporate
behavior and imposing stricter regulations to promote ethical conduct, prevent
corruption, ensure fair competition, and protect the interests of stakeholders,
including consumers, employees, and the environment.
4. Employee Expectations and Retention:
o Employees, particularly millennials and Generation Z, are increasingly
seeking employers that align with their values and demonstrate a commitment
to ethical business practices. Companies that prioritize ethics and corporate
social responsibility (CSR) are more likely to attract and retain top talent.
5. Reputation and Brand Image:
o Ethical behavior is closely linked to a company's reputation and brand image.
Businesses that engage in unethical practices risk damaging their reputation,
losing consumer trust, and facing public backlash, which can have long-lasting
negative consequences for their brand and financial performance.
6. Competitive Advantage and Innovation:
o Adopting ethical business practices can confer a competitive advantage by
enhancing brand loyalty, attracting socially conscious consumers, reducing
operational risks, and fostering innovation. Companies that prioritize ethics
and sustainability are often better positioned to adapt to changing market
trends and customer preferences.
7. Globalization and Supply Chain Transparency:
o In an increasingly interconnected global economy, companies are under
pressure to ensure ethical conduct not only within their own operations but
also throughout their supply chains. Supply chain transparency and
accountability have become essential for mitigating risks related to labor
exploitation, environmental degradation, and human rights abuses.
In summary, ethical business practices have become central to modern businesses as

stakeholders increasingly demand accountability, transparency, and sustainability. Companies
that embrace ethical principles and integrate them into their core business strategies are better
positioned to build trust, enhance reputation, drive long-term value creation, and contribute to
a more sustainable and equitable future.
10) CSR initiatives by some leading companies hare helped in

social upliftment. Interpret.
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Corporate Social Responsibility (CSR) initiatives by leading companies have indeed played a
significant role in social upliftment by addressing various social, environmental, and
economic challenges. Here's how CSR initiatives contribute to social upliftment:
1. Poverty Alleviation and Economic Empowerment:

o Many CSR programs focus on initiatives aimed at poverty alleviation and
economic empowerment, such as job creation, skills development, vocational
training, and entrepreneurship support.
o By providing opportunities for employment, education, and entrepreneurship,
CSR initiatives help empower individuals and communities to improve their
economic well-being and break the cycle of poverty.
2. Education and Skill Development:
o CSR initiatives often support education and skill development programs,
including building schools, providing scholarships, training teachers, and
offering vocational skills training.
o Access to quality education and skills development opportunities not only
enhances individual capabilities but also strengthens communities and
contributes to economic growth and social development.
3. Healthcare and Sanitation:
o Many companies invest in healthcare and sanitation initiatives to improve
access to healthcare services, prevent diseases, and promote public health.
o CSR programs may include building hospitals and clinics, providing medical
supplies and equipment, conducting health awareness campaigns, and
supporting sanitation and hygiene projects, particularly in underserved
communities.
4. Environmental Conservation and Sustainability:
o CSR initiatives often focus on environmental conservation, sustainability, and
climate action to address environmental challenges such as pollution,
deforestation, climate change, and resource depletion.
o Companies may invest in renewable energy projects, implement sustainable
business practices, support biodiversity conservation efforts, and promote
environmental education and awareness.
5. Community Development and Infrastructure:
o CSR initiatives contribute to community development and infrastructure
improvement by investing in projects such as building roads, bridges, water
supply systems, and community centers.
o Infrastructure development enhances the quality of life, facilitates economic
development, and strengthens social cohesion within communities.
6. Humanitarian Aid and Disaster Relief:
o CSR initiatives often involve providing humanitarian aid and disaster relief to
communities affected by natural disasters, conflicts, and humanitarian crises.
o Companies may donate funds, supplies, and resources, mobilize employees for
volunteer efforts, and collaborate with NGOs and government agencies to
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provide emergency assistance and support long-term recovery and rebuilding
efforts.
Overall, CSR initiatives by leading companies have a positive impact on social upliftment by
addressing key societal challenges, promoting inclusive and sustainable development, and
improving the well-being of individuals and communities. By leveraging their resources,
expertise, and influence, companies can contribute to creating positive social change and
building a more equitable and prosperous society.
11) “Developed forex markets are necessary for growth in

international trade ‘Analyse the statement.
The statement "Developed forex markets are necessary for growth in international trade"
highlights the crucial role that well-functioning and developed foreign exchange (forex)
markets play in facilitating international trade and fostering economic growth. Let's analyze
this statement further:
1. Facilitating Currency Conversion:

o Developed forex markets provide efficient mechanisms for converting one
currency into another, allowing businesses to engage in international trade
transactions seamlessly.
o Currency conversion is essential for conducting cross-border trade, as it
enables buyers and sellers to transact in different currencies and manage
foreign exchange risk effectively.
2. Price Discovery and Risk Management:
o Forex markets facilitate price discovery by determining exchange rates based
on supply and demand dynamics, market sentiment, and macroeconomic
factors.
o Accurate and transparent exchange rate information enables businesses to
price their goods and services competitively in foreign markets and make
informed decisions about international trade activities.
o Forex markets also provide tools and instruments, such as forward contracts,
options, and futures, for managing currency risk and hedging against adverse
exchange rate movements, thereby reducing the uncertainty associated with
international trade transactions.
3. Liquidity and Accessibility:
o Developed forex markets offer high liquidity and accessibility, allowing
market participants to buy and sell currencies quickly and efficiently at
competitive prices.
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Liquid and accessible forex markets lower transaction costs, minimize
o
slippage, and facilitate smooth execution of trade transactions, thereby
promoting international trade flows and market integration.
4. Supporting Financial Infrastructure:
o Well-developed forex markets are often associated with robust financial
infrastructure, including reliable trading platforms, clearing and settlement
systems, regulatory frameworks, and market infrastructure institutions.
o A sound financial infrastructure enhances market confidence, reduces
counterparty risk, and fosters trust among market participants, which is
essential for promoting international trade and investment.
5. Promoting Economic Growth and Development:
o Efficient and developed forex markets contribute to economic growth by
facilitating international trade, attracting foreign investment, promoting capital
flows, and fostering financial stability.
o Increased international trade and investment lead to economies of scale,
specialization, knowledge transfer, and technology diffusion, which drive
productivity gains, innovation, and economic development.
In summary, developed forex markets are essential for growth in international trade because
they provide the necessary infrastructure, liquidity, price discovery mechanisms, and risk
management tools to facilitate cross-border transactions efficiently. By promoting currency
conversion, price transparency, and risk mitigation, well-functioning forex markets play a
critical role in reducing barriers to trade, enhancing market efficiency, and fostering
economic growth and prosperity on a global scale.
12) Critically discuss the impact of out sourcing & Global value
chain in International Business.
Outsourcing and global value chains (GVCs) have significantly transformed the landscape of
international business over the past few decades, with both positive and negative impacts.
Let's critically discuss their impact:
1. Positive Impact:
a. Cost Efficiency: Outsourcing enables companies to lower production costs by

shifting certain business functions or processes to countries with lower labor costs or
other comparative advantages. This cost savings can lead to higher profitability and
competitiveness in global markets.
b. Access to Specialized Skills and Resources: Outsourcing allows companies to

access specialized skills, expertise, and resources that may not be available
27 | P a g e
domestically. This can lead to improved product quality, innovation, and efficiency,
as companies tap into global talent pools and technologies.
c. Market Expansion and Diversification: Global value chains enable companies to

access new markets and diversify their customer base by leveraging the strengths and
capabilities of suppliers, partners, and distributors in different countries. This can lead
to increased sales, market share, and revenue growth.
d. Risk Mitigation: GVCs help companies mitigate various risks, including

geopolitical, economic, and supply chain risks, by diversifying their production and
sourcing activities across multiple countries and regions. This reduces dependence on
any single market or supplier and enhances resilience to external shocks.
2. Negative Impact:
a. Job Displacement and Wage Compression: Outsourcing can lead to job

displacement and wage compression in countries where jobs are relocated or replaced
by lower-cost alternatives. This can contribute to income inequality, unemployment,
and social tensions, particularly in regions heavily reliant on specific industries or
sectors.
b. Loss of Domestic Manufacturing Capacity: Heavy reliance on outsourcing and

offshoring may lead to the erosion of domestic manufacturing capacity and industrial
capabilities in certain countries. This can weaken national competitiveness, hinder
innovation, and leave economies vulnerable to supply chain disruptions and trade
imbalances.
c. Ethical and Social Concerns: Outsourcing to countries with lax labor standards,
environmental regulations, or human rights protections can raise ethical and social
concerns related to worker exploitation, environmental degradation, and social
injustice. Companies may face reputational risks and consumer backlash if their
outsourcing practices are perceived as unethical or irresponsible.
d. Supply Chain Vulnerabilities: Global value chains can introduce vulnerabilities

and dependencies, as companies become increasingly interconnected and reliant on
complex networks of suppliers, subcontractors, and logistics providers. Disruptions in
one part of the supply chain can have ripple effects across the entire chain, leading to
production delays, inventory shortages, and financial losses.
In conclusion, outsourcing and global value chains have both positive and negative impacts
on international business. While they offer opportunities for cost savings, market expansion,
and risk mitigation, they also raise concerns about job displacement, wage inequality, loss of
domestic capacity, ethical issues, and supply chain vulnerabilities. Effective management of
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outsourcing and GVCs requires careful consideration of these trade-offs and the adoption of
strategies to maximize benefits while minimizing risks and negative consequences.
13) Evaluate labour & Environmental Issues in International

Business.
Labor and environmental issues are critical considerations in international business,
impacting various stakeholders including workers, communities, consumers, and the
environment. Here's an evaluation of these issues:
1. Labor Issues:
a. Labor Standards and Practices: International businesses must adhere to labor

standards and practices that ensure fair treatment, safe working conditions, and
reasonable compensation for workers. Violations of labor rights, such as child labor,
forced labor, discrimination, and unsafe working conditions, can damage a company's
reputation, lead to legal liabilities, and disrupt operations.
b. Supply Chain Labor Practices: Labor issues extend beyond a company's own
operations to its global supply chain. International businesses are increasingly held
accountable for the labor practices of their suppliers, subcontractors, and business
partners. Ensuring ethical sourcing and supply chain transparency is essential for
mitigating risks related to labor violations and reputational damage.
c. Labor Unions and Collective Bargaining: International businesses must navigate

labor relations and engage with labor unions and workers' representatives in different
countries. Respect for workers' rights to organize, bargain collectively, and participate
in decision-making processes is essential for fostering constructive labor-management
relations and ensuring workplace stability.
d. Skills Development and Training: International businesses play a role in skills

development and training initiatives to enhance workforce capabilities, productivity,
and employability. Investing in education, training, and career development programs
benefits both workers and businesses by improving job satisfaction, retention rates,
and performance.
2. Environmental Issues:
a. Environmental Regulations and Compliance: International businesses are subject

to a complex array of environmental regulations and standards in different countries.
Compliance with environmental laws, regulations, and industry standards is essential
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for minimizing environmental impacts, avoiding fines and penalties, and maintaining
the company's social license to operate.
b. Resource Use and Conservation: International businesses must manage their

resource use and consumption patterns to minimize environmental degradation and
resource depletion. Adopting sustainable practices, such as energy efficiency, waste
reduction, and water conservation, can reduce environmental footprints and
operational costs while enhancing long-term sustainability.
c. Climate Change and Carbon Footprint: Addressing climate change and reducing
greenhouse gas emissions are increasingly important priorities for international
businesses. Implementing strategies to mitigate carbon footprints, transition to
renewable energy sources, and adapt to climate risks can enhance resilience,
competitiveness, and reputation in a low-carbon economy.
d. Biodiversity and Ecosystem Protection: International businesses operate within

diverse ecosystems and landscapes, which may be vulnerable to habitat destruction,
pollution, and biodiversity loss. Adopting biodiversity conservation measures,
engaging with local communities and stakeholders, and supporting ecosystem
restoration initiatives are critical for protecting natural resources and maintaining
ecological balance.
In conclusion, labor and environmental issues are integral aspects of international business
operations, requiring proactive management, responsible stewardship, and collaboration with
stakeholders to ensure ethical and sustainable business practices. By addressing labor rights,
promoting workforce development, complying with environmental regulations, and
mitigating environmental impacts, international businesses can contribute to social progress,
environmental sustainability, and long-term value creation.
14) ‘Stable political & legal environment is essential to attract

investment’. Evaluate the statement.
The statement "Stable political and legal environment is essential to attract investment"
accurately reflects the critical importance of political and legal stability in fostering
investment inflows. Let's evaluate this statement:
1. Investor Confidence and Risk Perception:

o Political stability and predictability create a conducive environment for
business operations by reducing uncertainty and mitigating risks associated
with policy changes, government interventions, and political instability.
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oInvestors are more likely to commit capital to countries with stable political
environments, as they perceive lower risks of expropriation, regulatory
changes, civil unrest, and other disruptions that could negatively impact their
investments.
2. Rule of Law and Legal Protection:
o A robust legal framework, including enforceable property rights, contract
laws, and dispute resolution mechanisms, is essential for protecting investors'
interests and ensuring the rule of law.
o Investors require legal certainty and assurance that their investments will be
safeguarded against arbitrary government actions, corruption, fraud, and
breaches of contract.
3. Policy Continuity and Regulatory Stability:
o Stable political environments facilitate policy continuity and regulatory
stability, enabling businesses to make long-term investment decisions with
confidence.
o Investors seek assurance that government policies, regulations, and incentives
will remain consistent over time, allowing them to plan and execute
investment projects without undue disruptions or obstacles.
4. Attractiveness to Foreign Direct Investment (FDI):
o Countries with stable political and legal environments tend to attract higher
levels of foreign direct investment (FDI) compared to those with political
instability and legal uncertainty.
o Foreign investors prefer to allocate capital to jurisdictions with strong
governance frameworks, respect for property rights, and adherence to the rule
of law, as these factors enhance investment security and reduce perceived
risks.
5. Economic Growth and Development:
o Stable political and legal environments are conducive to economic growth, job
creation, and sustainable development by fostering investor confidence,
stimulating investment inflows, and promoting business expansion and
entrepreneurship.
o A favorable investment climate attracts domestic and foreign capital, fuels
productivity gains, stimulates innovation, and drives competitiveness, leading
to broader-based economic prosperity.
6. Social Cohesion and Stability:
o Political stability and legal certainty contribute to social cohesion, trust in
institutions, and respect for democratic principles, which are essential for
fostering inclusive growth, social stability, and societal well-being.
o Transparent, accountable, and participatory governance structures build public
trust and confidence, reducing social tensions and promoting harmonious
relations between government, businesses, and civil society.
In conclusion, a stable political and legal environment is indeed essential to attract investment
by fostering investor confidence, protecting property rights, ensuring regulatory stability, and
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promoting economic growth and development. Countries that prioritize political stability, rule
of law, and good governance are more likely to attract investment inflows, stimulate
economic activity, and create opportunities for sustainable prosperity.
15) Explain the currency market and Central Bank operations in

India and their impact on international trade.
The currency market in India, like in other countries, refers to the market where currencies
are bought and sold. The primary participants in the currency market include banks, financial
institutions, corporations, central banks, and individual traders. The Reserve Bank of India
(RBI) is the central bank of India and plays a crucial role in regulating and overseeing the
currency market. Here's how currency market operations and central bank actions impact
international trade:
1. Currency Market Operations:
a. Foreign Exchange Market (Forex):
o The forex market in India operates as an over-the-counter (OTC) market

where currencies are traded electronically or over the counter. The major
currencies traded in the Indian forex market include the Indian Rupee (INR),
US Dollar (USD), Euro (EUR), British Pound (GBP), and Japanese Yen
(JPY), among others.
o Market participants engage in currency trading to facilitate international trade
and investment, hedge currency risk, speculate on exchange rate movements,
and manage their foreign exchange exposure.
b. Spot and Forward Transactions:
In the currency market, spot transactions involve the immediate exchange of

o
currencies at the prevailing exchange rate, while forward transactions involve
agreements to buy or sell currencies at a specified future date and exchange
rate.
o Forward contracts are commonly used by exporters and importers to hedge
against exchange rate fluctuations and lock in future currency exchange rates
to mitigate currency risk in international trade transactions.
2. Central Bank Operations:
a. Foreign Exchange Reserves Management:
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o The RBI manages India's foreign exchange reserves, which consist of foreign
currencies, gold, Special Drawing Rights (SDRs), and reserve positions in the
International Monetary Fund (IMF).
o Foreign exchange reserves serve as a buffer to maintain currency stability,
support external trade and payment obligations, and intervene in the foreign
exchange market to manage exchange rate volatility.
b. Exchange Rate Management:
o The RBI intervenes in the currency market to stabilize the exchange rate of the
Indian Rupee (INR) against major international currencies.
o The RBI may conduct open market operations, intervene directly in the forex
market through buying or selling currencies, and implement monetary policy
measures to influence exchange rate movements and maintain external
competitiveness.
c. Monetary Policy and Interest Rates:
The RBI's monetary policy decisions, including changes in interest rates and
o
liquidity management, can impact currency market dynamics and exchange
rate movements.
o Interest rate differentials between India and other countries influence capital
flows, exchange rate expectations, and currency demand, thereby affecting
international trade competitiveness and trade flows.
3. Impact on International Trade:
a. Exchange Rate Fluctuations:
o Currency market operations and central bank actions can lead to exchange rate
fluctuations, which impact the cost of imports and exports and influence the
competitiveness of Indian goods and services in international markets.
o Exchange rate movements affect the profitability of exporters and importers,
pricing decisions, profit margins, and trade volumes, thereby influencing
India's trade balance and trade relations with other countries.
b. Currency Risk Management:
o The availability of hedging instruments and stable exchange rate regimes

provided by the central bank enable exporters and importers to manage
currency risk effectively and conduct international trade transactions with
greater certainty and confidence.
o Stable currency market conditions and transparent central bank policies
enhance investor confidence, attract foreign investment inflows, and support
India's integration into global value chains and international trade networks.
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In summary, currency market operations and central bank actions in India play a crucial role
in facilitating international trade by providing liquidity, stability, and confidence in currency
markets, managing exchange rate volatility, and supporting the competitiveness of Indian
exports and imports in the global marketplace.
16) Explain the impact of Euro Crisis on global economies with

suitable examples.
The Eurozone crisis, which began in the late 2000s and continued into the early 2010s, had
significant impacts on global economies, financial markets, and geopolitical dynamics. The
crisis originated from a combination of factors, including unsustainable public debt levels,
banking sector weaknesses, economic imbalances, and structural flaws within the Eurozone
monetary union. Here are some of the key impacts of the Eurozone crisis on global
economies:
1. Financial Market Turmoil:

o The Eurozone crisis led to heightened volatility and instability in global
financial markets, as investors became increasingly concerned about the
solvency of Eurozone countries, particularly those with high levels of
sovereign debt.
o Stock markets experienced sharp declines, bond yields surged, credit spreads
widened, and currencies fluctuated as investors sought safe-haven assets and
reduced exposure to Eurozone assets.
2. Global Economic Slowdown:
o The Eurozone crisis contributed to a slowdown in global economic growth as
Eurozone countries implemented austerity measures, fiscal consolidation, and
structural reforms to address fiscal imbalances and restore market confidence.
o Weak consumer and business confidence, reduced investment, and contracting
domestic demand in Eurozone economies dampened global trade and
economic activity, affecting export-oriented economies and trading partners
outside the Eurozone.
3. Financial Contagion:
o The Eurozone crisis triggered financial contagion, spreading to other countries
and regions through interconnected financial markets, trade linkages, and
investor sentiment channels.
o Contagion effects were particularly pronounced in emerging market
economies and vulnerable countries with high levels of external debt, as
capital flows reversed, currencies depreciated, and borrowing costs rose,
exacerbating financial vulnerabilities and economic pressures.
4. Sovereign Debt and Banking Sector Stress:
34 | P a g e
The Eurozone crisis exposed weaknesses in sovereign debt markets and
o
banking sectors across the Eurozone, with several countries facing sovereign
debt downgrades, rating agency scrutiny, and funding pressures.
o Banks in Eurozone countries were confronted with liquidity strains, funding
difficulties, and capital adequacy concerns, leading to bank failures,
nationalizations, recapitalizations, and restructuring efforts to restore financial
stability and confidence.
5. Policy Responses and Institutional Reforms:
o The Eurozone crisis prompted policymakers to implement a series of policy
responses and institutional reforms to address systemic risks, strengthen
economic governance, and enhance financial stability within the Eurozone.
o Measures such as the establishment of the European Stability Mechanism
(ESM), fiscal compact, banking union, and quantitative easing by the
European Central Bank (ECB) aimed to stabilize financial markets, provide
liquidity support, and prevent the breakup of the Eurozone.
6. Geopolitical Implications:
o The Eurozone crisis had geopolitical implications, reshaping political
dynamics within the Eurozone, influencing European integration debates, and
fueling anti-establishment sentiments, populism, and Euroscepticism in some
countries.
o The crisis also strained relations between Eurozone members, highlighted
divergent national interests, and tested the cohesion of the European Union
(EU), raising questions about the sustainability of the Eurozone project and the
future of European integration.
In summary, the Eurozone crisis had far-reaching impacts on global economies, financial
stability, and geopolitical dynamics, underscoring the interconnectedness of the global
financial system and the need for coordinated policy responses to address systemic risks and
vulnerabilities in the Eurozone and beyond.
17) What do you mean by comparative advantage? Distinguish

between Comparative advantage and Absolute advantage.
Comparative advantage refers to the principle that states a country, firm, or individual can
produce a particular good or service at a lower opportunity cost than others. In other words, it
is the ability of a country to produce a good or service at a lower relative cost compared to
other countries. This concept forms the basis of international trade and specialization, as
countries can benefit from trading goods and services in which they have a comparative
advantage.
Now, let's distinguish between comparative advantage and absolute advantage:

35 | P a g e
1. Comparative Advantage:
o Definition: Comparative advantage is based on the principle of opportunity
cost and relative efficiency. It suggests that even if one country can produce
all goods more efficiently than another country, both countries can still benefit
from trade if each specializes in producing the goods for which it has a lower
opportunity cost.
o Key Points:
▪ It focuses on relative efficiency rather than absolute efficiency.
▪ It implies that countries should specialize in the production of goods
and services where they have a comparative advantage, even if they are
not the most efficient producers of those goods.
2. Absolute Advantage:
o Definition: Absolute advantage refers to the ability of a country, firm, or
individual to produce a good or service more efficiently (using fewer
resources) than others. It is based on absolute productivity or efficiency levels.
o Key Points:
▪ It focuses on absolute efficiency and productivity.
▪ It suggests that a country should specialize in producing goods and
services in which it is the most efficient producer, regardless of the
opportunity cost compared to other countries.
Distinguishing Factors:
• Basis: Comparative advantage is based on relative efficiency and opportunity cost,

while absolute advantage is based on absolute efficiency and productivity.
• Focus: Comparative advantage focuses on the ability to produce goods or services at
a lower opportunity cost, while absolute advantage focuses on the ability to produce
goods or services using fewer resources.
• Trade Implications: Comparative advantage leads to mutually beneficial trade
between countries, as even if one country is more efficient in producing all goods,
trade can still increase overall welfare. Absolute advantage suggests that countries
should specialize in producing goods where they are the most efficient, which may
not always result in mutually beneficial trade.
In summary, while both concepts relate to efficiency in production, comparative advantage

emphasizes relative efficiency and opportunity cost, whereas absolute advantage focuses on
absolute efficiency and productivity
18) Critically analyse the impact of changing exchange rates on

Indian Export and Import.
36 | P a g e
The impact of changing exchange rates on Indian exports and imports is complex and
multifaceted, influenced by various factors such as currency volatility, market dynamics,
trade patterns, and macroeconomic conditions. Let's critically analyze these impacts:
1. Export Competitiveness:
a. Price Competitiveness: A depreciation of the Indian Rupee (INR) relative to other

currencies can make Indian exports more competitive in international markets by
reducing their prices in foreign currency terms. This may lead to increased demand
for Indian goods and services abroad, boosting export volumes and revenues.
b. Cost Competitiveness: A depreciation of the INR can also lower the cost of
production for Indian exporters, as imported inputs become cheaper in domestic
currency terms. This may improve profit margins and competitiveness, particularly
for export-oriented industries reliant on imported raw materials or components.
c. Market Diversification: Exchange rate fluctuations can influence the composition

and destination of Indian exports, as exporters may shift their focus to markets with
favorable exchange rates or higher demand elasticity. A weaker INR may incentivize
exporters to diversify their export destinations to mitigate currency risk and capitalize
on emerging opportunities.
2. Import Costs and Inflation:
a. Import Costs: A depreciation of the INR increases the cost of importing goods and
services denominated in foreign currencies, as more INR is required to purchase the
same quantity of imports. This may lead to higher import costs for Indian businesses
and consumers, affecting profitability and disposable incomes.
b. Inflationary Pressures: Rising import costs due to currency depreciation can

contribute to inflationary pressures in the Indian economy, as higher input costs are
passed on to consumers through increased prices of imported goods and services. This
may erode purchasing power and impact consumption patterns, particularly for
imported essential commodities.
3. Trade Balance and Current Account:
a. Export Growth vs. Import Bill: Exchange rate movements influence the trade
balance by affecting the value of exports and imports. A depreciation of the INR may
lead to an increase in export revenues but also result in a higher import bill, depending
on the price elasticity of imports and the responsiveness of export volumes to
exchange rate changes.
37 | P a g e
b. Current Account Dynamics: Fluctuations in exchange rates impact the current
account balance, which represents the net flow of goods, services, income, and
transfers between India and the rest of the world. A depreciation of the INR may
improve the current account balance by boosting export competitiveness and reducing
the trade deficit, assuming imports are less responsive to price changes.
4. Policy Response and Economic Stability:
a. Monetary Policy: Exchange rate fluctuations may influence monetary policy

decisions, particularly in terms of interest rate adjustments and foreign exchange
market interventions by the Reserve Bank of India (RBI). The RBI may intervene in
the foreign exchange market to stabilize the INR and mitigate excessive volatility to
maintain macroeconomic stability.
b. Fiscal Policy: Exchange rate movements also have implications for fiscal policy,
particularly in terms of trade policy measures, tariff adjustments, and export
promotion initiatives aimed at supporting export-led growth, reducing import
dependence, and maintaining external competitiveness.
In summary, the impact of changing exchange rates on Indian exports and imports is nuanced
and depends on various factors such as exchange rate volatility, trade dynamics, inflationary
pressures, and policy responses. While a depreciation of the INR may enhance export
competitiveness and improve the trade balance, it may also lead to higher import costs,
inflationary pressures, and policy challenges that need to be carefully managed to ensure
sustainable economic growth and stability
19) Design a model which can deal effectively in minimizing the

problems of international debt for economically poor nations.
Designing a model to effectively minimize the problems of international debt for
economically poor nations requires a comprehensive approach that addresses the root causes
of debt accumulation, promotes sustainable debt management practices, and fosters economic
development and resilience. Here's a model outlining key components and strategies:
1. Debt Sustainability Assessment:

o Implement a robust framework for debt sustainability analysis (DSA) to assess
the capacity of poor nations to service their debts without jeopardizing their
long-term fiscal sustainability and development goals.
o Conduct periodic DSA exercises to monitor debt dynamics, identify
vulnerabilities, and inform policy decisions on borrowing, debt restructuring,
and debt management strategies.
38 | P a g e
2. Responsible Borrowing and Lending Practices:
o Strengthen international norms and guidelines for responsible borrowing and
lending practices, including transparency, accountability, debt transparency,
and debt sustainability assessments.
o Encourage creditors to adhere to principles of responsible lending, such as
conducting thorough risk assessments, providing concessional financing, and
avoiding lending practices that lead to debt distress or unsustainable debt
burdens.
3. Debt Relief and Restructuring:
o Advocate for comprehensive debt relief initiatives, including debt
cancellation, debt restructuring, and debt-for-development swaps, to alleviate
the debt burden of poor nations and create fiscal space for investment in social
development, poverty reduction, and economic growth.
o Establish mechanisms for fair and transparent debt restructuring negotiations
between debtor countries and creditors, ensuring that restructuring agreements
are based on principles of burden sharing, sustainability, and development
impact.
4. Enhanced Financial Assistance and Aid:
o Mobilize additional financial assistance and development aid for poor nations
to support their efforts to achieve debt sustainability, poverty reduction, and
sustainable development goals.
o Coordinate international donor support, multilateral development assistance,
and concessional financing mechanisms to provide targeted financial
resources, technical assistance, and capacity-building support to address
structural constraints and promote inclusive growth.
5. Promotion of Domestic Resource Mobilization:
o Support efforts to enhance domestic revenue mobilization and improve public
financial management systems in poor nations to reduce reliance on external
borrowing and enhance fiscal sustainability.
o Strengthen tax administration, broaden the tax base, combat tax evasion and
illicit financial flows, and promote fiscal transparency and accountability to
enhance domestic resource mobilization efforts.
6. Investment in Sustainable Development:
o Prioritize investment in sustainable development initiatives, such as
infrastructure development, education, healthcare, social protection, and
environmental sustainability, to promote inclusive growth, human capital
development, and poverty reduction.
o Align debt financing with development priorities and sustainable development
goals (SDGs), ensuring that borrowed funds are effectively utilized to generate
long-term socio-economic benefits and address structural challenges.
7. Capacity Building and Institutional Strengthening:
o Build institutional capacity and strengthen governance structures in poor
nations to improve debt management capabilities, enhance policy
39 | P a g e
coordination, and promote transparency, accountability, and good governance
practices.
o Provide technical assistance, training programs, and knowledge-sharing
initiatives to support capacity building efforts in debt management, fiscal
policy, public financial management, and economic governance.
8. International Cooperation and Coordination:
o Foster international cooperation and coordination among governments,
multilateral institutions, bilateral donors, international financial institutions
(IFIs), and civil society organizations to address systemic issues related to debt
sustainability, debt relief, and development financing.
o Engage in dialogue, policy coordination, and collective action to address
global economic imbalances, debt vulnerabilities, and financial stability risks
that affect poor nations and hinder their efforts to achieve sustainable
development.
By implementing this model, policymakers, international organizations, and development

stakeholders can work collaboratively to minimize the problems of international debt for
economically poor nations, promote debt sustainability, and advance inclusive and
sustainable development goals.
20) Discuss Heckscher - Ohlin model and its assumptions.

The Heckscher-Ohlin model, also known as the Heckscher-Ohlin-Samuelson (HOS) model,
is a fundamental theory in international trade that explains patterns of trade based on
comparative advantages arising from differences in factor endowments between countries.
Developed by Swedish economists Eli Heckscher and Bertil Ohlin in the early 20th century,
the model builds upon David Ricardo's theory of comparative advantage and extends it to
incorporate the role of factor endowments in determining trade patterns. Here's an overview
of the Heckscher-Ohlin model and its key assumptions:
1. Assumptions:
a. Two Countries, Two Goods, Two Factors:
o The model assumes the existence of two countries (Home and Foreign),
producing two goods (e.g., cloth and wine), using two factors of production
(e.g., labor and capital).
o Factors of production are immobile between countries but perfectly mobile
within countries.
b. Identical Production Technology:
40 | P a g e
o Both countries have access to the same technology and production techniques
for producing goods.
o Differences in factor endowments are the primary determinant of comparative
advantage and trade patterns.
c. Constant Returns to Scale:
o Production functions exhibit constant returns to scale, meaning that doubling

the inputs (factors of production) results in a doubling of output.
o This assumption ensures that changes in factor endowments lead to
proportional changes in production levels and resource allocations.
d. Factor Endowments and Factor Intensities:
o Each country is characterized by its factor endowments, such as labor and

capital.
o Goods are produced using different factor intensities, meaning that one good
may be more labor-intensive while the other is more capital-intensive.
e. Perfect Competition and Free Trade:
The model assumes perfect competition in factor and product markets, with no
o
barriers to trade such as tariffs, quotas, or transportation costs.
o Factors of production are paid their marginal products, and goods are sold at
their respective world prices.
2. Key Propositions:
a. Factor Endowment Theory of Comparative Advantage:
o The Heckscher-Ohlin model predicts that countries will export goods that
intensively use their abundant factor(s) of production and import goods that
use their scarce factor(s) relatively intensively.
o For example, a labor-abundant country will export labor-intensive goods and
import capital-intensive goods.
b. Factor Price Equalization Theorem:
o Over time, trade based on comparative advantage tends to equalize factor

prices (wages and returns to capital) between countries.
o In the long run, countries with abundant labor will experience an increase in
wages, while countries with abundant capital will see higher returns to capital.
c. Stolper-Samuelson Theorem:
41 | P a g e
o The model predicts that an increase in the relative price of a good will increase
the return to the factor used intensively in its production and decrease the
return to the other factor.
o For example, an increase in the price of cloth will increase the wages of labor
(assuming cloth is labor-intensive) and decrease the returns to capital.
The Heckscher-Ohlin model provides valuable insights into the determinants of international
trade patterns and the distributional effects of trade on factor prices and income distribution.
However, it has been subject to various criticisms and extensions over time, including the
role of technology, economies of scale, imperfect competition, and intra-industry trade,
among others. Nonetheless, it remains a foundational theory in the field of international trade
and continues to inform research and policy discussions on trade, globalization, and
economic development.
21) Sketch Krugman’s model of Intra - Industry Trade with

special focus to its advantage.
Paul Krugman's model of intra-industry trade (IIT) provides an explanation for the
phenomenon where countries simultaneously import and export similar products within the
same industry. This model builds upon traditional trade theories, such as the Heckscher-Ohlin
model, by incorporating economies of scale, product differentiation, and consumer
preferences. Here's a sketch of Krugman's model of intra-industry trade with a focus on its
advantages:
1. Basic Framework:
o Krugman's model considers a two-country, two-product economy, where both
countries produce and trade differentiated varieties of the same product within
the same industry.
o Each country has a comparative advantage in producing certain varieties based
on factors such as technology, labor skills, and production costs.
2. Assumptions:
a. Differentiated Products:
o Products within the same industry are differentiated by factors such as quality,
design, branding, or location of production.
o Consumers have heterogeneous preferences and are willing to pay different
prices for different varieties based on their preferences.
b. Increasing Returns to Scale:
42 | P a g e
Krugman's model incorporates increasing returns to scale in production,
o
meaning that as output increases, average costs decrease.
o This leads to the existence of economies of scale, where larger-scale
production is more cost-efficient.
3. Advantages of Intra-Industry Trade:
a. Exploitation of Economies of Scale:
o Intra-industry trade allows countries to exploit economies of scale by

producing a variety of differentiated products for both domestic consumption
and export.
o Specialization in different varieties within the same industry enables firms to
achieve higher levels of production, lower average costs, and greater
competitiveness in global markets.
b. Product Diversity and Consumer Choice:
o Intra-industry trade results in a wider range of product choices and varieties

available to consumers in both importing and exporting countries.
o Consumers benefit from greater product diversity, innovation, and access to
specialized goods tailored to their preferences, leading to higher consumer
surplus and welfare.
c. Dynamic Comparative Advantage:
o Intra-industry trade is consistent with the concept of dynamic comparative

advantage, where countries with similar factor endowments can still trade
based on differences in product differentiation, technology, and market
preferences.
o This allows countries to specialize in the production of specific varieties or
niches within industries, promoting industrial diversification, innovation, and
technological progress.
d. Trade Balancing Effects:
o Intra-industry trade tends to balance trade flows between countries, as both

countries simultaneously export and import similar products within the same
industry.
o This leads to a more symmetric pattern of trade, with trade deficits in one
product offset by trade surpluses in another product, reducing the overall
volatility of trade imbalances.
In summary, Krugman's model of intra-industry trade highlights the advantages of trade in

differentiated products within the same industry, including the exploitation of economies of
43 | P a g e
scale, product diversity, dynamic comparative advantage, and trade-balancing effects. By
recognizing the importance of product differentiation and consumer preferences, this model
provides insights into the complexities of modern trade patterns and the potential benefits of
intra-industry specialization and trade.
22) Demonstrate the impact of changing exchange rates on

exports and imports.
The impact of changing exchange rates on exports and imports depends on various factors,
including the elasticity of demand for goods and services, the composition of trade, exchange
rate volatility, and macroeconomic conditions. Here's a demonstration of the impact of
changing exchange rates on exports and imports:
1. Impact on Exports:
a. Exchange Rate Appreciation:
o When a country's currency appreciates (i.e., becomes stronger) relative to

other currencies, its exports become more expensive for foreign buyers in
terms of their own currency.
o This leads to a decrease in export volumes and revenues, as foreign demand
for the country's goods and services declines due to higher prices in foreign
markets.
o Industries that are price-sensitive or face stiff competition in international
markets may experience a more pronounced decline in exports following an
exchange rate appreciation.
b. Exchange Rate Depreciation:
Conversely, when a country's currency depreciates (i.e., becomes weaker)

o
relative to other currencies, its exports become cheaper for foreign buyers in
terms of their own currency.
o This leads to an increase in export volumes and revenues, as foreign demand
for the country's goods and services rises due to lower prices in foreign
markets.
o Industries that are price-competitive or export goods with inelastic demand
may benefit more from an exchange rate depreciation in terms of export
expansion.
2. Impact on Imports:
a. Exchange Rate Appreciation:

44 | P a g e
o An appreciation of a country's currency makes imports cheaper for domestic
consumers in terms of their own currency.
o This leads to an increase in import volumes and expenditures, as domestic
consumers and businesses are incentivized to purchase more imported goods
and services due to their lower prices.
o Industries that rely heavily on imported inputs or face weak domestic
competition may experience a surge in imports following an exchange rate
appreciation.
b. Exchange Rate Depreciation:
Conversely, a depreciation of a country's currency makes imports more

o
expensive for domestic consumers in terms of their own currency.
o This leads to a decrease in import volumes and expenditures, as domestic
consumers and businesses reduce their purchases of imported goods and
services due to their higher prices.
o Industries that rely on imported inputs or face strong domestic competition
may benefit from a decrease in imports following an exchange rate
depreciation.
3. Overall Effects:
o Changes in exchange rates can impact the trade balance of a country by
influencing the relative competitiveness of its exports and imports in
international markets.
o A sustained appreciation of a country's currency may lead to a deterioration in
the trade balance, as exports decline and imports increase, potentially leading
to trade deficits.
o Conversely, a sustained depreciation of a country's currency may improve the
trade balance, as exports increase and imports decrease, potentially leading to
trade surpluses.
o However, the overall impact of exchange rate changes on trade balances
depends on various factors, including the responsiveness of export and import
volumes to price changes, the degree of exchange rate pass-through to import
prices, and the macroeconomic conditions of trading partners.
In summary, changing exchange rates can have significant effects on exports and imports by
influencing the relative prices of goods and services in international markets. While exchange
rate movements can impact trade volumes, revenues, and trade balances, the actual effects
may vary depending on the specific characteristics of industries, the composition of trade,
and the responsiveness of market participants to price changes.
45 | P a g e
23) Critically discuss in detail the problem of international debt
with relevant example.
The problem of international debt refers to the situation where a country accumulates
unsustainable levels of debt owed to foreign creditors, typically in the form of external public
debt (owed by the government) or external private debt (owed by private entities such as
corporations or banks). International debt can pose significant challenges to economic
stability, fiscal sustainability, and development prospects for debtor countries, especially
when debt burdens become excessive or unmanageable. Here's a detailed critical discussion
of the problem of international debt, along with relevant examples:
1. Causes of International Debt:
a. Macroeconomic Imbalances: High levels of international debt can result from

persistent macroeconomic imbalances, including fiscal deficits, trade imbalances, and
currency depreciation, which lead to increased borrowing to finance budgetary
shortfalls or trade deficits.
b. External Shocks: Debt accumulation may be exacerbated by external shocks such

as economic crises, commodity price fluctuations, natural disasters, or global financial
turbulence, which can undermine economic growth, reduce export earnings, and
increase external financing needs.
c. Borrowing for Non-Productive Purposes: Some countries incur debt to finance

non-productive expenditures, such as military spending, luxury imports, or
unsustainable infrastructure projects, leading to a mismatch between borrowing and
productive investment.
d. Unsustainable Debt Structures: Debt sustainability problems can arise from the
composition and terms of debt, including high interest rates, short maturity periods,
reliance on foreign currency-denominated debt, and exposure to exchange rate risks,
which increase debt servicing costs and vulnerability to financial crises.
2. Consequences of International Debt:
a. Debt Servicing Burden: High debt servicing obligations can consume a significant
portion of government revenues, diverting resources away from essential public
expenditures such as healthcare, education, infrastructure, and poverty reduction
programs.
b. Macroeconomic Instability: Excessive debt levels can undermine macroeconomic

stability, leading to currency depreciation, inflationary pressures, capital flight, and
46 | P a g e
financial market volatility, which can erode investor confidence and deter foreign
investment.
c. Crowding Out: Large debt burdens may crowd out private sector investment and
domestic borrowing, as government borrowing absorbs available financial resources
and competes with private borrowers for access to credit, leading to reduced
investment and economic growth prospects.
d. External Dependence: Dependence on external financing and debt inflows can

increase a country's vulnerability to external shocks, speculative attacks, and sudden
stops in capital flows, leading to balance of payments crises and currency crises.
3. Examples of International Debt Crises:
a. Latin American Debt Crisis (1980s): Several Latin American countries, including
Mexico, Brazil, and Argentina, faced severe debt crises in the 1980s due to a
combination of external shocks, macroeconomic mismanagement, and unsustainable
borrowing practices. These crises led to sovereign defaults, debt restructurings, and
prolonged economic recessions.
b. Asian Financial Crisis (1997-1998): The Asian financial crisis originated in

Thailand in 1997 and spread rapidly to other countries in the region, including
Indonesia, South Korea, and Malaysia, due to currency depreciations, capital
outflows, and banking sector vulnerabilities. The crisis was exacerbated by excessive
external borrowing, short-term debt exposure, and speculative attacks on currency
pegs.
c. Eurozone Debt Crisis (2010-2012): The Eurozone debt crisis was triggered by
fiscal imbalances, weak economic fundamentals, and banking sector fragilities in
peripheral European countries such as Greece, Portugal, Ireland, and Spain. These
countries faced sovereign debt crises, market contagion, and austerity measures amid
concerns over debt sustainability and Eurozone cohesion.
4. Policy Responses and Solutions:
a. Debt Restructuring and Relief: Debt restructuring initiatives, debt forgiveness,

and debt relief programs can help alleviate debt burdens and restore fiscal
sustainability for heavily indebted countries, as seen in various debt relief initiatives
such as the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral
Debt Relief Initiative (MDRI).
b. Macroeconomic Reforms: Implementing sound macroeconomic policies, fiscal

discipline, and structural reforms to enhance debt management capabilities, improve
debt transparency, and promote sustainable economic growth and development.
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c. Enhanced Debt Monitoring: Strengthening debt monitoring and management
frameworks, conducting regular debt sustainability analyses, and enhancing
transparency and accountability in public finance management to prevent the
accumulation of unsustainable debt levels.
d. International Cooperation: Promoting international cooperation, coordination,

and solidarity to address systemic issues related to debt sustainability, financial
stability, and development financing, including efforts to reform global debt
architecture, enhance debt resolution mechanisms, and promote responsible lending
and borrowing practices.
In conclusion, the problem of international debt poses significant challenges for debtor
countries, with far-reaching consequences for economic stability, development prospects, and
social well-being. Addressing the root causes of debt accumulation, promoting sustainable
debt management practices, and fostering international cooperation are essential for
mitigating the risks associated with international debt and achieving long-term fiscal
sustainability and economic resilience
24) Demonstrate the product market approach to determination

of exchange rate.
The product market approach to the determination of exchange rates, also known as the
purchasing power parity (PPP) theory, posits that in the long run, exchange rates between
currencies are determined by the relative prices of goods and services in different countries.
According to this approach, exchange rates adjust to equalize the prices of identical goods
and services across countries when measured in a common currency. Here's a demonstration
of the product market approach to the determination of exchange rates:
1. The Law of One Price:

o The foundation of the product market approach is the law of one price, which
states that in the absence of transportation costs and trade barriers, identical
goods should sell for the same price in different countries when measured in a
common currency.
o If goods are selling for different prices in different countries when expressed
in a common currency, there exists an arbitrage opportunity for traders to buy
goods in the cheaper market and sell them in the more expensive market,
thereby equalizing prices.
2. Absolute Purchasing Power Parity (PPP):
o The absolute PPP theory posits that exchange rates between currencies should
adjust to equalize the prices of a basket of identical goods and services across
countries when measured in a common currency.
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o Mathematically, the absolute PPP condition can be expressed as:
S=PforeignPdomesticS =
\frac{P_{\text{foreign}}}{P_{\text{domestic}}}S=PdomesticPforeign
Where:
SSS = the exchange rate (price of foreign currency in terms of

▪
domestic currency)
▪ PforeignP_{\text{foreign}}Pforeign = the price level of the foreign
country's basket of goods
▪ PdomesticP_{\text{domestic}}Pdomestic = the price level of the
domestic country's basket of goods
o If the actual exchange rate deviates from the rate implied by absolute PPP,
arbitrage opportunities arise, leading to adjustments in exchange rates until
parity is restored.
3. Relative Purchasing Power Parity (PPP):
o The relative PPP theory extends the concept of PPP to account for inflation
differentials between countries. It suggests that changes in exchange rates
should reflect differences in expected inflation rates between countries.
o Mathematically, the relative PPP condition can be expressed as:
Et−Et−1Et−1=πforeign−πdomestic\frac{E_t - E_{t-1}}{E_{t-1}} =
\pi_{\text{foreign}} - \pi_{\text{domestic}}Et−1Et−Et−1=πforeign
−πdomestic
Where:
EtE_tEt = the current exchange rate

▪
Et−1E_{t-1}Et−1 = the previous exchange rate
▪
πforeign\pi_{\text{foreign}}πforeign = the expected inflation rate in
▪
the foreign country
▪ πdomestic\pi_{\text{domestic}}πdomestic = the expected inflation rate
in the domestic country
o According to relative PPP, if the expected inflation rate in the foreign country
exceeds that of the domestic country, the foreign currency should depreciate
relative to the domestic currency to compensate for the higher inflation.
4. Empirical Evidence and Limitations:
o Empirical studies have found mixed evidence regarding the validity of PPP
theory in explaining exchange rate movements over the short run. In the long
run, PPP tends to hold more closely, especially for tradable goods with similar
characteristics and transportation costs.
49 | P a g e
o PPP theory faces several limitations, including the presence of non-tradable
goods, trade barriers, transaction costs, differences in quality, preferences, and
taxation, which can lead to deviations from PPP equilibrium.
In summary, the product market approach to the determination of exchange rates emphasizes
the role of relative prices of goods and services in different countries in driving exchange rate
movements over the long run. While PPP theory provides a useful framework for
understanding exchange rate behavior, its applicability may be limited by various factors that
affect the transmission of prices across borders and the efficiency of arbitrage mechanisms.
25) Critically discuss any one of the international financial crises

models with relevant example.
One of the prominent models used to analyze international financial crises is the "Twin
Crises" model, which examines the interplay between currency crises and banking crises.
Developed by economists Graciela Kaminsky and Carmen Reinhart in the late 1990s, the
Twin Crises model highlights the vulnerabilities inherent in economies with fixed or pegged
exchange rate regimes and emphasizes the role of financial fragility and contagion in
precipitating crises. Let's critically discuss the Twin Crises model with a relevant example:
Twin Crises Model:
1. Framework:
o The Twin Crises model posits that currency crises and banking crises often
occur simultaneously or in close succession due to their interconnectedness
and mutual reinforcement.
o It identifies a causal relationship between the two types of crises, where
currency crises can trigger banking crises, and vice versa, leading to a vicious
cycle of financial instability and economic turmoil.
2. Key Components:
a. Currency Crisis:
o A currency crisis occurs when a country's fixed or pegged exchange rate

regime comes under speculative attack, leading to a sudden and sharp
depreciation or collapse of the domestic currency.
o Causes of currency crises may include unsustainable fiscal policies, external
imbalances, speculative attacks, loss of credibility in monetary policy, and
sudden shifts in investor sentiment.
b. Banking Crisis:
50 | P a g e
o A banking crisis refers to a systemic breakdown in the financial sector,
characterized by widespread bank failures, liquidity shortages, asset price
collapses, and depositor runs.
o Banking crises can be triggered by factors such as excessive risk-taking,
inadequate regulation and supervision, asset price bubbles, overleveraging,
and contagion from external shocks.
c. Feedback Mechanisms:
The Twin Crises model highlights the feedback mechanisms between currency
o
crises and banking crises, where the collapse of the exchange rate can
exacerbate financial fragility and banking sector vulnerabilities.
o A currency crisis can lead to balance sheet mismatches, insolvency, and
liquidity problems for banks with foreign currency-denominated liabilities,
triggering a banking crisis.
o Conversely, a banking crisis can undermine confidence in the stability of the
domestic currency, leading to capital flight, currency depreciation, and further
pressure on the exchange rate.
3. Example: Asian Financial Crisis (1997-1998):
o The Asian Financial Crisis serves as a notable example that illustrates the
dynamics of Twin Crises. The crisis originated in Thailand in mid-1997,
where speculative attacks on the Thai baht led to a sharp depreciation of the
currency and triggered a full-blown currency crisis.
o The collapse of the Thai baht reverberated across the region, leading to
contagion effects and currency depreciations in other Asian economies such as
Indonesia, South Korea, Malaysia, and the Philippines.
o The currency depreciations exacerbated financial vulnerabilities in these
countries, exposing weaknesses in their banking and corporate sectors,
including excessive external borrowing, currency mismatches, and
unsustainable levels of debt.
o Banking sectors in several Asian economies experienced liquidity shortages,
solvency problems, and depositor runs, culminating in widespread banking
crises characterized by bank failures, capital flight, and economic recessions.
4. Critique and Policy Implications:
o The Twin Crises model has been critiqued for its simplicity and assumptions
regarding the causal relationship between currency and banking crises, as well
as its focus on fixed exchange rate regimes.
o Nonetheless, the model has important policy implications, emphasizing the
need for coordinated policy responses, including sound macroeconomic
management, robust financial regulation and supervision, exchange rate
flexibility, and crisis prevention and resolution mechanisms.
o The Twin Crises model underscores the importance of addressing underlying
vulnerabilities in both the financial and real sectors of the economy to enhance
51 | P a g e
resilience to external shocks and mitigate the risk of simultaneous currency
and banking crises.
In conclusion, the Twin Crises model provides valuable insights into the dynamics of
international financial crises, highlighting the interplay between currency crises and banking
crises and their mutual reinforcement. While the model may have limitations, its application
to real-world examples such as the Asian Financial Crisis underscores its relevance for
understanding the complexities of financial instability and informing policy responses to
mitigate systemic risks.
26) “It is best for a country never to borrow from lenders of other
countries.” Illustrate this statement with points of agreements and
disagreements. Also add relevant examples
The statement "It is best for a country never to borrow from lenders of other countries" can
be evaluated from multiple perspectives, considering both the potential benefits and
drawbacks of foreign borrowing. Let's illustrate this statement with points of agreement and
disagreement, along with relevant examples:
Points of Agreement:
1. Sovereign Independence:
o Agreements: Avoiding foreign borrowing can enhance a country's sovereignty
and autonomy in economic decision-making, reducing dependence on external
creditors and minimizing the risk of external interference in domestic affairs.
o Example: Countries like North Korea and Iran have pursued policies of
economic self-reliance to reduce reliance on foreign borrowing and external
financing, aiming to maintain sovereignty and political independence.
2. Debt Sustainability:
o Agreements: By avoiding foreign borrowing, countries can mitigate the risk of
accumulating unsustainable levels of debt, reducing the burden of debt
servicing costs, and minimizing the likelihood of sovereign debt crises.
o Example: Countries like Saudi Arabia and Brunei, which possess significant
natural resource wealth, have opted to limit external borrowing to maintain
fiscal sustainability and avoid the risks associated with debt dependency.
3. Stability and Resilience:
o Agreements: Restricting foreign borrowing can enhance macroeconomic
stability and resilience to external shocks, as it reduces vulnerability to
exchange rate fluctuations, capital flow reversals, and global financial crises.
52 | P a g e
o Example: During periods of global financial turmoil, countries with lower
levels of external debt and prudent fiscal policies, such as Singapore and
Norway, have demonstrated greater resilience and stability compared to
heavily indebted nations.
Points of Disagreement:
1. Investment and Development:

o Disagreements: Foreign borrowing can facilitate investment in critical
infrastructure, human capital, and development projects, enabling countries to
accelerate economic growth, enhance productivity, and improve living
standards.
o Example: Developing countries like China and India have utilized foreign
borrowing to finance large-scale infrastructure projects, such as transportation
networks, power plants, and urban development, contributing to economic
expansion and modernization.
2. Risk Diversification:
o Disagreements: Foreign borrowing allows countries to diversify sources of
financing and access international capital markets, reducing reliance on
domestic savings and promoting financial integration, innovation, and access
to global liquidity.
o Example: Emerging market economies such as Brazil and South Africa have
issued sovereign bonds in international markets to tap into foreign investor
demand, diversify funding sources, and extend maturities, supporting
investment and economic growth.
3. Time Value of Money:
o Disagreements: Borrowing enables countries to harness the benefits of the
time value of money, allowing them to invest in productive assets and
generate returns over time, which can outweigh the costs of borrowing.
o Example: Developed countries like the United States and Japan have
historically relied on foreign borrowing to finance fiscal deficits, support
public investment, and stimulate economic activity, leveraging low-interest
rates to promote growth and employment.
In summary, the decision for a country to borrow from lenders of other countries involves
trade-offs and considerations of sovereignty, debt sustainability, investment, and risk
management. While avoiding foreign borrowing can enhance independence and stability, it
may also forego opportunities for investment, growth, and risk diversification. Each country's
borrowing decisions should be carefully evaluated based on its unique circumstances,
development priorities, and long-term economic objectives
53 | P a g e
54 | P a g e

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M.B.A.

306 : INTERNATIONAL BUSINESS

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3) What is anti-dumping duty under W.T.O.?

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4) Define Special Drawing Rights.

5) What is Gold exchange standard?

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6) Meaning of foreign exchange market.

In the foreign exchange market, participants such as banks, financial institutions,

7) Define the concept International Trade.

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8) State the participants in foreign exchange market.

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9) What is the multilateral trade?

Multilateral trade agreements require extensive negotiations and consensus-building among

10) What is subsidy?

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Subsidies can serve various purposes, including:

1. Promoting economic development: Governments may provide subsidies to

11) What is Countervailing duties?

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12) What is the full form of FDI and FII?

13) What is value chain.

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A value chain consists of two main types of activities:

14) Define Greenfield Investment.

15) What is IFRS?

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Key features of IFRS include:

1. Principle-based approach: IFRS is based on principles rather than strict rules,

17) NAFTA means (full form)

18) Define Brexit

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19) Define FPI

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2) It is the price of buying something. For example : foreign

3) Environment a ___________ process.

4) Macro environment is also known as _________.

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6) Which is the right sequence of stages of Internationalization.

1) Distinguish between Forward and Future market.

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3) Explain the role of International monetary fund.

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4) Discuss Flexible exchange rate system.

1. Market Forces Determine Exchange Rates:

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5) Explain gold exchange standard.

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6) Identify the functions of W.T.O.

1. Negotiating Trade Agreements:

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7) Distinguish between Greenfield & brownfield Investments.

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In summary, greenfield investments involve establishing new operations or facilities in a

8) Distinguish between FDI and FPI.