in the international spotlight india

Topics: Currency, Economics, Macroeconomics Pages: 9 (2706 words) Published: April 11, 2014
Final exam questions – International Business_Fall 2013 (18.01.2014) 1. What are the economic and political arguments for regional economic integration and impediments to integration? Describe each argument and impediment shortly. The economic and political arguments for Regional Economic Integration are trade diversion and geography. This would exclude third world countries from being exposed to trade tariffs in the international market. Other than that because of being close to each other, the trade costs will fall and the prices of the traded products will also be lower. Impediments are costs, painful adjustments, and concerns over national sovereignty.

2. Describe the opportunities and threats of Regional Economic Integrations for Multinational Enterprises. Give examples. Opportunities
Formerly protected markets are now open to exports and direct investment •Because of the free movement of goods across borders, the harmonization of product standards, and the simplification of tax regimes, firms can realize potentially enormous cost economies by centralizing production in those locations where the mix of factor costs and skills is optimal Threats

Lower trade and investment barriers could lead to increased price competition within the EU and NAFTA •Increased competition within the EU is forcing EU firms to become more efficient, and stronger global competitors •Firms outside the blocs risk being shut out of the single market by the creation of a “trade fortress” •Firms may be limited in their ability to pursue the strategy of their choice in the EU intervenes and imposes conditions on companies proposing mergers and acquisitions

3. Describe the advantages and costs of introduction of single currency in Regional economic integrations. Benefits
Firms and individuals should save by handling one currency, rather than many •Consumers should find it easier to compare prices across Europe •Producers should become more efficient as they reduce their production costs in order to maintain their profit margins •The highly liquid pan-European capital market should get a strong boost •The range of investment options open both to individuals and institutions should increase Costs

Membership in the euro zone implies that nations lose control over the monetary policy •The EU is not an optimal currency area (an area where similarities in the underlying structure of economic activities make it feasible to adopt a single currency and use a single exchange rate as an instrument of macro-economic policy) •So, countries may react very differently to changes in the euro 4. Describe each level of economic integration.

The five levels of economic integration are: free trade area, customs union, common market, economic union, and political union. 5. Describe each stage of regional integration in Europe (formation history of EU). I. The European Coal and Steel Community Treaty (ECSC)

II. The European Economic Community (EEC)
III. The European Atomic Energy Community (EAEC or Euratom)
IV. The name was changed to the EU in 1994

6. What kinds of economic theories of exchange rate determination exist? Describe each theory shortly. •Purchasing power parity (PPP) theory states that the price of a basket of particular goods should be roughly equivalent in each country. PPP theory predicts that the exchange rate will change if relative prices change. •The Balance of Payment Approach depends on the assumption that there exists an exchange rate and there exists internal and external equilibrium. The internal equilibrium is based on the assumption that there is full employment. The external equilibrium is the equilibrium in the balance of payments. •Monetary and Portfolio Approach is an approach in which the prices of various domestic and foreign assets are decided. 7. What types of foreign exchange risk exposure do the international businesses face? Describe each exposure shortly and describe the strategies used to...
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