4A. How do countries\' economies gain from international trade? a. Citizens shou

Question

4A. How do countries' economies gain from international trade?

a. Citizens should buy only those products that are produced domestically.

b. Since it is of interest to domestic producers, countries benefit from international trade.

c. Countries can import products that can be produced more efficiently in other countries.

d. Country can specialize in the manufacturing of products that are produced most efficiently in other countries.

4B. Why has FDI grown more rapidly than world trade?

a. Decline in trade barriers has made the fear of protectionist pressures redundant.

b. Programs such as privatization have made developing nations attractive for MNEs.

c. The general shift toward radical and totalitarian political institutions.

d. Executives see trade as a way of circumventing future trade barriers.

4C. Why would a firm prefer to acquire an existing asset instead of executing a greenfield investment?

a. Many mergers and acquisitions fail to realize anticipated efficiency gains.

b. Firms believe that they need to acquire the desirable target firm before the rivals.

c. Greenfield investments are faster to execute.

d. It is easier to build assets from ground up.

Explanation / Answer

4A.

During discussions regarding NAFTA ( north American free trade agreement ) and CAFTA ( central America free trade agreement ) it was felt by many americans that international trade is one side robbing the servibg oppurtunities of existing american citizens by opting job overseas to countries like india and china.

But in a way it has got many advantanges which wer put to thinner eye.

a. If citizens purchase only those items which are produced domestically , then the revenue generated may stay with in the country and enhancement of business may turn out at the start but

* domestic companies will have lesser market space. It may felt good when country doing well in optimisation of resources available but country will no more be able to handle in case of financial crisis and many other negitives which were observed while america was in its isolation will be repeated.

* thus a balance if domestic and imported goods is to be maintained as per availability and pricing of goods. Also as per purpose of usage.

b.

Domestic producers will be benifited in many ways via international trade viz

* the market now for a producers is huge to sell his products / services and so he can maximise profit my selling right goods / services @ right time.

Eg : during spring in one region of world sweaters can be sold in other region of world experiencing winter.

* cost of production per unit decreases due to large volume of production oppurtunities which result in low cost and more profit concept.

* the domestic producers will now be able to enjoy larger economies of scale.

c.

* on the other hand the people of america can experience specialized goods from specialized worlds markets and enjoy expertise in almost every product.

* due to increased international competition companies continue to produce best quality products using innovative methods , materials and ideas. All these benefits will also be enjoyed by countries citizens.

* so now consumers will be able to obtain specialised goods / services from specialised places to there place.

Eg : petrol and other oils from saudi arabia to india.

Varieties of dresses buying online from websites with various region based products.

d.

Firstly , companies in the race of international competition invest in international trade and competition to produce new products to market and improve existing ones.

As a result of this , different countries end up producing various unique and specialised products which may previously have never existed in that country.

* since the market is vast now to producers they try to satisfy different sectors of consumers other than there domestic ones. That result in producing those specialised products to attract specific sector of markets otherthan country owns.

With the concept of international trade market size amplifies and so company will be able to obtain its return on investment in less time than earlier.

It also forms as a beneficial circle safegaurding countries own resources.

Eg : in the light of NAFTA many americans ended up investing dollars in mexico by flooding various infrastructural investments like new companies and job oppurtunities to mexicans and where in mexicans use those dollars in further purchase of american goods.

4B. The process of investing by domestic people / companies in the investments of foreign countries establishments / companies in order to gain power to control / manage foreign companies activities is called foreign direct investment. Shortly FDI.

a.

Earlier a shield in the name of protectionism use to prevail in every country by way of charging higher import duties in order to control foreign companies investments pressure into domestic land companies.

But with the process of international trade , every country in order to get itself benifited from fruits of foreign trades loosen the tight gates if protectionism. So now they no more exist in severity.

Eg: global market bonds , share investments in foreign institutions , global depository bonds , american depository bonds and so on.

b.

Privatization means a process of transfering control of business from the hands to governament to private individuals.

Due to this various benifits are being enjoyed by govt

Eg : on selling government companies to private individuals , govt will be able to generate income and now it is no longer required tho provide subsidies to non successfully running companies.

Privatization has evolved many number of private individuals who has a hunger of maximising profits with minimum investments to extent possible and enjoy fruits of economies of scale to larger extent.

Thus are being interested in investing MNE's i.e multi national companies/ enterprises where they hold place of business in atleast one country other than parental country.

In order to enjoy the benefits of international business oppurtunities and multiplying financial resources most of private investors are being interested in MNE's.

Eg : return on investment will be obtained in less time for mne's and so that obtained funds can be used in further investments which increases the scope of income generation from available fin resources.

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