Question1: The world economy is globalizing at an accelerating pace. Discuss this statement and list the benefits of globalization.

Answers: Globalization is a process where businesses are dealt in markets around the world, apart from the local and national markets. According to business terminologies, globalization is defined as the worldwide trend of businesses expanding beyond their domestic boundaries. It is advantageous for the economy of countries because it promotes prosperity in the countries that embrace globalization. International companies Companies that deal with foreign countries for their business are considered as international companies. They can be exporters or importers who may not have any investments in any other country, apart from their home country. Global companies Companies, which invest in other countries for business and also operate from other countries, are considered as global companies. They have multiple manufacturing plants across the globe, catering to multiple markets. Multinational strategy Companies adopt this strategy when each countrys market needs to be treated as self contained. It can be for the following reasons: Customers from different countries have different preferences and expectations about a product or a service. Competition in each national market is essentially independent of competition in other national markets, and the set of competitors also differ from country to country. A companys reputation, customer base, and competitive position in one nation have little or no bearing on its ability to successfully compete in another nation. Some of the industry examples for multinational competition include beer, life insurance, and food products. Global competitive strategy Companies adopt this strategy when prices and competitive conditions across the different country markets are strongly linked and have common synergies. In a globally competitive industry, a companys business gets affected by the chan ging environments in different countries. The same set of competitors may compete against each other in several countries. In a global scenario, a companys overall competitive advantage is gauged by the cumulative efforts of its domestic operations and the international operations worldwide. A good example to illustrate is Sony Ericsson, which has its headquarters in Sweden, Research and Development setup in USA and India, manufacturing and assembly plants in low-wage countries like China, and sales and marketing worldwide. This is made possible because of the ease in transferring technology and expertise from country to country.

Benefits of globalization Promotes foreign trade and liberalization of economies. Increases the living standards of people in several developing countries through capital investments in developing countries by developed countries. Benefits customers as companies outsource to low wage countries. Outsourcing helps the companies to be competitive by keeping the cost low, with increased productivity. Promotes better education and jobs. Leads to free flow of information and wide acceptance of foreign products, ideas, ethics, best practices, and culture. Provides better quality of products, customer services, and standardised delivery models across countries. Gives better access to finance for corporate and sovereign borrowers. Increases business travel, which in turn leads to a flourishing travel and hospitality industry across the world. Increases sales as the availability of cutting edge technologies and production techniques decrease the cost of production. Provides several platforms for international dispute resolutions in business, which facilitates international trade.

Question 2: Compare the Adam Smith and David Ricardos theories of international trade with examples. Adam Smiths theory David Ricardos theory

Answer: Adam Smith Theory In one of the most notable book Wealth of Nations in 1776, Adam Smith attacked the mercantilism and argued that countries differ in their ability to produce goods and services efficiently due to variety of reasons. At that time, England, by virtue of their superior manufacturing processes, were the worlds most efficient textile manufacturers of the world. This was due to combination of several factors such as favourable climate, good soils, skilled manpower and accumulated experience and expertise in textile production. On the other hand, the French had one of the most efficient wine industries of the world. Thus, England had an absolute advantage in the manufacturing of textiles and France had an absolute advantage in the production of wine. Adam Smith argued that a country has an absolute advantage if it has one of the most efficient and cost effective product in comparison to any other country producing it. Smith argued that countries should specialise in production and manufacturing of goods and services in which they have an absolute advantage. Such cost effective and efficient products can be traded with goods from other countries in which that country has an absolute advantage. According to Smith, England should specialise in the production of textiles and France should specialise in the production of wine. Both the countries should exchange such products of absolute advantage with each other, i.e. England should sell textiles to France and France should sell wine to England. The crux of Smiths absolute advantage theory is that a country should not produce goods at home in which it does not have cost advantage; instead it should import from other countries. Absolute advantage theory was based on positive sum game where countries benefit from trade unlike mercantilism theory which was based on zero game.

David Ricardo Theory David Ricardo, in his notable book Principles of Political Economy published In 1817 came up with an improvement on Adam Smiths absolute advantage theory . Ricardo argued what might happen if one country has an absolute advantage in the production of all goods. Adam Smiths theory suggests that such a country might not have benefitted from international trade as trade is positive sum game and countries prosper only if they exchange the goods in which they have absolute advantage. Ricardo argued that it was not the case and showed that countries should trade goods with each other where they have comparative cost advantage. For a sustainable economic system, Ricardo argued that a country should specialise in the production of those goods that it can produce most efficiently and import the goods which it produces less efficiently even if it has absolute cost advantage in the production of those goods.

Question3: Regional integration is helping the countries in growing their trade. Discuss this statement. Describe in brief the various types of regional integrations. Answer: Regional Integration - It is the unification of countries into a larger whole. It also reflects a country's willingness to share or unify into a larger whole. The level of integration of a country with the other countries is determined by what it shares and how it shares. Regional integration requires some compromise on the part of participating countries. It should aim to improve the general quality of life for the citizens of those countries. The tendency towards to integration was activated by the European Union market integration. This trade has influenced developed and developing countries to form customs unions and Free trade Areas. The WTO terms these agreements of integration as Regional Trade Agreements. Need for integration: a) Facilitate trade growth. b) Achieve conducive climates for investment. c) Surmount the regulatory and administrative barriers to transit zones. d) Ensure safe and reliable trade routes. e) Encourage economic expansion.

Regional integration results in the creation and diversion of trade. It supports overall growth of the region, coupled with efficient trading practices. Trade creation increases production and income and also leads to new entrants in the market and therefore, results in tougher competition.

Types of Integration: Preferential Trading Agreement: It is a trade pact between countries. It is the weakest type of economic integration and aims to reduce taxes on few products to the countries who sign the pact. Free trade area: It is a type of trade bloc and can be considered as the second stage of economic integration. It comprises of all countries that are willing to or agree to reduce preferences, tariffs, quotas on services and goods traded between them. Countries choose this kind of economic integration if their economical structures are similar. If countries compete among themselves, they are likely to choose customs union. Custom union: It is an agreement among two or more countries having already entered in to a free trade agreement to further align their external tariff to help remove trade barriers. Common Market: It is a group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members. European community is an example of common market. Common markets levy common external tariff on imports from non-member countries. Economic Unions: Economic union is a type of trade bloc and is instituted through a trade pact. It comprises of a common market with a customs union. Political Union: A political union is a type of country, which consists of smaller countries / nations. Here, the individual nations share a common govt. and the union is acknowledged internationally as a single political entity.

Question 4: Write short note on: a) GATS (General Agreement on trade in services) b) ILO (International Labour organization) Answer: a) GATS (General Agreement on trade in services): GATS is a framework agreement defining the rules under which trade in services must occur. GATS aims at extending the rules covering trade in goods to trade in services. A detailed rule has been included to take into account the difference between goods and services and the way in which trade in services is conducted .Trade in services cover a wide range of activities in the area of telecommunication, information, banking, insurance and education. The main objective of GATS is to establish a framework for liberalising trade in services. It encourages countries to modify their domestic regulations. This modification results in elimination of restrictions applied to service products entering the country and is applicable to international service suppliers who are carrying out business in various modes. GATS covers services known as 'consumption abroad' where services such as e-commerce are used by the consumers in a host country and citizens of a country travel overseas to consume products such as education or tourism. b) ILO: International labour Organisation is a specialised agency of the United Nations which deals with labour issues .The headquarters is situated in Geneva, Switzerland .The secretariat comprises of the people employed by the organisation throughout the world. The secretariat is known as the international labour office. It work through three main bodies: International Labour Conference : The members of the ILO meet at the International Labour Conference every year in June , in Geneva .two govt. delegates along with an employer delegate and a worker delegate represents their respective member state. Governing Body: The executive council of the ILO is known as the governing body. It meets thrice a year in Geneva and takes decisions on the ILO policies. It forms programmes and budgets which are submitted to the conference for adoption. The government body has 28 government members, 14 employer members and 14 worker members. Ten govt seats are permanently held by states of chief industrial importance. International Labour office: The permanent secretariat of the International Labour Organisation is International Labour Office. It is the centre for administrated by the governing body. The Office is a centre for administration, research and documentation. It employs more than 1700 officials from 110 nationalities. The office also organises certain programmes to extend technical help to all member nations. Under this programme of technical cooperation, around 600 experts undertake missions in all regions of the world.

Q5. What is the difference between domestic and international accounting and how will you measure this difference? Answers: The accounting system of a domestic organisation must meet the specialised and regulatory standards of its home country. But an MNC and its subsidiaries must meet differing accounting and auditing standards of all the countries in which it operates. This leads to an need for comparability between businesses in the group. There are many differences between International accounting standards and domestic accounting standards. On the basis of difference between the two, two indices, namely 'divergence' and 'absence', are created. Absence is the difference between DAS and IAS; the rules on certain accounting issues are missed out in DAS and covered in IAS. Divergence represents the difference between DAS and IAS; the rules on the same accounting issue differ in DAS and IAS. Measures of difference between IAS and DAS : Literature on International accounting differences - Referring to reports on international accounting could give more information about the subject. Most of the earlier reports understand international accounting differences as various options adopted by nations for the similar accounting problems, which correspond to divergence concept. Framework of analysis: Links between variations in accounting standards and financial reporting quality of various countries could be clearly seen from the reports published earlier. We should consider the institutional determinants of accounting differences such as legal origin, governance structure and equity market.

Question 6: Discuss the various payment terms in international trade. Which is the safest method and why? Answers: Cash Advance: Cash-in advance helps in removing the risks of credit by the exporter. By this method, exporter receives the payment before the transfer of goods. The options that are available with the cash-in-advance method include wire transfers and credit cards. This is the least attractive method for many of the buyers as it creates cash flow problems. The buyers are concerned about the quality / quantity and delivery of the goods that are not sent if the payment is made in advance. Letters of credit: The letter of credit is the most secure instrument available for international traders. This is the commitment made by the bank that the payment will be made to the exporter if the terms and conditions are met. The terms and conditions of the payment are explained in the required documents. Documentary collections: Documentary collection is a transaction in which, the exporter's bank sends the documents to the importer's bank. The document contains information about the payment. The funds are collected from the importer and paid to the exporter through the banks involved in the collection, in exchange for the documents. Open account: The open account transaction involves the shipping and delivery of goods in advance. The payment is due usually 30 to 90 days. This is advantageous for the importer in cash flow and cost terms, but at the same time it is very risky for the exporters. Buyers from abroad stress on open accounts since the extension of credit from the seller to the buyer are more common in many countries. Letter of credit: International trade is affected by distance, laws and lack of familiarity of goods by the transacting parties. Letter of credit assumes significance since it can be used to mitigate risk. It is a document that is issued by the bank that guarantees payment to a beneficiary .It is written by the financial institution in favour of the importer of goods to the seller. There is uncertainty during the time when payment transactions happen between importer and exporter. The figure compares and contrasts the most suitable methodology from the perspective of importer and exporter. Apparently the most secure methodologies that work for the exporter is not safe for the importer. For, exporter, documentary collection and open account are less secure and letter of credit and cash in advance are more secure methods. In the same way, with respect to the importer, the letter of credit and cash in advance are less secure and documentary collection and open account are more secure.