Finance in International Markets

2. Why do companies tend to thrive in global markets when their country of origin enjoys a comparative advantage

2. Why do companies tend to thrive in global markets when their country of origin enjoys a comparative advantage in their industry?

As previously identified, there are also “non-legal/extra-governmental” political risks which could bring unexpected upheaval to foreign firms. Macro political risks such as the threat of violence, corruption, war or military coup, political instability and terrorism are all direct threats to foreign investors.

1. Country A is extremely efficient in the mining of tin. However, its climate and terrain makes it difficult to produce corn. According to the theory of comparative advantage, Country A should:

Define the concept of comparative advantage. How can a country gain or lose its comparative advantage in the production of a good?

18. __________ basic argument, articulated through the theory of absolute advantage, is that a country

· What happens when there is a surplus of imports brought into the U.S.? Cite a specific example of a product with an import surplus, and the impact that has on the U.S. businesses and consumers involved. When there is a surplus of imports brought into the U.S. it means that the price of the product(s) will drop. U.S. companies that are competing with the Chinese made products will suffer from price drops of the goods. With consumers it will benefits the consumer with the lower price on goods. Large screen LCD/HDTV is a good example. Since the recession there has been a surplus of large screen HDTV. Not many people can afford or buy them since the prices were high. Now large screen LCD/HDTV is much cheaper than what it was 4 years ago.

However, the investment was not without risks. There are four types of risks in international business called cross-culture risk, country risk, currency risk and commercial risk. Cross-cultural risk refers to a situation or event where a cultural miscommunication puts some human value at stake. Country risk describes the potentially adverse effects on company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country. Currency risk is the risk of adverse unexpected fluctuations in exchange rates. Commercial risk refers to potential loss or failure from poorly developed or executed business strategies, tactics, or procedures (Boter & Wincent, 2010). Investment in Rulmenti Grei, Timken might face the salient risks of political and economic instability. Romania’s economic growth was slower, inflation was higher, and the labor force was more volatile. Furthermore, there might be a risk of re-nationalization. It is said that economic risk analysis tells corporate leaders the ability of a particular country to pay its debt while political risk analysis tells them whether that country will pay its debt. Political risk measures the stability of individual countries through the

Implementation of the theory of comparative advantage led to a contraction of certain manufacturing industries in America and led trade to take place instead. With the rise of globalization,

2. Some risks that are common between domestic and international funds are: losing money and management risk. Any investment has some type of risk. Losing money is the first risk that every investment has whether it is domestic or international. Management risk is the bad management decisions that a company makes. Some unique risks that only international funding has are: economic risk, country/regional risk, and currency risk. Currency risk is the chance that the value of a   foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in the currency exchange rates. Economic risk is the stability of a country’s economic. Country/regional risk is political, financial troubles, and natural disasters that will affect the value of securities issued by companies in foreign countries or regions.

13-5 BFF chose to export because it is cheaper than FDI, it also allows them to have full control. The advantages of exporting are, it could potentially increase sales, diversify their customer base, the product is light and some are non-perishables which are easy to ship. It also spreads their risk and allows them to be less dependant on one market base. The disadvantages they could run into are tariffs or trade barriers, less likely to learn the culture which could hurt sales, and fluctuation of exchange rates. He would also have to understand all documentation required.

The issue and concept addressed in the case study is trade theories such as competitive advantages and also the benefits and costs brought by international trade and its related government policies.

When a company decides to enter a foreign market there are several entry options available. The options include exporting, licensing, joint

Political environment is significant to do business in other countries. There are different factors of political environment. These factors can influence the government decision making and other activities. For foreign investors every country set some rules and regulations. Investor need to maintain these rules and regulation to do business on certain country. Political factors can influence the government to change these regulations. So investors need to know the regulations and get the proper knowledge about political environment.

As (Lisa l martin) stated that international trade provides an opportunity and risk to a group of nation or individual. It provide an opening to other nations economy as well as to the economy of specialised nation. while international trade become important to business in countries they developed different theories to explain the need of trade and what to trade. There are different trade theories like Mercantilism, non-mercantilism, absolute advantage thory, comparative advantage theory are some of those.