BUS613: Advanced International Business

5a. Distinguish between the major international institutions and understand their influence over the world economy 

• What significance does the World Trade Organization (WTO) play in international trade? Do you believe all countries have equal influence over the organization?
• Can you distinguish between the World Bank and the International Monetary Fund (IMF)? What are the main differences in their role as an international institution?
  

International institutions play a significant role in the development, sustainability, and growth of the global economy. The World Trade Organization (WTO) has played a pivotal role in expanding trade among nations. The World Bank is primarily involved with reducing poverty and providing financing to developing countries, while the International Monetary Fund (IMF) manages the stability of the world's monetary system.
 
To review, see World Trade Organization, World Bank, and International Monetary Fund.
 

5b. Assess the level of political risk in selected countries or regions 

• How impactful are political risks on a global business' profitability in a new region? Are there ways to mitigate this risk?
• Why would a country decide to enter an emerging market? Is it possible to avoid political risk in these countries?
  

Political risks should be assessed in every international business when exploring the possibility of entering a new foreign market. Companies that are unaware of these risks or downplay the influence they might have over their business operations will typically suffer consequences at some point in time. Emerging markets present greater risks, but as developing markets, they also bring potentially greater returns for investors and companies.
 
To review, see Political Risks and Emerging Markets.
 

5c. Explain how international institutions and political partnerships can support the expansion of international business 

• Alliances are typically associated with national security partnerships, but they also benefit other areas. How can an alliance help the economic interests of the countries involved?
• How does a bilateral trade agreement work? Who is involved?
• How does a multilateral trade agreement differ from a bilateral trade agreement? What are some pros and cons of the two?
  

Political partnerships and countries that have developed friendly relations can support trade between the two economies. As free trade advanced over the past 50 years, it brought unprecedented cooperation among nations in the same region or on a global scale. Countries often find common ground over several years and formally agree to a partnership.
 
Regional trade blocs integrate nearby countries into an economic zone to remove trade barriers and increase the flow of trade and services. A bilateral trade agreement is established between two countries, whereas a multilateral trade agreement is between more than two nations. They each bring certain advantages and disadvantages.
 
To review, see Multilateral and Bilateral Trade Agreements, The Benefits of Multilateral Trade, and Alliances.
 

5d. Perform a country risk analysis to determine areas where risk can be reduced or mitigated 

• Is it wise to enter a country with a high level of economic risk? Why or why not?
• Is it possible to mitigate economic risks as efficiently as political risks?
  

International companies must assess the level of risks associated with any given country. Those companies' decision-makers must analyze whether the benefits outweigh the costs associated with those risks. As you complete studying this chapter, you will be able to discuss the economic, political, and operational risks that are involved with a country's risk analysis and what decision-makers should factor into whether they enter or avoid certain countries.
 
Companies seeking higher returns must often take on greater risks by entering a country. It is possible to mitigate these risks through sophisticated monitoring and analysis, which can positively influence decision-makers.
 
To review, see Economic Risks.
 

5e. describe the factors that influence exchange rate movement and the implications 

• What factors influence the exchange rates between countries?
• Do countries with high trade deficits have lower-valued currencies?
• How can a company hedge against currency risk when transacting across borders?
  

Exchange rates are the culmination of many different factors. As you study this chapter, pay close attention to how a country’s economic and political strengths are tied to currency value and how they can influence business decisions when companies enter new international markets. Exchange rates between certain countries can stay relatively stable over a long-term period, while others could have a much more volatile movement, yet countries from around the world trade with each other.
 
To review, see Political Risks and Economic Risks.
 

Unit 5 Vocabulary

This vocabulary list includes terms you will need to know to successfully complete the final exam.

• bilateral trade agreement
• emerging market
• International Monetary Fund (IMF)
• multilateral trade agreement
• regional trade bloc
• World Bank
• World Trade Organization (WTO)