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SOLVED ASSIGNMENTS FOR JUNE - DEC TEE 2026

 

MCOM 4^TH SEMESTER

 

COURSE CODE: IBO -01

COURSE TITLE: International Business Finance

1. a) Define Balance of payments disequilibrium. Discuss the major factors affecting balance of payments and the methods of correcting disequilibrium.

1. (a) Balance of Payments Disequilibrium

Definition:
Balance of Payments (BOP) disequilibrium occurs when a country’s international receipts (from exports, foreign investment, remittances, etc.) are persistently lower or higher than its international payments (imports, loan repayments, investments abroad, etc.), leading to a deficit or surplus. In simple terms, it reflects an imbalance between inflows and outflows of foreign exchange, which can destabilize the economy if not corrected.

 

Major Factors Affecting Balance of Payments

1. Trade Imbalances:
   Excessive imports of goods and services compared to exports lead to persistent BOP deficits.
2. Fluctuations in Exchange Rates:
   Depreciation or appreciation of currency affects export competitiveness and import costs.
3. Inflation and Price Levels:
   Higher domestic inflation makes exports costlier and imports cheaper, worsening the BOP.
4. Capital Movements:
   Outflow of foreign investment or reduced inflow of FDI/FII can strain foreign exchange reserves.
5. External Debt and Interest Payments:
   Heavy borrowings from abroad and debt-servicing obligations increase BOP pressure.
6. Political and Economic Instability:
   Unstable conditions discourage foreign investment and reduce capital inflows.
7. Global Economic Conditions:
   Recession or slowdown in major trading partner countries reduces demand for exports.
8. Structural Factors:
   Dependence on a narrow range of exports (like primary commodities) makes a country vulnerable to price fluctuations.

 

Methods of Correcting BOP Disequilibrium

1. Monetary Measures:
• Devaluation/Depreciation: Makes exports cheaper and imports costly, improving the trade balance.
• Exchange Rate Adjustments: Managed float or flexible exchange rates help restore equilibrium.
• Deflationary Policies: Reducing domestic demand through monetary tightening to lower imports.
2. Trade Measures:
• Export Promotion: Subsidies, tax rebates, and incentives to boost export competitiveness.
• Import Substitution: Encouraging domestic industries to produce goods that are otherwise imported.
• Tariffs and Quotas: Restrict imports to reduce outflow of foreign exchange.
3. Capital Measures:
• Encouraging Capital Inflows: Attracting FDI and portfolio investments.
• Debt Management: Restructuring or reducing external debt burden.
4. Structural Reforms:
• Diversification of exports to reduce dependence on a few items.
• Industrial modernization and efficiency improvements.
5. International Assistance:
• Borrowings from IMF, World Bank, or other international agencies to stabilize foreign exchange reserves.

 

Conclusion

Balance of Payments disequilibrium is a serious challenge for any economy as it directly impacts foreign reserves, exchange rates, and overall economic stability. Corrective measures must be a mix of short-term strategies (like monetary adjustments and trade restrictions) and long-term reforms (like export diversification, productivity improvement, and stable macroeconomic policies) to ensure sustainable balance.

 

b) Distinguish between tariff and non- tariff barriers. Explain various non- tariff barriers to restrict the international trade.

1 (b) Tariff vs. Non-Tariff Barriers

Tariff Barriers:

• Tariffs are taxes or duties imposed on imported goods and services by the government.
• The primary aim is to make imports more expensive and less competitive compared to domestic goods.
• Example: Import duty on crude oil or customs duty on foreign cars.

Non-Tariff Barriers (NTBs):

• These are regulatory or policy-related restrictions imposed by governments that do not involve direct taxation but still limit imports/exports.
• They can be more subtle, complex, and often harder to measure compared to tariffs.
• Example: Quotas, quality standards, licensing requirements.

Key Distinction:

• Tariff = Monetary tool (taxes).
• Non-Tariff = Non-monetary restrictions (rules, regulations, policies).

 

Non-Tariff Barriers to Restrict International Trade

1. Quotas:
• Quantitative restrictions on the volume of imports/exports of specific goods.
• Example: A limit on the number of foreign cars that can enter a domestic market.
2. Import Licensing:
• Requirement for importers to obtain official permission before bringing goods into the country.
• Controls the amount and type of goods imported.
3. Standards and Technical Barriers:
• Imposing strict product standards, quality checks, labeling, and certification requirements.
• Example: Health and safety standards on food products or electronic items.
4. Voluntary Export Restraints (VERs):
• An exporting country voluntarily restricts its exports to another country under pressure or mutual agreement.
• Example: Japan limiting car exports to the US in the 1980s.
5. Embargoes and Sanctions:
• A complete ban on trade with a specific country or of specific goods, usually due to political or security reasons.
• Example: Trade restrictions against Iran or North Korea.
6. Subsidies to Domestic Industries:
• Governments provide financial aid to domestic industries, making their goods cheaper compared to imports.
• Example: Subsidies to farmers to protect them from cheap foreign agricultural imports.
7. Customs Delays and Administrative Barriers:
• Deliberate bureaucratic hurdles, excessive paperwork, or slow customs procedures to discourage imports.
8. Foreign Exchange Controls:
• Restricting availability of foreign currency for import payments, thereby limiting imports.
9. Public Procurement Policies:
• Governments giving preference to domestically produced goods in public sector purchases.
10. Health and Environmental Regulations:

• Imposing strict eco-friendly and health requirements, often making it harder for foreign producers to comply.

 

Conclusion

While tariffs directly increase the cost of imports, non-tariff barriers operate more subtly by creating legal, procedural, or technical hurdles. In modern international trade, non-tariff barriers have become more significant than tariffs as tools of protectionism, often disguised as safety, health, or environmental measures. Understanding these is crucial for ensuring fair trade under WTO guidelines.

 

2. What is Globalisation? Describe major forces of globalisation. In what ways does globalisation shape strategic decisions and market expansion in international business? Explain giving suitable examples.

What is Globalisation?

Globalisation refers to the process of increasing interconnectedness and interdependence among countries in terms of trade, investment, technology, information, and culture. It integrates national economies into a global system where goods, services, capital, and knowledge flow across borders more freely.

In business, globalisation means operating beyond domestic markets, leveraging international opportunities, and facing global competition.

 

Major Forces of Globalisation

1. Trade Liberalisation and WTO Rules
• Reduction of tariffs and quotas has encouraged cross-border trade.
• The establishment of the World Trade Organisation (WTO) has ensured standardized trade practices.
2. Technological Advancement
• Innovations in communication (internet, social media, AI) and transportation (container shipping, logistics networks) make global operations smoother.
• Example: Amazon and Alibaba use digital platforms to reach global customers.
3. Foreign Direct Investment (FDI)
• Growth of multinational corporations (MNCs) investing in developing markets.
• Example: Apple investing in India’s manufacturing sector.
4. Financial Market Integration
• International banking and capital markets allow companies to raise funds globally.
• Example: Companies listing on NYSE, NASDAQ, or London Stock Exchange to attract international investors.
5. Consumer Preferences and Cultural Convergence
• Rise of a global consumer class with common preferences (e.g., fast food, fashion, entertainment).
• Example: McDonald’s, Netflix, and Zara customizing products for local but global audiences.
6. Global Supply Chains
• Companies source raw materials, components, and labor from multiple countries to reduce costs.
• Example: iPhone is designed in the US, assembled in China, and uses parts from Japan, South Korea, and Europe.
7. Political and Economic Reforms
• Economic liberalization policies in countries like India (1991 reforms) and China (Open Door Policy).
• These opened domestic markets to foreign players.
8. Global Institutions & Agreements
• IMF, World Bank, WTO, and regional trade agreements (NAFTA/USMCA, EU, RCEP) have encouraged freer movement of trade and investment.

 

Impact of Globalisation on Strategic Decisions & Market Expansion

Globalisation influences how businesses set their strategies and expand internationally.

1. Market Entry Strategies
• Companies decide whether to use exporting, franchising, joint ventures, or wholly-owned subsidiaries based on global opportunities.
• Example: Starbucks uses joint ventures in China to adapt to local tastes.
2. Product Standardisation vs. Localisation
• Firms must decide whether to sell standardized products globally or adapt to local preferences.
• Example: McDonald’s sells Big Macs worldwide but offers McAloo Tikki in India and Teriyaki Burgers in Japan.
3. Supply Chain and Sourcing Decisions
• Globalisation enables cost efficiency through outsourcing and offshoring.
• Example: Nike outsources manufacturing to Vietnam and Indonesia for cost benefits.
4. Competitive Strategy
• Firms must respond to global competitors by enhancing efficiency and innovation.
• Example: Samsung and Apple competing in the global smartphone market.
5. Financial & Risk Management
• Exposure to foreign exchange risk, political risk, and global regulations influences financial planning.
• Example: Indian IT companies like Infosys hedge against currency fluctuations when earning in USD.
6. Branding & Global Identity
• Companies must create a brand image that resonates globally while retaining local relevance.
• Example: Coca-Cola positions itself as a global brand, but adapts advertising to local cultures.
7. Sustainability and Corporate Social Responsibility (CSR)
• Globalisation pressures companies to align with international environmental and labor standards.
• Example: Unilever emphasizes sustainable sourcing in its supply chain.

 

Conclusion

Globalisation is a powerful force reshaping business strategies. Companies can no longer think only in domestic terms; they must operate in a global mindset. It affects every aspect of decision-making—from product design to marketing, supply chains to financial risk management. Firms that leverage global opportunities while adapting to local cultures (the “think global, act local” approach) succeed in today’s interconnected world.

 

3. Comment on the following:

a) Utilitarian is preferred in European countries.

b) Agriculture has traditionally been one of the least contentious areas of world trade.

c) Settlement is not a desirable solution for business disputes of international character.

d) Service sector is not economically important for providing jobs.

3 (a) Utilitarian is preferred in European countries.

Utilitarianism is a moral and political philosophy that emphasizes the greatest good for the greatest number of people. In European countries, this approach has often influenced social, economic, and political systems. The European model of governance is characterized by welfare states, social security, universal healthcare, and free education systems, which reflect utilitarian values. For instance, countries like Sweden, Denmark, and Germany prioritize social equity and redistribution of wealth through higher taxes and state-sponsored welfare programs, ensuring that the majority of people benefit.

In policymaking, the European Union often prefers utilitarian approaches when making decisions on climate change, human rights, trade policies, and consumer protection. For example, strong environmental regulations in Europe, such as the ban on single-use plastics, are based on the idea that collective environmental benefits outweigh individual inconveniences or corporate profits. Similarly, public health policies during the COVID-19 pandemic—such as lockdowns, vaccination campaigns, and social distancing rules—were framed in a utilitarian manner, prioritizing the well-being of the majority over individual freedoms.

Thus, utilitarianism is deeply embedded in the European socio-political framework, where collective welfare, fairness, and long-term benefits for the majority often take precedence over individual or minority interests.

 

3 (b) Agriculture has traditionally been one of the least contentious areas of world trade.

This statement is misleading because agriculture has been one of the most contentious and politically sensitive sectors in world trade. Agriculture directly affects food security, employment, and rural livelihoods, which makes governments across the world highly protective of their farming sectors. Unlike industrial goods, agricultural products are often shielded by tariffs, subsidies, quotas, and sanitary regulations that distort free trade.

For example, the European Union’s Common Agricultural Policy (CAP) and the U.S. Farm Bill provide heavy subsidies to domestic farmers, creating unfair competition in international markets. Developing countries like India, Brazil, and African nations often argue at the World Trade Organization (WTO) that such subsidies depress world prices, hurting their farmers who cannot compete with subsidized exports from developed economies. The Doha Round of WTO negotiations (launched in 2001) repeatedly stalled due to disagreements over agricultural subsidies and market access.

Additionally, issues like export bans, genetically modified crops, and sanitary standards also create tensions. For instance, disputes have arisen over India’s ban on U.S. poultry imports or the EU’s restrictions on hormone-treated beef. Hence, agriculture is not the least contentious area of world trade—it is actually one of the most difficult sectors to liberalize globally.

 

3 (c) Settlement is not a desirable solution for business disputes of international character.

The desirability of settlement in international business disputes depends on the nature of the dispute. In many cases, settlement is actually highly desirable because it helps businesses avoid the costs, time, and complexity of formal arbitration or litigation. International disputes are complicated due to differences in legal systems, jurisdictions, and enforcement mechanisms. By settling, companies can preserve confidentiality, goodwill, and commercial relationships. For example, in cross-border joint ventures or supplier contracts, businesses often choose mediation or private settlement to protect long-term cooperation.

However, settlement may not always be the best solution. In cases involving serious breaches of contract, fraud, intellectual property theft, or large financial stakes, settlement may not ensure fairness or legal enforcement. Sometimes, businesses prefer arbitration under institutions like the International Chamber of Commerce (ICC) or the WTO dispute settlement system, where rulings are binding and enforceable. For instance, in disputes involving trade barriers or unfair dumping practices, formal adjudication provides clearer precedents and legal certainty.

Thus, settlement can be desirable in cases where speed, cost, and relationship-building matter most, but it may be undesirable in cases requiring legal clarity, enforcement, or protection of broader business interests.

 

3 (d) Service sector is not economically important for providing jobs.

This statement is incorrect because the service sector is one of the largest sources of employment in both developed and developing economies. The service sector includes industries such as banking, IT, healthcare, education, hospitality, retail, and transport, all of which are labor-intensive and major contributors to GDP. In India, for example, the service sector contributes more than 50% of GDP and provides employment to millions in IT services, call centers, tourism, and education. Similarly, in developed economies like the United States and the United Kingdom, more than 70% of the workforce is employed in services.

The rise of globalisation and digitalisation has further expanded opportunities in services. Outsourcing of IT, customer care, and professional services has created jobs in emerging economies such as India and the Philippines. The global expansion of e-commerce, online education, and healthcare also demonstrates the sector’s importance. Even traditional economies that relied heavily on agriculture and manufacturing are witnessing rapid growth in services.

Far from being unimportant, the service sector has become the backbone of modern economies, generating not only employment but also innovation and foreign exchange earnings. It plays a critical role in shaping competitiveness, especially in the knowledge-driven global economy.

 

4. Distinguish between:

a) Classical theory and Neo-classical theory

b) Regionalism and Multilateralism

c) Arbitration and Litigation

d) Telnet and Internet

4 (a) Classical theory and Neo-classical theory

The Classical theory of international trade, mainly developed by Adam Smith (Absolute Advantage) and David Ricardo (Comparative Advantage), argues that trade is driven by differences in production efficiency between countries. It assumes:

• Labor is the only factor of production.
• Countries specialize in goods where they have efficiency.
• There are no transport costs, tariffs, or trade barriers.
• Perfect competition exists.

On the other hand, the Neo-classical theory, developed later by economists like Heckscher and Ohlin, expands on classical ideas by introducing multiple factors of production (land, labor, and capital). It emphasizes that trade arises due to differences in factor endowments. Countries export goods that use their abundant resources intensively and import goods that use their scarce resources.

While classical theory focused on productivity and technology differences, neo-classical theory emphasized resource distribution and its impact on comparative advantage. The neo-classical approach also introduced demand-side factors, relative prices, and marginal analysis, making it more realistic than the simplistic assumptions of classical theory.

Thus, the main difference lies in causes of trade: classical focuses on efficiency and technology, while neo-classical highlights factor endowments and resource allocation.

 

4 (b) Regionalism and Multilateralism

Regionalism refers to trade agreements and cooperation among a specific group of countries in a region, such as the European Union (EU), NAFTA/USMCA, or ASEAN. Its main aim is to reduce trade barriers among member states, create regional integration, and improve collective bargaining power. Regionalism can be in the form of free trade areas, customs unions, or common markets.

Multilateralism, on the other hand, involves trade liberalization on a global scale, usually under institutions like the World Trade Organization (WTO). It is based on principles of non-discrimination (Most Favoured Nation), global cooperation, and open markets.

The distinction is that regionalism is exclusive, benefiting only member countries, whereas multilateralism is inclusive, aiming to provide equal opportunities to all. For example, the EU’s agricultural subsidies are regional, while WTO rules against export subsidies apply globally.

While regionalism can deepen integration among nearby economies, it sometimes conflicts with multilateralism by creating trade diversion. Conversely, multilateralism ensures broader participation but progress is often slow due to the large number of negotiating parties.

 

4 (c) Arbitration and Litigation

Arbitration and litigation are two methods of resolving disputes but differ in approach, procedure, and flexibility.

• Arbitration is an alternative dispute resolution (ADR) mechanism where parties agree to submit their dispute to neutral arbitrators. It is private, faster, less formal, and often confidential. Parties usually choose arbitrators with expertise in the subject matter. Arbitration awards are binding and enforceable under laws such as the New York Convention in international cases. It is especially preferred in international business contracts.
• Litigation takes place in courts of law, following formal judicial procedures. It is public, lengthy, and often more expensive. The outcome is a judgment delivered by a judge (or jury in some systems). Litigation is governed by national laws and may not always be easily enforceable internationally.

The main distinction lies in control and flexibility. Arbitration offers parties more autonomy and global enforceability, while litigation provides strict legal authority but often lacks confidentiality and speed. Businesses usually prefer arbitration in cross-border disputes for neutrality, but litigation may be necessary in criminal or public law matters.

 

4 (d) Telnet and Internet

Telnet and the Internet are both networking concepts but serve very different purposes.

• Telnet (short for “Telecommunication Network”) is a network protocol that allows users to remotely log into another computer over a TCP/IP connection. It was widely used before the rise of secure systems. Through Telnet, a user can control a remote device or server as if they were physically present. However, it lacks encryption, making it insecure for modern use.
• The Internet, on the other hand, is a global network of interconnected computers that supports multiple services such as the World Wide Web, email, VoIP, streaming, and cloud computing. The Internet uses multiple protocols (HTTP, HTTPS, FTP, SMTP, etc.), of which Telnet is just one early protocol.

The key difference: Telnet is a specific tool/protocol for remote access, while the Internet is the entire infrastructure of global networking. Today, Telnet is largely replaced by SSH (Secure Shell), which provides encrypted remote connections, while the Internet continues to expand as the backbone of global communication and business.

 

5. Write short notes on the following:

a) Factor Price Equalisation Theorem

b) Commodity Composition

c) Agreement on Anti- dumping

d) International Finance Corporation

5 (a) Factor Price Equalisation Theorem

The Factor Price Equalisation Theorem is part of the Heckscher-Ohlin (H-O) model of international trade. It states that free trade in goods between countries will lead to the equalization of factor prices—wages for labor and returns on capital—across trading nations. The underlying logic is that when countries trade goods that use factors of production intensively, the demand for these factors adjusts, reducing differences in factor costs. For example, a labor-abundant country exporting labor-intensive goods will see wages rise, while a capital-abundant country exporting capital-intensive goods will experience increased returns on capital. The theorem assumes no trade barriers, identical technology, and perfect competition, which rarely exist in reality. Nevertheless, it explains why globalization tends to reduce extreme wage and capital rate differences between countries, though complete factor price equalization is seldom achieved due to transportation costs, trade restrictions, and technological differences.

 

5 (b) Commodity Composition

Commodity composition refers to the structure or pattern of goods and services that a country exports or imports in international trade. It helps identify economic specialization, comparative advantage, and trade dependency. For example, India’s export commodity composition includes petroleum products, gems and jewelry, textiles, and software services, while imports largely consist of crude oil, electronics, and machinery. Changes in commodity composition reflect shifts in domestic production capabilities, global demand, and technological advancement. Analysts study it to assess economic growth, diversification, and vulnerability to international market fluctuations. A heavily concentrated export basket can expose a country to price volatility, while diversified commodities reduce trade risks. Understanding commodity composition is essential for trade policy, strategic planning, and economic forecasting.

 

5 (c) Agreement on Anti-Dumping

The Agreement on Anti-Dumping (AD Agreement) is a WTO treaty that regulates anti-dumping measures by member countries. Dumping occurs when a firm exports a product at a price lower than its normal value or production cost, harming domestic industries in the importing country. The agreement allows countries to impose duties on dumped imports but requires proper investigation, transparency, and evidence of material injury to domestic producers. Key principles include:

• Determining normal value, export price, and injury.
• Ensuring due process for foreign exporters.
• Limiting anti-dumping duties to the minimum necessary to remove injury.
  The agreement seeks to balance free trade and protection of domestic industries, preventing abuse of anti-dumping measures while maintaining fair competition in global markets.

 

5 (d) International Finance Corporation (IFC)

The International Finance Corporation (IFC) is a member of the World Bank Group, established in 1956 to promote private sector development in developing countries. Unlike other World Bank institutions that provide government loans, IFC primarily invests in private enterprises, providing equity, loans, advisory services, and technical support. Its objectives include:

• Encouraging investment in infrastructure, manufacturing, and services.
• Supporting small and medium enterprises (SMEs).
• Promoting sustainable development and environmental standards.
  For example, IFC has funded renewable energy projects in Africa and Asia, helping attract private investment while fostering economic growth. Its operations are critical for bridging the private investment gap in emerging markets, enhancing employment, and integrating local firms into the global economy.