International Business Management (303)Time- 1:30 hrs.

Long Answer Questions: (2x5=10)

1. What do you mean by FDI? Discuss the different types of FDI

with suitable examples.

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FDI stands for Foreign Direct Investment. It means when a company or an individual
from one country invests in a business or an asset in another country 1. FDI is different
from buying shares or bonds of a foreign company, because FDI gives the investor
some control or influence over the business they invest in2.

There are different types of FDI, depending on the purpose and direction of the
investment. Here are some common types of FDI with examples3:

• Horizontal FDI: This is when a business expands its domestic operation to

another country. For example, Starbucks, a coffee chain from the USA, has
opened many outlets in other countries like India, China, and Japan. This is
horizontal FDI because Starbucks is doing the same business in different
countries.
• Vertical FDI: This is when a business enters a foreign economy to get access to
raw materials, technology, or markets. For example, Apple, a technology
company from the USA, has many suppliers and manufacturers in China,
 Taiwan, and South Korea. This is vertical FDI because Apple is using the
resources and capabilities of other countries to make its products.
• Conglomerate FDI: This is when a business invests in a different or unrelated
business in another country. For example, Tata Group, an Indian conglomerate,
has acquired Jaguar Land Rover, a British car maker. This is conglomerate FDI
because Tata Group is diversifying its business portfolio by investing in a
different industry and country.
• Platform FDI: This is when a business uses a foreign country as a base to
export its products or services to other countries. For example, Samsung, a
South Korean electronics company, has set up factories and research centers in
Vietnam, India, and Brazil. This is platform FDI because Samsung is using
these countries as platforms to reach other markets and customers.

FDI can have many benefits for both the investor and the host country. FDI can bring
capital, technology, skills, jobs, and growth to the host country. FDI can also help the
investor to reduce costs, access new markets, and diversify risks. However, FDI can
also have some drawbacks, such as environmental, social, and political issues.
Therefore, FDI should be regulated and monitored by the governments and
international organizations to ensure that it is beneficial and sustainable for all parties
involved.

2.What is meant by Foreign Exchange Market? Discuss the various

functions of foreign exchange market.

The Foreign Exchange Market is a global market where currencies of different

countries are traded. It is also known as forex, FX, or the currency market. The main
participants in this market are banks, forex dealers, central banks, commercial
companies, and investors. They can buy, sell, exchange, and speculate on the
exchange rates of various currency pairs1.

The Foreign Exchange Market performs the following functions:

• Transfer Function: This function enables the transfer of purchasing power in

terms of foreign exchange between the countries that are involved in the
 transactions. It is done through credit instruments like bills of exchange, bank
drafts, and telephonic transfers2.
• Credit Function: This function provides short-term credit to the importers and
exporters to facilitate the smooth flow of international trade. It is done through
forward contracts, futures contracts, options contracts, and swaps contracts 2.
• Hedging Function: This function helps the traders and investors to reduce the
risk of exchange rate fluctuations by locking in a predetermined exchange rate
for a future transaction. It is done through various derivative instruments like
forward contracts, futures contracts, options contracts, and swaps contracts 2.
• Speculation Function: This function allows the traders and investors to profit
from the changes in the exchange rates by anticipating the future movements of
the currencies. It is done through various strategies like arbitrage, scalping,
swing trading, and position trading2.

The Foreign Exchange Market is the largest and most liquid financial market in the
world, with trading volumes exceeding $6 trillion per day1. It operates 24 hours a day,
five days a week, across different time zones. It facilitates international trade and
investment by enabling businesses to convert one currency into another 3.

3.What do you mean by International Strategic Management? Discuss

the various steps involved in international strategic management
process.

International strategic management is the process of planning, implementing, and

evaluating the strategies of a business that operates in different countries. It involves
analyzing the opportunities and challenges of the global market, as well as the
strengths and weaknesses of the business. It also requires adapting the products,
services, and operations of the business to the diverse needs and preferences of the
customers in different regions12.

The process of international strategic management can be divided into the following
steps2:

• Market analysis: This step involves researching the potential markets for the
business, such as their size, growth, demand, competition, culture, and
regulations. It helps the business to identify the most attractive and profitable
markets to enter or expand.
 • Resource identification: This step involves assessing the resources of the
business, such as its products, services, technology, human capital, and
financial capital. It helps the business to select the resources that have the
highest competitive advantage and fit the chosen markets.
• Objective setting: This step involves defining the goals and objectives of the
business for its international expansion, such as the market share, revenue,
profit, customer satisfaction, and social responsibility. It helps the business to
align its vision and mission with its international strategy.
• Strategy formulation: This step involves designing the strategies of the
business for its international operations, such as the mode of entry, the level of
standardization or adaptation, the degree of integration or coordination, and the
type of differentiation or positioning. It helps the business to decide how to
enter and compete in the foreign markets.
• Strategy implementation: This step involves executing the strategies of the
business in the foreign markets, such as establishing the organizational
structure, allocating the resources, managing the operations, and marketing the
products or services. It helps the business to deliver value to the customers and
stakeholders in the foreign markets.
• Strategy evaluation: This step involves monitoring and measuring the
performance of the business in the foreign markets, such as the sales, costs,
profits, customer feedback, and market share. It helps the business to compare
the actual results with the expected results and identify the gaps and areas for
improvement.

International strategic management is a dynamic and complex process that requires

the business to constantly adapt and innovate to the changing global environment. It
can help the business to gain a competitive edge and achieve sustainable growth in the
international market12.

4.What is meant by Counter Trade? Discuss the types, pros and cons of
counter trade.

Counter trade is a trade practice that involves the exchange of goods and services for
other goods and services, rather than traditional currency transactions. It allows
countries to overcome challenges such as currency restrictions, political differences,
or economic imbalances1.

There are different types of counter trade, such as:

 • Barter: This is the direct exchange of goods and services with an equivalent
value but with no cash settlement. For example, a bag of nuts might be
exchanged for coffee beans or meat.
• Counterpurchase: This is when the exporter sells goods or services to an
importer and agrees to also purchase other goods from the importer within a
specified period. For example, a car manufacturer might sell cars to a country
and agree to buy coffee or cocoa from the same country.
• Offset: This is when the seller assists in marketing products manufactured by
the buying country or allows part of the exported product’s assembly to be
carried out by manufacturers in the buying country. For example, a defense
contractor might sell fighter jets to a country and agree to buy or promote some
of the country’s products or services.
• Buyback: This is when a firm builds a manufacturing facility in a country or
supplies technology, equipment, training, or other services to the country and
agrees to take a certain percentage of the plant’s output as partial payment for
the contract. For example, a steel company might build a steel plant in a
country and agree to buy some of the steel produced by the plant.
• Compensation trade: This is a form of barter in which one of the flows is partly
in goods and partly in hard currency. For example, a computer company might
sell computers to a country and receive some payment in cash and some in oil
or minerals.

Some of the pros of counter trade are:

• It enables trade in countries that are unable to pay for imports due to currency
shortages or lack of credit facilities.
• It helps find new export markets or protect the output of domestic industries by
creating demand for the products or services.
• It balances overseas trade by reducing trade deficits or surpluses.
• It gains a competitive edge over competing suppliers by offering flexible
payment options to the buyers.
• It sidesteps the rules and regulations of a foreign country by avoiding tariffs,
quotas, or exchange controls.
• It fosters customer goodwill by showing willingness to accept alternative forms
of payment and building long-term relationships.

Some of the cons of counter trade are:

• It involves complex negotiations, higher costs, and logistical issues due to the
need to find suitable partners, products, prices, and terms for the exchange.
• It reduces the efficiency and profitability of the trade by diverting resources and
attention from the core business activities.
 • It exposes the traders to various risks such as quality, quantity, delivery, or
market risks due to the uncertainty and variability of the products or services
involved.
• It creates accounting and tax problems due to the difficulty of valuing and
reporting the transactions in the financial statements.
• It may violate the laws or ethics of the countries involved by circumventing the
official channels or authorities.

Short Answer Questions: (4x2.5-10)

Discuss in brief the advantages of FDI to host country.

FDI, or Foreign Direct Investment, is when a company or an individual from one

country invests in a business or an asset in another country1. FDI can have many
advantages for the host country, such as:

• Economic growth: FDI can create jobs, increase incomes, and boost the
overall economy of the host country by expanding the manufacturing and
services sector2.
• Human capital development: FDI can enhance the skills, knowledge, and
competence of the workforce by providing training, technology, and
operational practices from the foreign investors2.
• Technology transfer: FDI can introduce new and improved technologies to the
host country, which can increase the efficiency and effectiveness of the
industry and the local economy2.
• Balance of payments: FDI can improve the balance of payments of the host
country by increasing the exports and reducing the imports of goods and
services3.
 • Competition and innovation: FDI can stimulate the domestic market by
creating more competition and innovation among the local firms, which can
lead to better quality and lower prices for the consumers4.

FDI can be a valuable source of non-debt financial resources, expertise, and market
access for the host country, especially for developing and emerging economies5.
However, FDI can also have some drawbacks, such as environmental, social, and
political issues, which need to be regulated and monitored by the governments and
international organizations2.

OR

Differentiate between host country and home country.

Here is a table that summarizes the differences between host country and home
country:

Host Country Home Country

The country where a person or a The country where a person or a

business temporarily resides or business originates or has long-term
operates1 residence1

A secondary or temporary A primary or permanent connection

connection due to travel, work, or due to birth, upbringing, or
study1 citizenship1

A source of cultural influence, A core of cultural identity, belonging,

learning, and adaptation2 and attachment2

A destination for immigration, A base for emigration, exit, and

entry, and stay2 departure2
 Host Country Home Country

A market for expansion, A market for establishment,

competition, and innovation protection, and regulation

Briefly discuss the risk avolved in Forex Market.

The forex market is the market where currencies of different countries are traded.
Trading in the forex market can be profitable, but also risky. Some of the risks
involved in the forex market are123:

• Leverage risk: This is the risk of losing more money than you invested,
because you borrow money from your broker to trade with a larger amount. If
the market moves against you, you may face a margin call, which means you
have to pay back the borrowed money or close your position.
• Interest rate risk: This is the risk of losing money due to changes in the
interest rates of different countries. Interest rates affect the exchange rates of
currencies, which can make your trade more or less profitable.
• Transaction risk: This is the risk of losing money due to delays or errors in the
execution or settlement of your trade. The forex market operates 24 hours a
day, but there may be time differences or technical issues that affect your trade.
• Counterparty risk: This is the risk of losing money due to the failure or fraud
of your broker or dealer. You may not receive the money you are owed or the
service you paid for.
• Country risk: This is the risk of losing money due to political, economic, or
social events in the countries whose currencies you are trading. These events
may affect the stability and value of the currencies.

To reduce these risks, you should have a sound trading strategy, use proper risk
management techniques, and choose a reliable broker. You should also be aware of
the market conditions and news that may affect the forex market.
Differentiate between FDI and FII.

FDI and FII are two forms of foreign investment in a country. Here is a table that
summarizes the main differences between them:

FDI FII

Foreign Direct Investment Foreign Institutional Investment

Investment by a foreign individual or

Investment by a foreign company or
institution in the domestic financial
organization in a domestic company or asset
market

Long-term investment with the intention of Short-term investment with the aim of
acquiring control or influence over the earning financial returns or
investee company or asset diversifying the portfolio

Brings capital, technology, skills, and growth Brings funds, liquidity, and volatility
to the host country to the host country

Difficult to enter and exit due to regulations Easy to enter and exit due to flexibility
and commitments and convenience

No specific target, invests in various

Targets a specific company or asset
securities or assets

5. What do you mean by Letter of Credit?

Explore

A letter of credit is a document from a bank that guarantees that a seller will receive
the payment from a buyer on time and for the full amount. It is used in international
trade to reduce the risk of non-payment or delay by the buyer. A letter of credit is
issued by the buyer’s bank after the buyer proves that they have enough assets or
credit to pay for the purchase. The seller can then present the letter of credit along
with the required documents, such as the invoice, bill of lading, or certificate of
origin, to their bank or another bank that accepts the letter of credit. The bank will
then verify the documents and pay the seller according to the terms and conditions of
the letter of credit. A letter of credit can be of different types, such as sight,
acceptance, confirmed, or back-to-back, depending on the purpose and direction of the
trade123.

What do you mean by Bill of Lading?

A bill of lading is a document that is issued by a carrier (such as a ship, truck, or

plane) to a shipper (the person or company that sends the goods) when the goods are
loaded for transportation. It has three main purposes1:

• It is a receipt that proves that the carrier has received the goods from the
shipper and is responsible for delivering them to the destination.
• It is a contract that states the terms and conditions of the transportation, such as
the price, the route, the time, and the liability.
• It is a document of title that gives the right to possess and claim the goods to
the person who holds the bill of lading.

A bill of lading is important for international trade because it reduces the risk of fraud,
theft, or loss of the goods. It also helps the customs authorities to check and clear the
goods. There are different types of bills of lading, such as inland, ocean, through,
negotiable, nonnegotiable, claused, clean, and uniform, depending on the mode and
direction of the transportation2.

6. What do you mean by Export Assistance?

Export assistance is a term that refers to various programs and services that are
offered by governments or other organizations to help exporters in their international
trade activities. Export assistance can include12:

• Information and guidance on export markets, regulations, opportunities, and

challenges.
• Training and education on export skills, strategies, and best practices.
• Financial support and incentives, such as grants, loans, subsidies, tax breaks, or
insurance.
• Marketing and promotion assistance, such as trade shows, missions, fairs, or
advertising.
• Technical and legal assistance, such as quality standards, certification, testing,
or dispute resolution.
• Networking and matchmaking assistance, such as trade associations, chambers
of commerce, or business councils.

Export assistance can help exporters to overcome the barriers and risks of
international trade, such as lack of knowledge, experience, resources, or contacts. It
can also help exporters to increase their competitiveness, productivity, and
profitability in the global market. Export assistance can benefit not only the exporters,
but also the economy and society of the country that provides it, by creating jobs,
income, and growth.

What is Global Expansion

Global expansion is a business growth strategy that involves entering new markets
abroad. It means taking the products, services, or operations of a company from its
home country to one or more foreign countries. Global expansion can help a company
to increase its customer base, revenue, profitability, and competitiveness. It can also
bring challenges and risks, such as cultural differences, legal regulations, political
instability, or market uncertainty12.
There are different types of global expansion strategies, such as international, multi-
domestic, global, and transnational. Each strategy has its own advantages and
disadvantages, depending on the goals and capabilities of the company. A company
needs to carefully plan and execute its global expansion strategy, taking into account
the market conditions, customer preferences, and competitive forces in each country 34.

Global expansion is a complex and dynamic process that requires constant adaptation
and innovation. It can be a rewarding and exciting opportunity for a company to grow
and succeed in the global market12.