1. ECON 5006 International Trade Theory And Policy
Answers:
Question 1: Factors For Production Management
For the purpose to enhance the productions of the firm and run production of a firm
smoothly there are some factors that need to consider such as follows;
Dock Facilities: In case a business such a large number of truck dealer items or deal with
heavy items it is necessary to have a dock facility. Some businesses like manufacturing need
to have a separate shipping and receiving docks near the area of their location. It is
necessary to locate production where these kinds of facilities are easily available or
constructed. The easy availability of logistics (Netland, 2016)
Labour: For the purpose to have a smooth flow of production it is necessary to have a good
labour source. In the geographic area, the firms need to have good labour so that production
can run smoothly and the production can run. The much-skilled labour a firm will get the
much chance of maintaining production increase.
Demography: Near the area of the production the location needs to be effective and
progressive. The production area needs to be politically stable and there need to be
customers available near the area of the production. Further, the competitor's position also
needs to be analysed before selecting the production location (Koç, & Burhan, 2015).
Availability: It is necessary to have the access to the raw materials so that production can be
completed within time and provided to customers. In case it is difficult to have the raw
materials in the location of production then it will be difficult to run the production. Timely
access to the raw materials will develop the production and they will get benefit from the
location.
Question 2: Factors Affecting International Service Operations
Service is intangible and at the time of dealing with international service, many things need
to analyse and manage in a manner so that the customers get adequate facilities. Human
resource planning, location planning, design and Capacity Management all factors affect the
2. service of the international service. Considering that capacity planning determines how
many consumers the company can serve at any given time. Capacity planning does have an
impact on the quality of services delivered to clients due to the sheer close customer
engagement in the process of ordering (Kaza, Yao, Bhada-Tata, & Van Woerden 2018).
Location planning is critical for international service operations. Most companies are
obligated to be visible and accessible they intend to serve. In fact, the majority of worldwide
service operations entail establishing local branches in each global market and afterwards
staffing all with locals. International service infrastructures must also be properly
developed in order to achieve the desired appearance and layout. When a company
operates overseas, it may choose to emphasise its foreign identity or merge its home
country tradition with the native culture. They also develop their service to meet their
customer's needs and train the employees as per the need of an organization that is able to
provide the best service experience to the target customers in the international market
(Heizer, 2016).
Question 3: Service Closely Related To Developing And Industrialized Economy
The developed and industrialized economy has prospects and opportunities to grow. It has
the competence to manage its quality of service, improve technologically and provide high-
quality performance to customers. In addition, the developed and industrialized economy
have the infrastructure to improve its service such as ensuring employee involvement,
providing high-quality materials to maintain the high-quality service. In addition, with help
of up-to-date technology, they can be able to provide the service to customers on time and
efficiently enhance the value (Davis, 2016). They can use effective method that helps to
improve the quality of service. Because of these elements services are highly linked with
developed and industrialized economies. With help of the use of developed technology such
as email, telephone, website or social media the service can be provided to customers on
time. It helps them to increase the efficacy and frequency of service with the developed
infrastructure. The transparency and the quality of service can be maintained that helps
them to improve the quality and value. It also provides job opportunities for people
worldwide with quality service. The whole work of providing the service becomes very is
become of the easy availability of materials and proper link and communication system
(Gereffi, & Lee, 2016).
Question 4: Translation Exposure
Change in the rate of foreign exchange rate can make losses in the company balance sheet
holding or translation of company, that is known as the balance sheet exposure. In case a
company jas assets, equity, revenue denominated and liabilities in foreign currencies and
they want to convert them back into home currency the loss may increase. Accounting rules
necessitate translation when compiling consolidated financial statements. Exposure to
translation is more than frequent in two scenarios. The first is when a corporation has
branches in other nations, and the second is when a corporation has considerable revenues
3. in other nations. Hedging trades can be used by these companies to lower their translation
risk. Currency risk can occur in what seems to be a monetary capital gain that is actually a
difference between the current worth of the assets due to exchange rate fluctuations, rather
than a movement in the assets themselves (Prasad, & Suprabha 2015). Multinational
companies are specifically vulnerable to translation risk since a percentage of their actions
and assets will be denominated in foreign exchange. This can also impact businesses that
create products or services for export, even if they do have neither any business
relationships with that nation. Further, normative accounting has drawbacks, the most
significant of all this is that it presents us with multiple options, all of which may be
accurate.
Question 5:Capital Budgeting
At the international level, capital budgeting deals with things like international
taxation, cost of capital, international capital financing mechanisms, capital market
segmentation, currency rate swings, political risk or country risk, and so on. International
businesses have two capital budgeting methods:
Home Currency Technique: To calculate the net present value of an international project,
the home currency approach is used, which involves converting the project's international
currency cash flows to domestic currency using predicted forward exchange rates and then
discounting the cash flows using the home currency cost of capital (Sz?csné Markovics,
2016). The significant difference in interest rates between the foreign currency and home
currency can be used to compute forward exchange rates:
F0 = S0 * [(1+ia) / (1+ib)] t,
Where F0, S0, ia, and ib, are the forward exchange rate, Spot Exchange rate, the interest rate
of the domestic country, and interest rate of foreign currency respectively.
Foreign Currency Technique: The foreign-currency net present value is calculated by
discounting foreign-currency cash flows with an estimated foreign-currency cost of capital
using the foreign-currency technique. The spot exchange rate is used to convert the net
present value denominated in foreign currency to local currency. The NPV of the second
technique should be the same as the NPV of the first technique which is the home currency
technique. The indicated cost of capital is approximately equivalent to the cost of capital in
home currency plus a two per cent difference in nominal interest rates, adjusted for
inflation (Barjaktarovic et al., 2016).
Question 6:
The United Kingdom does not use the euro because of the fact that it is no longer a member
of the European Union. Before its withdrawal on 31 January 2020, England, as part of the
4. United Kingdom, was the most well-known part of the European Union to refuse to accept
the euro. Rather, the Bank of England's pound sterling operated as the United Kingdom's
official currency (Hatzigeorgiou & Lodefalk, 2016). When the euro was first suggested as the
European Union's unified currency structure in 1997, then Chancellor of the Exchequer
Gordon Brown stated that his country would have to pass "five economic tests" before
embracing it, which it had not. Another reason is that the government did not want to
surrender the power of interest rate policy if the euro had been approved. However, in this
case, the majority of them will accept that as a result of the United Kingdom's decision to
leave the EU's single currency arrangement, Colefax and Fowler will be at a competitive
disadvantage when negotiating with other European fabric and wallpaper companies. The
business is in charge of currency conversion fees at the moment, but it has been able to
successfully make the process easier (Dhingra et al., 2016). In the future, currency
conversion fees will very certainly have to be absorbed, which will, of course, reduce profit
margins.
Reference
Barjaktarovic, L., Djulic, K., Pindžo, R., & Vjetrov, A. (2016). Analysis of the capital budgeting
practices: Serbian case. Management: Journal of Sustainable Business And Management
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Davis, N., 2016, January. What is the fourth industrial revolution. In World Economic
Forum (Vol. 19).
Dhingra, S., Ottaviano, G., Sampson, T. and Van Reenen, J., 2016. The impact of Brexit on
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Gereffi, G., & Lee, J. (2016). Economic and social upgrading in global value chains and
industrial clusters: Why governance matters. Journal of business ethics, 133(1), 25-38.
Hatzigeorgiou, A., & Lodefalk, M. (2016). The Brexit trade disruption revisited. Estey Journal
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Heizer, J. (2016). Operations management, 11/e. Pearson Education India.
Kaza, S., Yao, L., Bhada-Tata, P., & Van Woerden, F. (2018). What a waste 2.0: a global
snapshot of solid waste management to 2050. World Bank Publications.
Koç, E., & Burhan, H. A. (2015). An application of analytic hierarchy process (AHP) in a real
world problem of store location selection. Advances in management and applied
economics, 5(1), 41.
Netland, T. H. (2016). Critical success factors for implementing lean production: the effect of
5. contingencies. International Journal of Production Research, 54(8), 2433-2448.
Prasad, K., & Suprabha, K. R. (2015). Measurement of exchange rate exposure: Capital
market approach versus cash flow approach. Procedia Economics and Finance, 25, 394-399.
Sz?csné Markovics, K. (2016). Capital budgeting methods used in some European countries
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