Assignment

On
International Business
Topic:
1. Review the Significance Globalization in International Business
2. Examine the International Trade Protectionism and its necessary for domestic
market
3. Analyze the Political Environment and Formulate Strategies to Deal with
Foreign Political Environment
4. Understanding the Terminologies of International Trade
5. Analyzing the reason of Fluctuation in Exchange Rate
6. Analyzing the Legal Environment that Effect in International Business

Submitted To : Mrs.Afiya Sultana

Assistant Professor
BBA, FBA, USTC

Submitted By
Name : Rabiul Karim
ID : 1600
Semester : 5th Semester
Batch : 43rd Batch

Submission Date: 17/12/2020

Faculty of Business Administration

University of Science and Technology Chittagong
Table of Contents:
7. Review the Significance Globalization in International Business

8. Examine the International Trade Protectionism and its necessary for domestic

market

9. Analyze the Political Environment and Formulate Strategies to Deal with

Foreign Political Environment

10. Understanding the Terminologies of International Trade

11. Analyzing the reason of Fluctuation in Exchange Rate

12. Analyzing the Legal Environment that Effect in International Business

 Review the Significance Globalization in International Business

International Business:

International business involves all commercial transactions private and governmental between parties of
two or more countries. Global events and competition affect almost all firms large or small. However, the
international environment is more complex and diverse than a firm’s domestic environment.

An international business has many options for doing business, it includes,

 Exporting goods and services.

 Giving license to produce goods in the host country.
 Starting a joint venture with a company.
 Opening a branch for producing & distributing goods in the host country.
 Providing managerial services to companies in the host country.

Globalization
Globalization means the speedup of movements and exchanges (of human beings, goods, and services,
capital, technologies or cultural practices) all over the planet. One of the effects of globalization is that it
promotes and increases interactions between different regions and populations around the globe.

Key Points of Globalization:

 Globalization is the spread of products, technology, information, and jobs across nations.
 Corporations in developed nations can gain a competitive edge through globalization.
 Developing countries also benefit through globalization, as they tend to be more cost-effective and
therefore attract jobs.
 The benefits of globalization have been questioned, as the positive effects are not necessarily
distributed equally.
 One clear result of globalization is that an economic downturn in one country can create a domino
effect through its trade partners.

Significance Globalization in International Business

International business refers to a wide range of business activities undertaken across national borders. Along
with rapidly increasing globalization, international business has become a popular topic and has drawn the
attention of business executives, government officials and academics. International business is different
from domestic business. At the international level, the globalization of the world economy and the
differences between countries present both opportunities and challenges to international businesses.
Business managers need to take account of the globalized business environment when making international
strategic decisions and in managing ongoing international operations.
Globalization in the economic, social and political fields has been on the rise since the 1970s, receiving a
particular boost after the end of the Cold War. Many economists believe globalization may be the
explanation for key trends in the world economy such as:

 Lower wages for workers, and higher profits, in Western economies

 The flood of migrants to cities in poor countries
 Low inflation and low interest rates despite strong growth

Globalization has accelerated in the last 20 years. During a period of relatively strong economic growth,
world exports as a share of GDP increased from under 20% in 1994 to over 32% in 2008, and whilst global
trade fell, back in 2009, because of the global slowdown, but bounced back in 2010.

Increasing foreign investment can be used as one measure of growing economic globalization. Foreign
direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines
and land. The largest flows of foreign investment occur between the industrialized countries. However, in
recent years the flows into and out of emerging countries has grown significantly. Following the worldwide
recession, world GDP fell more than1percentage in 2009. Some of the world's key emerging economies
suffered sharp recessions during 2009, whilst others notably India and China, were able to maintain strong
growth.

Globalization has various aspects, which affect the world in several different ways such as:

 Industrial (alias trans nationalization) - emergence of worldwide production markets and

broader access to a range of foreign products for consumers and companies
 Financial - emergence of worldwide financial markets and better access to external financing for
corporate, national and sub national borrowers.
 Economic - realization of a global common market, based on the freedom of exchange of goods
and capital.
 Political - political globalization is the creation of a world government which regulates the
relationships among nations and guarantees the rights arising from social and economic
globalization
 Informational - increase in information flows between geographically remote locations.
 Cultural - growth of cross-cultural contacts; advent of new categories of consciousness and
identities such as Globalism - which embodies cultural diffusion, the desire to consume and enjoy
foreign products and ideas, adopt new technology and practices, and participate in a "world culture"
 Ecological- the advent of global environmental challenges that cannot be solved without
international cooperation, such as climate change, cross-boundary water and air pollution,
overfishing of the ocean, and the spread of invasive species. Many factories are built in developing
countries where they can pollute freely.
 Social - the achievement of free circulation by people of all nations
 Transportation - fewer and fewer European cars on European roads each year (the same can also
be said about American cars on American roads) and the death of distance through the incorporation
of technology to decrease travel time
Globalization is a leading concept, which has become the main factor in international business life
during the last few decades. This phenomenon affects the international business in following ways.

1. Rise in Competition

Globalization leads to increased competition. Companies etc can relate this competition to product
and service cost and price, target market, technological adaptation, quick response, quick
production. When a company produces with less cost and sells cheaper, it is able to increase its
market share. With enhanced competition from foreign brands and companies, industries of every
nation are compelled to improve their standards and quality and customer satisfaction services.
This benefits the customers and the economy as a whole, and raises the standard of living of
everybody. Many could view this as a negative impact, but no one can deny the impact it has had.

2. Rise in Technology and Know How

The rise in knowledge levels of countries as newer cultures and technologies are opened to a
particular area are clear, their knowledge base also grows and expands simultaneously. As a result,
they are better able to handle their primary and secondary industries, and this ultimately affects
their tertiary sectors in a positive manner as well

3. Rise in Opportunities

With a larger number of industries and resources available, the opportunities for people grow
exponentially too. There are many more jobs available to people, and more and more people are
also exposed to the lucrative benefits of moving abroad. This increases immigration rates as well,
thus giving people the chance to grow economically and socially. Whatever your viewpoint of
immigration, there is no doubt it has opened up masses of opportunities to millions of people who
would otherwise have not seen any improvements

4. Rise in Investment Levels

The rise in foreign investment in countries helps industries and native cities grow at a rapid pace,
and this is something that every nation should be open to since it is a highly beneficial venture for
them. There is so much that they can gain in the process as well. Every country now imports more
than ever before, so that global growth has shared resources and abilities in a way that we could
never have imagined even 50 years ago

5. Economies of scale

Selling into a global market allows for enormous economies of scale, although not all industries
benefit from these.

6. Choice of location

Businesses are now much freer to choose where they operate from, and can move to a cheaper and
more efficient location. In the last decade, the world has been seen by many businesses as an
attractive business location, especially in financial services. The increased movement of businesses
and jobs has, to some extent, forced governments to compete with each other in providing an
attractive and low-cost location. Businesses now have more freedom of movement in moving to
 get hold of those cheaper inputs e.gLabour in developing countries. One limitation on this is that
managers will not always move to some countries if living conditions are unpleasant or even
dangerous.

7. Information transfer

Information is a most expensive and valuable production factor in the current environment.
Information can be easily transferred and exchanged from one country to another. If a company has
a chance to use knowledge and information then it means that it can adapt to this global changing.
This issue is similar with the technology transfer issue in global markets. The rapid changing of the
market requires also quick transfer of knowledge and efficient using of that knowledge and
information.

8. Increased mergers and joint ventures

The globalization allows the businesses access to bigger markets and associated cost advantages

9. Globalization of markets

National borders are becoming less and less important. Markets stretch across borders is well placed
to take advantage of this. The same issues of language and culture and so on arise. Consumers are
more alike, but by no mean the same. Many businesses have made expensive mistakes by not
considering local variation. Marketing, in particular, is a minefield because of its dependence on
language. The marketing books are full of stories, often very amusing, of how businesses got it
wrong

10. Economic Development

Globalization provides new opportunities to underdeveloped nations by allowing them access to

new markets around the world. China and India have ridden the wave of globalization throughout
the twentieth century and into the twenty-first, for example, and are rapidly becoming economic
powerhouses. Even tribal groups in nations, like Brazil and Africa, can ride the wave of
globalization, selling locally made products around the world via the Internet to raise their standard
of living.

Future of international business and Globalization

 Further globalization is inevitable.

 International business will grow primarily along regional rather than global lines.
1. Forces working against further globalization and international business will slow down both trends.
Examine the Trade Protectionism and why it is necessary for domestic market

Trade Protectionism:

Trade protectionism is a policy that protects domestic industries from unfair competition from foreign ones.
The four primary tools are tariffs, subsidies, quotas, and currency manipulation. Protectionism is a
politically motivated defensive measure. In the short run, it works. However, it is very destructive in the
long term. It makes the country and its industries less competitive in international trade.

Types of Protectionism:

1) Tariffs

The most common protectionist strategy is to enact tariffs that tax imports. That immediately raises the
price of imported goods. They become less competitive when compared to local goods. This method
works best for countries with many imports, such as the Bangladesh

2) Subsidizes

Governments also frequently subsidize local industries to help them compete in the global market.
Subsidies come in the form of tax credits or direct payments. The most commonly used are farm
subsidies. That allows producers to lower the price of local goods and services. This support makes the
products cheaper, even when shipped overseas. Subsidies work even better than tariffs. This method
works best for countries that rely mainly on exports.

3) Standardization

The government of a country may require all foreign products to adhere to certain guidelines. For
instance, the Bangladesh Government may demand that all imported shoes include a certain proportion
of leather. Standardization measures tend to reduce foreign products in the market.

4) Quotas

Quotas are restrictions on the volume of imports for a particular good or service over a period. Quotas
are known as a “non-tariff trade barrier.” A constraint on the supply causes an increase in the prices of
imported goods, reducing the demand in the domestic market.
Why Trade Protectionism Occurs

Protecting jobs and industries is a political argument for trade protectionism from the viewpoint that
protecting worker’s livelihood, the industries, and the firms that employ them are vital to a nation’s
economic growth and well-being. The premise is that without trade protectionism a nation could lose long-
established industries and companies that first made a product in a particular nation. This will eventually
result in the loss of jobs, rising unemployment, and eventual decrease of a nation’s gross domestic product
(GDP).

National security is used for trade protectionist policies since the industries involved include defense-
related companies, high-tech firms, and food producers. The argument here is that industries such as
aerospace, advanced electronics and semi-conductors are vital components of national defense policy and
that relying on foreign manufacturers would seriously affect a nation’s defense in time of war. By having
manufacturing for defense items protected from foreign competition, trade protectionism is necessary for a
nation’s existence.

Protecting consumers is an argument used by policymakers to protect consumers from unsafe imported
products. Consumer advocates, domestic manufacturers, and certain policymakers claim that foreign-made
goods may fail to follow requirements for product safety in the manufacturing and distribution process.
This could result in serious illness, unsafe products, and even possibly death of the consumer. Domestic
manufacturers argue that if they must follow government-imposed safety and production requirements then
foreign producers must also do so.

Alexander Hamilton first put the infant industry argument forth in 1792. This idea states that new
manufacturers have an extremely difficult time competing against well-established, well-funded, extremely
profitable companies in developed countries. New manufacturers in developing nations may not have the
economic and financial resources, as well as the technology, physical equipment, and research and
development expertise to compete against older, established firms. In order that infant industries and new
companies gain market-share and a competitive edge against well-established firms, governments must put
into place short-term support mechanisms for these infant industries until they have reached a level so they
can compete with foreign companies. It can also be argued that a developing nation in attempting to
diversify its economy must protect its infant industries. Government intervention of an infant industry may
come in the form of tariffs, subsidies, administrative trade policies, or quotas

Advantages of Protectionism

More growth opportunities: Protectionism provides local industries with growth opportunities until they
can compete against more experienced firms in the international market

Lower imports: Protectionist policies help reduce import levels and allow the country to increase its trade
balance.

More jobs: Higher employment rates result when domestic firms boost their workforce

Higher GDP: Protectionist policies tend to boost the economy’s GDP due to a rise in domestic production
Disadvantages of Protectionism

Stagnation of technological advancements: As domestic producers do not need to worry about

foreign competition, they have no incentive to innovate or spend resources on research and
development (R&D) of new products.

Limited choices for consumers: Consumers have access to fewer goods in the market because of
limitations on foreign goods.

Increase in prices (due to lack of competition): Consumers will need to pay more without seeing
any significant improvement in the product.

Economic isolation: It often leads to political and cultural isolation, which, in turn, leads to even
more economic isolation.

Trade Protectionism for Domestic Market

Tariffs: Tariffs rise the cost of imported cost, which is helpful for the domestic market of a country. When
imported products cost will rise and it will not meet the minimum price of a consumer, then consumer will
not have any other option rather than to buy the domestic produced products. Which will help in domestic
market to get good position. That is the reason tariffs is helpful for domestic market.

Subsidizes: Subsidizes is the method that government used to protect the domestic industry of a Country.
Subsidize help local industries to compete in the global market. Subsidies come in the form of tax credits
or direct payments. The most commonly used are farm subsidies. That allows producers to lower the price
of local goods and services. This support makes the products cheaper, with this method, a country domestic
market will get benefit because of when industry can produce the goods with cheap price then they can
export them to overseas.

Quotas: Using Quotas government of a country control the volume of imports for a particular good or
service over a period. When government made restriction on the particular good or service, these products
price rise high at domestic market, which is better for domestic market.

Standardization The government of a country may require all foreign products to adhere to certain
guidelines. For instance, the Bangladesh Government may demand that all imported shoes include a certain
proportion of leather. Standardization measures tend to reduce foreign products in the market. When foreign
products will not available widely in the market, consumer will turned into local products, which will help
to gain more growth in the domestic market.
 Analyze the Political Environment and Formulate Strategies to Deal
with Foreign Political Environment

Political Environment

Political Environment is the state, government and its institutions and legislations and the public and private
stakeholders who operate and interact with or influence the system. The political atmosphere should be
good and very stable for a firm to operate successfully. Political Environment forms the basis of business
environment in a country. If the policies of government are stable and better then businesses would get
impacted in a positive way and vice versa. Changes in government often results in changes in policy.

Importance of Political Environment

Political Environment can be of utmost importance for a business. How a government make policies and
what kind of economic measures it takes can determine the success or a failure of a business. Promoting a
particular kind of business can lead to increased revenues of industries and players in that sector but can
lead to losses for others. Government also considers all these risks and effects because the sudden or
prolonged changes to the political environment can lead to impact on GDP and overall economy. The other
important aspect is the foreign investment and companies in a country. If political environment is not good
for foreign investment then it can lead to loss of internal business and investments indirectly affect domestic
players. So overall political environment should be stable and change as per market demands or for
safeguarding interests, which are suitable for overall stabilization and growth of economy

Various Political Environment related Factors & Elements

1. Stability: This is one of the most important factors. The stability of political environment is very
conducive to the economy and business in general. If a country is not stable and government keeps
changing frequently, the country can never be economically stable as well. The GDP, stock
exchange index all would go down leading to a vicious circle.
2. Taxation: The taxation regime is very important when it comes to political environment. If a
government is balanced in terms of tax and budget, the companies are motivated to produce more
and grow.
3. Foreign Policies: Political Environment should also balance the foreign investments and growth
in a particular country. If there is no foreign investment, growth and technical, knowledge can be
issues but if there is foreign investment inflow then it can lead to loss of domestic players.
Governments Intervene in Trade

While the past century has seen a major shift toward free trade, many governments continue to intervene in
trade. Governments have several key policy areas that can be used to create rules and regulations to control
and manage trade.

 Tariffs. Tariffs are taxes imposed on imports. Two kinds of tariffs exist—specific tariffs, which
are levied as a fixed charge, and ad valorem tariffs, which are calculated as a percentage of the
value. Many governments still charge ad valorem tariffs as a way to regulate imports and raise
revenues for their coffers.
 Subsidies. A subsidy is a form of government payment to a producer. Types of subsidies include
tax breaks or low-interest loans; both of which are common. Subsidies can also be cash grants and
government-equity participation, which are less common because they require a direct use of
government resources.
 Import quotas, VER. Import quotas, and voluntary export restraints (VER) are two strategies to
limit the amount of imports into a country. The importing government directs import quotas, while
VER are imposed at the discretion of the exporting nation in conjunction with the importing one.
 Currency controls. Governments may limit the convertibility of one currency (usually its own)
into others, usually in an effort to limit imports. Additionally, some governments will manage the
exchange rate at a high level to create an import disincentive.
 Local content requirements. Many countries continue to require that a certain percentage of a
product or an item be manufactured or “assembled” locally. Some countries specify that a local
firm must be used as the domestic partner to conduct business.
 Antidumping rules. Dumping occurs when a company sells product below market price often in
order to win market share and weaken a competitor.
 Export financing. Governments provide financing to domestic companies to promote exports.
 Free-trade zone. Many countries designate certain geographic areas as free-trade zones. These
areas enjoy reduced tariffs, taxes, customs, procedures, or restrictions in an effort to promote trade
with other countries.
 Administrative policies. These are the bureaucratic policies and procedures governments may use
to deter imports by making entry or operations more difficult and time consuming.

The Impact of the Political system on Management decisions

1. Political Risk

Political risk reflects the expectation that the political climate in a foreign country will change in
such a way that a firm is operating position will deteriorate.

2. Types and Causes of Political Risk: Political actions that may adversely affect a firm’s operations
would include government takeovers of property, operational restrictions and damage to property
or personnel. In addition, civil unrest and disorder and antagonistic external relations (including
boycotts and other forms of protest) may also negatively affect a firm’s operations.
 3. Micro and Macro Political Risks. Micro political risks are those aimed only at specific foreign
investments (e.g., a particular MNE), whereas macro political risks affect a broad spectrum of
foreign investors.

Formulate Strategies to Deal with Foreign Political Environment

Four strategies to deal with Political Environment
1. Manage credit risk. A government’s inability to honor its financial obligations can quickly spread to
the private sector. Take the opportunity now before a crisis develops to assess your potential credit risks in
the countries where you or your suppliers do business, and review your credit-control procedures.

2. Ensure supply chain can withstand unplanned disruptions. The complexity and interconnectivity of
today’s supply chains means that trouble in just one country can disrupt your entire global network. Work
with your risk advisors to develop detailed response plans that consider the need for alternative suppliers
or ports.

3. Prepare and protect your people. Political violence or other instability can develop quickly and with
little warning. That makes advance planning and testing of communications and crisis plans critical.

4. Use risk management dollars wisely. A credit and political risk insurance policy can provide coverage
for political violence, expropriation, currency inconvertibility, non-payment, and contract frustration.
Despite the many geopolitical risks that your business can face, political risk insurance remains readily
available. Insurers continue to view political risk as an attractive line of business, and are competing
aggressively for new and existing business.
 Understanding the Terminologies of International Trade

International Trade:
International trade allows countries to expand their markets and access goods and services that otherwise
may not have been available domestically. Because of international trade, the market is more competitive.
This ultimately results in more competitive pricing and brings a cheaper product home to the consumer

Understanding International Trade

International trade was key to the rise of the global economy. In the global economy, supply and demand
and therefore prices both affect and are impacted by global events.

Political change in Asia, for example, could result in an increase in the cost of labor. This could increase
the manufacturing costs for an American sneaker company that is based in Malaysia, which would then
result in an increase in the price charged for a pair of sneakers that an American consumer might purchase
at their local mall.

Imports and Exports

A product that is sold to the global market is called an export, and a product that is bought from the global
market is an import. Imports and exports are accounted for in the current account section in a country's
balance of payments.

Global trade allows wealthy countries to use their resources—for example, labor, technology, or capital
more efficiently. Different countries are endowed with different assets and natural resources: land, labor,
capital, and technology, etc. This allows some countries to produce the same good more efficiently—in
other words, more quickly and with less of a cost. Therefore, they may sell it more cheaply than other
countries. If a country cannot efficiently produce an item, it can obtain it by trading with another country
that can. This is known as specialization in international trade.

For example, suppose Country A and Country B both produce cotton sweaters and wine. Country A
produces ten sweaters and six bottles of wine a year, while Country B produces six sweaters and ten bottles
of wine a year. Both can produce 16 units. Country A, however, takes three hours to produce the ten
sweaters and two hours to produce the six bottles of wine (a total of five hours). Country B, on the other
hand, takes one hour to produce ten sweaters and three hours to produce six bottles of wine (a total of four
hours).

Terminologies of International Trade

EX-Works

One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller
with greater responsibility on the buyer. In an EX-Works transaction, goods are made available for pickup
at the shipper/seller’s factory or warehouse and “delivery” is accomplished when the merchandise is
released to the consignee’s freight forwarder. The buyer is responsible for arranging with their forwarder
for insurance, export clearance and handling all other paperwork.
FOB (Free On Board)

One of the most commonly used-and misused-terms, FOB means that the shipper/seller uses his freight
forwarder to move the merchandise to the port or designated point of origin. Though frequently used to
describe inland movement of cargo, FOB specifically refers to ocean or inland waterway transportation of
goods. “Delivery” is accomplished when the shipper/seller releases the goods to the buyer’s forwarder. The
buyer’s responsibility for insurance and transportation begins at the same moment.

FCA (Free Carrier)

In this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk
and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in
FCA the seller chooses and works with the freight forwarder or the carrier. “Delivery” is accomplished at
a predetermined port or destination point and the buyer is responsible for Insurance.

FAS (Free Alongside Ship)

In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS requires
the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on
these terms will ordinarily use their freight forwarder to clear the goods for export. “Delivery “is
accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation.

CFR (Cost and Freight)

This term formerly known as CNF (C&F) defines two distinct, separate responsibilities-one is dealing with
the actual cost of merchandise “C”, and the other “F” refers to the freight charges to a predetermined
destination point. It is the shipper/seller’s responsibility to get goods from their door to the port of
destination. “Delivery” is accomplished at this time. It is the buyer’s responsibility to cover insurance from
the port of origin or port of shipment to buyer’s door. Given that the shipper is responsible for transportation,
the shipper also chooses the forwarder.

CIF (Cost, Insurance and Freight)

This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the
voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the
forwarder. “Delivery” as above, is accomplished at the port of destination.

CPT (Carriage Paid To)

In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the
seller has to buy cargo insurance, naming the buyer as the insured while the goods are in transit.

CIP (Carriage and Insurance Paid To)

This term is primarily used for multimodal transport. Because it relies on the carrier’s insurance, the
shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force,
Freight Forwarders often act in effect, as carriers. The buyer’s insurance is effective when the goods are
turned over to the Forwarder.
DAF (Delivered At Frontier)

Here the seller’s responsibility is to hire a forwarder to take goods to a named frontier, which usually a
border crossing point, and clear them for export. “Delivery” occurs at this time. The buyer’s responsibility
is to arrange with their forwarder for the pick up of the goods after they are cleared for export, carry them
across the border, clear them for importation and effect delivery. In most cases, the buyer’s forwarder
handles the task of accepting the goods at the border across the foreign soil.

DES (Delivered Ex Ship)

In this type of transaction, it is the seller’s responsibility to get the goods to the port of destination or to
engage the forwarder to the move cargo to the port of destination uncleaned. “Delivery” occurs at this time.
Any destination charges that occur after the ship is docked are the buyer’s responsibility.

DDP (Delivered Duty Paid)

DDP terms tend to be used in intermodal or courier-type shipments. Whereby, the shipper/seller is
responsible for dealing with all the tasks involved in moving goods from the manufacturing plant to the
buyer/consignee’s door. It is the shipper/seller’s responsibility to insure the goods and absorb all costs and
risks including the payment of duty and fees.

DDU (Delivered Duty Unpaid)

This arrangement is basically the same as with DDP, except for the fact that the buyer is responsible for the
duty, fees and taxes.

DEQ (Delivered Ex Quay)

In this arrangement, the buyer/consignee is responsible for duties and charges and the seller is responsible
for delivering the goods to the quay, wharf or port of destination. In a reversal of previous practice, the
buyer must also arrange for customs clearance.

INCOTERMS (international commercial terms)

Incoterms are most frequently listed by category. Terms beginning with F refer to shipments where the
seller does not pay for the primary cost of shipping. Terms beginning with C deal with shipments where
the seller pays for shipping. E-terms occur when a seller’s responsibilities are fulfilled when goods are
ready to depart from their facilities. D terms cover shipments where the shipper/seller’s responsibility ends
when the goods arrive at some specific point. Because shipments are moving into a country, D terms usually
involve the services of a customs broker and a freight forwarder. In addition, D terms also deal with the
pier or docking charges found at virtually all ports and determining who is responsible for each charge.
 Analyzing the reason of Fluctuation in Exchange Rate

What is an Exchange Rate

An exchange rate is the value of one nation's currency versus the currency of another nation or economic
zone. For example, how many U.S. dollars does it take to buy one BD Taka? As of December 14, 2020,
the exchange rate is one dollar equal 84.81 BD Taka

Types of Exchange Rate

Free Floating

A free-floating exchange rate rises and falls due to changes in the foreign exchange market.

Restricted Currencies

Some countries have restricted currencies, limiting their exchange to within the countries' borders. In
addition, a restricted currency can have its value set by the government.

Currency Peg

Sometimes a country will peg its currency to that of another nation. For instance, the US dollar is pegged
to the BD Taka in a range of 83 to 84. This means the value of the US dollar to the BD Taka will remain
within this range.

Onshore Vs. Offshore

Exchange rates can also be different for the same country. In some cases, there is an onshore rate and an
offshore rate. Generally, a more favorable exchange rate can often be found within a country’s border versus
outside its borders. China is one major example of a country that has this rate structure. Additionally,
China's yuan is a currency that is controlled by the government. Every day, the Chinese government sets a
midpoint value for the currency, allowing the yuan to trade in a band of 2% from the midpoint.

Spot vs. Forward

Exchange rates can have what is called a spot rate, or cash value, which is the current market value.
Alternatively, an exchange rate may have a forward value, which is based on expectations for the currency
to rise or fall versus its spot price. Forward rate values may fluctuate due to changes in expectations for
future interest rates in one country versus another. For example, let's say that traders have the view that the
eurozone will ease monetary policy versus the U.S. In this case, traders could buy the dollar versus the euro,
resulting in the value of the euro falling.
The reason of Fluctuation in Exchange Rate

1. Inflation Rates

Changes in market inflation cause changes in currency exchange rates. A country with a lower inflation
rate than another is will see an appreciation in the value of its currency. The prices of goods and services
increase at a slower rate where the inflation is low. A country with a consistently lower inflation rate
exhibits a rising currency value while a country with higher inflation typically sees depreciation in its
currency and is usually accompanied by higher interest rates

2. Interest Rates

Changes in interest rate affect currency value and dollar exchange rate. Forex rates, interest rates, and
inflation are all correlated. Increases in interest rates cause a country's currency to appreciate because higher
interest rates provide higher rates to lenders, thereby attracting more foreign capital, which causes a rise in
exchange rates

3. Country’s Current Account / Balance of Payments

A country’s current account reflects balance of trade and earnings on foreign investment. It consists of total
number of transactions including its exports, imports, debt, etc. A deficit in current account due to spending
more of its currency on importing products than it is earning through sale of exports causes depreciation.
Balance of payments fluctuates exchange rate of its domestic currency.

4. Government Debt

Government debt is public debt or national debt owned by the central government. A country with
government debt is less likely to acquire foreign capital, leading to inflation. Foreign investors will sell
their bonds in the open market if the market predicts government debt within a certain country. As a result,
a decrease in the value of its exchange rate will follow.

5. Terms of Trade

Related to current accounts and balance of payments, the terms of trade is the ratio of export prices to import
prices. A country's terms of trade improves if its exports prices rise at a greater rate than its imports prices.
This results in higher revenue, which causes a higher demand for the country's currency and an increase in
its currency's value. This results in an appreciation of exchange rate.

6. Political Stability & Performance

A country's political state and economic performance can affect its currency strength. A country with less
risk for political turmoil is more attractive to foreign investors, as a result, drawing investment away from
other countries with more political and economic stability. Increase in foreign capital, in turn, leads to an
appreciation in the value of its domestic currency. A country with sound financial and trade policy does not
give any room for uncertainty in value of its currency. But, a country prone to political confusions may see
a depreciation in exchange rates.
7. Recession

When a country experiences a recession, its interest rates are likely to fall, decreasing its chances to acquire
foreign capital. As a result, its currency weakens in comparison to that of other countries, therefore lowering
the exchange rate.

8. Speculation

If a country's currency value is expected to rise, investors will demand more of that currency in order to
make a profit in the near future. As a result, the value of the currency will rise due to the increase in demand.
With this increase in currency value comes a rise in the exchange rate as well.

9. Merchandise Trade

This refers to a nation's imports and exports. In general, a weaker currency makes imports more expensive,
while stimulating exports by making them cheaper for overseas customers to buy. A weak or strong
currency can contribute to a nation's trade deficit or trade surplus over time.

For example, assume you are a Bangladeshi exporter who sells widgets at 840 Taka each to a buyer in USA.
The exchange rate is $1=84 Taka. Therefore, the cost to your USA buyer is $8 per widget.

10. Capital Flows

Foreign capital tends to flow into countries that have strong governments, dynamic economies, and stable
currencies. A nation needs a relatively stable currency to attract capital from foreign investors. Otherwise,
the prospect of exchange-rate losses inflicted by currency depreciation may deter overseas investors.

There are two types of capital flows: foreign direct investment (FDI), in which foreign investors take stakes
in existing companies or build new facilities in the recipient market; and foreign portfolio investment, in
which foreign investors buy, sell and trade securities in the recipient market. FDI is a critical funding
source for growing economies such as China and India.

Governments generally prefer FDI to foreign portfolio investments, because the latter is hot money that can
leave the country quickly when conditions grow tough. This capital flight can be sparked by any negative
event, such as a devaluation of the currency.
 Analyzing the Legal Environment that Effect in International Business

Business Environment:

Business Environment means a collection of all individuals, entities and other factors, which may or may
not be under the control of the organization, but can affect its performance, profitability, growth and even
survival.

Components of Business Environment

1) Internal Environment: The factors which exist within the organization, imparting strength or causing
weakness to the organization, comes under internal environment. It includes:

o Value System
o Vision and Mission
o Objectives
o Corporate Culture
o Human Resources
o Labor Union

2) External Environment: External Environment consists of those factors, which provide an opportunity
or pose threats to the business. It is further classified as:

 Micro Environment: The immediate periphery of the business that has a continuous and direct
impact on it is called Micro Environment. It includes suppliers, customers, competitors, market,
intermediaries, etc., which are specific to the business.
 Macro Environment: Macro Environment is one such environment that influences the functioning
and performance of every business organization, in general. It comprises of the demographic, socio-
cultural, legal, political, technological, and global environment.
International Legal Environment:
Firms operating internationally face major challenges in conforming to different laws, regulations, and legal
systems in different countries. The legal framework to protect small and medium enterprises (SMEs),
mainly to achieve social objectives, adversely influences the expansion of manufacturing capacities and
achieving economies of scale in certain countries.
Different aspects of Business legal environment
Common Law:
It is based on traditions, past practices, and legal precedents set by the courts through interpretation of
statutes, legal legislations, and past rulings. It depends less on written statutes and codes. Common law
originated from England and it is followed in most of the former British colonies, such as India, UK, the
US, Canada, Australia, and New Zealand
Civil Law:

Also known as code or civil law, it is based on a comprehensive set of written statutes. It is derived from
the Roman law and is followed in most of continental Europe, Japan, and Latin America. The elaborate
legislative codes embody the main rules of the law, spelling out every circumstance. Laws of most countries
have elements of both common and civil law. The complications in a meeting out of non-performance of a
business contract also vary widely among the common- and civil-law countries.

Socialistic Law:

This law is derived from the Marxist socialist system and continues to influence legal framework in former
communist countries, such as the CIS, China, North Korea, Vietnam, and Cuba. Socialist law traditionally
advocates ownership of most property by the state or state-owned public enterprises, prohibiting free entry
to foreign firms.

Theocratic Law:

Theocratic law is the legal system based on religious doctrine, precepts, and beliefs. For instance, the
Hebrew law and the Islamic law are derived from religious doctrines and their scholarly interpretations.
Unlike the countries dominated by Christianity, Hinduism, and Buddhism where either common or civil
law is followed, a large number of Islamic countries integrate their legal system based on the Sharia.

Similarities between the Sharia and secular law are that in both:

1. All people are equal before the law.

2. A person is innocent unless proved guilty.

3. The burden of proof is on the plaintiff

4. Written contracts have a sanctity and legitimacy of their own.

The salient features of Islamic law concerned to business are

that
1. Contracts should be fair to all parties. Partnership is preferred over hierarchical claims.

2. Gharar, the transaction involving fundamental uncertainty or speculation is prohibited. Gambling

is not liked in Islamic countries, but futures and currency hedging also involves speculation.
International managers need to be aware of such situations.

3. Interest on money is prohibited but allows management fees and services. All business
transactions must avoid riba, i.e., excessive profit, loosely defined as interest.

4. Business involving forbidden products or activity, such as alcohol, pork, or gambling is

prohibited.
 5. Normally award of damages are in line with practicality but not as inflated as is often the case in
the West. In other words, the damages to property will be actual sums relating to repair and
replacement of the property. The loss of opportunity for cost of money is not compensated under
the Sharia.

6. Compassion is required when a business is in trouble. In a country with Islamic legal structure, it
is not considered appropriate to put pressure in the event of bankruptcy of one’s business partner.

The major difference between Sharia law and the Western law is the idea of reference to a
precedent. Under the Sharia, a ruling issued by a judge is not binding on other judges or on him in
later cases. While doing business in Islamic countries, international managers need to appreciate
the intertwining of religion and Islamic law and take care never to mention the Palestine-Israeli
situation.

After independence from erstwhile colonial rulers, most Islamic countries have grappled with the
problem of replacing colonial legal systems with the Sharia. The implications of Islamic law vary
in terms of degree among the Islamic countries. In most countries, it is applied in conjunction
with the common and the civil law.

Principles of International Law:

International law is less coherent compared to domestic law since it embodies a multiplicity of treaties
(bilateral, multilateral, or universal) and conventions (such as the Vienna Convention on Diplomatic
Security, Geneva Convention on Human Rights, etc.) besides the laws of individual countries.
International managers need to understand the basic principles that govern the conduct of international
law.

1) Principle of Sovereignty:

A ‘sovereign’ state is independent and free from all external control or enjoys complete legal equality
with other states. It governs its own territory, has the right to select and implement its own political,
economic, and social systems and has the power to enter into bilateral or multilateral agreements with
other nations. Thus, a sovereign state exercises powers over its own members and in relation to other
countries. This also implies that courts of a sovereign country cannot be used to rectify its injustices on
other countries.

2) International Jurisdiction:

Under international law, there are three basic types of jurisdictional principles.

Nationality principle:

Every country has jurisdiction over its citizens, irrespective of their locations. For instance, an Indian citizen
travelling abroad may be given a penalty by a court in India.
Territoriality principle:

Every country has the right of jurisdiction within its own legal territory. Therefore, a foreign firm involved
in illegal business practices in India can be sued under Indian law.

Protective principle:

Every nation has jurisdiction over conduct that adversely affects its national security even if such behaviour
occurs outside the country. For instance, an Italian firm that sells India’s defense secrets can be booked
under the Indian law.

3) Doctrine of Comity:

As a part of international customs and traditions, there must be mutual respect for the laws, institutions,
and the government system of other countries in the matter of jurisdiction over their own citizens.

4) Act of State Doctrine:

Under this jurisdiction principle of international law, all acts of other governments are considered valid by
a country’s court, even if such acts are not appropriate in the country. For instance, foreign governments
have right to impose restrictions related to financial repatriation to other countries.

5) Treatment and Rights of Aliens:

Nations have the right to impose restriction upon foreign citizens on their rights to travel and stay, their
conduct, or area of business operations. A country may also refuse entry to foreign citizens or restrict
their travel. As a result of rise in terrorism during the last decade, the US and many European countries
have imposed restrictions on foreigners.

6) Forum for Hearing and Settling Disputes:

Courts can dismiss cases at their discretion, brought before them by foreigners. However, courts are bound
to examine issues, such as the place from where evidence must be collected, location of the property under
restitution, and the plaintiff. For instance, after the disaster of Union Carbide’s pesticide plant located at
Bhopal in India, the New York Court of Appeals sent back the case to India for resolution.