Assignment:04

Topic:
Managing Prices In Global Markets
Submitted By- Team L
Team Members

ID Name
16304006 Md. Waheduzzaman
16304016 Mohammed Iqbal (Group Leader)
16304024 Osama Azim
16304135 Kamrun Naher

16304136 Umma Taiba Rashid Nova

Table Of Content

• International Pricing Problems • Understanding International

• Price Escalation Financial Markets
• Transfer Pricing • Pricing Decisions
• DUMPING • The Effects of Exchange Rate on
• Gray Markets Price Decisions
• The Effects of Inflation on Price
Decisions
• The Effects of Interest Rates on
Price Decisions
International Pricing Problems

A firm that sell their product globally will have to decide how to price their
product in each market. Different cultures and different countries may have
different needs and preferences and so what sells well in one country may never
sell in another. For example a Coca Cola and an iPad are the same everywhere
in the world but not necessarily sold at the same price.
A company that sell their product globally may face some problems while
pricing. Some International pricing problems are: price escalation, inflation,
currency movements, transfer pricing, dumping, price coordination,
countertrade etc.
Price Escalation

Price escalation means the increase in price in foreign market. Price escalation
occurs when a goods have higher cost in a foreign market due to shipping costs,
tariffs, and distribution channels.
Price escalation can also be described as the sum of cost factors in the
distribution channels which add up to a higher cost for a product in a foreign
market.
For example: A difference in price for an identical good in different countries
due to transportation and exporting cost. Price of grain quickly goes up due to
price escalation
Transfer Pricing

The term, Transfer pricing refers to the prices of products, services at which
they are transacted between related parties.
The term implies the price at which a division of a company transacts with
other divisions.
For example, if a firm sells goods or provides services to the holding firm, the
charge price is called transfer price and the process is referred to transfer
pricing. It is used when an individual entity of a larger multi-entity firm are
treated and measured as separately run entities. It is common for multi-entity
corporations. A transfer price can also be known as transfer cost.
DUMPING

Dumping is a circumstance of International price discrimination. In this

circumstance, the price of a product is less when the product is sold to
importing country. But the price of the same product is higher than when sold
in the market of the exporting country.
Dumping means export of products to another country at a lower price than it’s
the actual value.
It is a situation where the price is segregated between the two markets. In this
situation, a monopolist trades a quantity of his the produced commodity at a
low price and the remaining commodity at a high price in the domestic market.
Gray Markets

A gray market is an informal market for budgetary securities. Gray (or “grey”)
market exchanging by and large happens when a stock that has been suspended
from trade off the market, or when unused securities are bought and sold some
time recently official trading starts.
The gray market empowers the issuer and underwriters to gage request for a
unused market since it may be a “when issued” market (i.e., it trades securities
that will be offered within the very near future). The gray market is an informal
one but isn't illegal.
Understanding International Financial
Markets

Financial markets indicate broadly to any marketplace where the exchanging of

securities occurs, including the stock market, bond market, forex market, and
derivatives market, among others. It is essential to the constant operation of
capitalist economies.
And the international financial market is the comprehensive marketplace in
which buyers and sellers trade financial assets over the national borders, which
is the extended version of the financial market.
Understanding International Financial
Markets (Cont.)

And the reasons backward the internationalization of financial transactions are

that,
-variances in interest rates,
-global diversification,
-economic growth prospects,
-exchange rate inconsistencies.
Pricing Decisions

Pricing Decisions are the tactics businesses follow when setting prices for their
goods and services.
Determining the price considering production and other costs, marketing
strategies, market rivalry, consumer behavior, demand and supply, and
Government rules can be defined as pricing decisions.
Pricing decisions are affected by three things. They are-
-Exchange Rate,
-Interest,
-Inflation.
The Effects of Exchange Rate on Price
Decisions

An exchange rate is the price of a country’s cash in terms of another currency.

In other words, it speaks to how numerous units of a foreign money a buyer can
purchase with one unit of their domestic currency. The effect of trade rates and
their fluctuations expands much more broadly and more profound in ways that
influence a few of the foremost vital viewpoints of our financial lives -like how
long it takes to induce a job, where ready to afford to live, and when able to
resign. Trade rates have a colossal impact on the economy both within the close
term and over drawn out periods of time.
 The Effects of Inflation on Price Decisions

Inflation is the minimization in the value of money because consumers are

capable of buying less than they previously could with the same amount of
money.
It can also be defined as when the proportion of money income rises more than
the rise in the earning deeds.
Inflation's effect on price decisions:

1.High wage bill:

Wage of workers rises which makes the business owners to increase the price of
products to cope up with the situation.
 The Effects of Inflation on Price Decisions
(Cont.)

2. International competitiveness:
International companies tend to invest more on the high inflation effected country.
It makes the local business to rise up in their or ice decisions.

3. Exchange rate impact:

An exchange rate can affect domestic prices through two different ways. The
initial way is a direct effect through the marginal cost channel, as the exchange
rate alters the price of imported input. The second more indirect way is through
the mark up channel.
 The Effects of Inflation on Price Decisions
(Cont.)

4. Lower growth and less stability:

Business often faces less growth and stability due to inflation. So to make this up
and gain more market share they tend to set the price upper than usual.

5. Uncertainty and lower investment:

Lower investment will increase long-term costs, competitiveness, and reduce
profits. These also affects pricing decisions.
 The Effects of Interest Rates on Price
Decisions

1.Increases the cost of buying for consumers:

If interest rates rise, the cost of borrowing goes up, which can demotivate
consumers from buying. So the demand will fall down and eventually the price
will rise up.

2.Increased buying costs for business:

Because of low interest rates businesses have taken advantage of the low cost of
money in their favor. When interest rates rises their borrowing costs will increase,
which means there will be less cash to pay workers or growing up their markets.
Business tend to make this up by increasing price of goods
 The Effects of Interest Rates on Price
Decisions (Cont.)

3.Saving intention rather than spend:

Higher interest rate convinces people to save more money, which is good for
economy. But, it will result in less spending, which might causes obstacle for
economy. It causes less demand of goods/ services which ends up in price rising.

4.Increased value of the money :

High interest rates can minimize the value of money which is good for the
economy. The problem is when the value of money increases export competition
also shortens which can result in lower demand for internal product
 References

• http://www.businessdictionary.com/definition/price-escalation.html
• https://
www.yourarticlelibrary.com/marketing/6-issues-related-to-pricing-in-inter
national-market/5788
• https://
books.google.com.bd/books?id=2-yE2CIt7h8C&pg=PA233&dq=price%2
0decision%20on%20international%20marketing&hl=en&sa=X&ved=2ah
UKEwjJ7O6An67rAhWSj-YKHeYeBIwQuwUwAnoECAAQBg&fbclid=Iw
AR0qS8jiMRca7YTj4dlZN2bvL1bkMHhXDFE6E8BACSVzV9Oad6eXXe
ux66A#v=onepage&q=price%20decision%20on%20international%20ma
rketing&f=false
 References

• https://
www.economicsonline.co.uk/Managing_the_economy/Investment.html
• https://
saylordotorg.github.io/text_international-economics-theory-and-policy/s2
1-10-effect-of-a-price-level-increa.html
• https://www.jstor.org/stable/2138611
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