PART I Identify 7 of the 14 terms. Remember to describe/define, give an example if possible, and explain the significance of the term. PLEASE WRITE CLEAR AND COMPLETE SENTENCES. To explain...

BSM404 Online Final Examination- Solution
PART I
1. Globalization
Definition: The process in which there is amalgamation of worldwide ideas, products,
services, culture and national resources. Due the advancement of World Wide Web and
better transportation infrastructure, globalization leads to further interdependence of
economy and culture.
Example: The tourism & hospitality industry has flourished at lot because of
globalization. In recent years the number of service providers in this industry has
exponentially increased by 15-20% which indeed created a lot of job option not only for
their own nation people but across the globe wherever they are partnering.
Significance: As stated in definition, with the betterment of transportation and
communication infrastructures worldwide, the international business has grown rapidly in
20
th
century. All commercial transactions have now become easy and possible beyond
political boundaries. Today due to globalization we have Multinational enterprises
(MNC/MNE) present and operational in more than one country. All business across
sectors ant deny their co dependence for resources, technology and man power in this
new era of globalization.
2. Purchasing power parity
Definition: Purchasing power parity (PPP) theory states the exchange rates between
currencies are at par when the purchasing power is same between two countries. The
exchange rate between two nations should be equal to the ratio of the two nation’s price
level of a certain label of goods and services. Any nation’s domestic price level and
exchange rate are inversely proportional in order to balance PPP.
Significance: The basic principle of PPP of one price is weakened by transportation cost
and government trade policies which affects the international business. Higher
transportation cost results in exchange rate fluctuations.
3. Entry Strategy (to foreign market)
Description: Any business can enter foreign market by either domestic or foreign
production or by a combination of both. In case of domestic production there is indirect
and direct exporting.
Example: Mc Donald’s: when Mc Donald’s decided to enter into foreign countries like
China, India etc. it entered Foreign production strategy with the concerned nation. Mc
Donald’s executed it with licensing and franchising with local partners.
Significance: Any organization that wishes to enter in the foreign market faces three
major issues like sourcing, marketing and investment. Depending upon the nature and
size of business the organization chooses between direct or foreign production. But in
both the cases the international business is a clear winner creating several opportunities
for both home and foreign countries.
4. Price Elasticity of demand
Definition: It states the responsiveness of the quantity of a certain good or service
demanded to changes in its prices.
Significance: The most important factor in determining “Price elasticity of demand” is
the willingness and the ability of consumer to make the purchase decision after a price
change and to search for better substitutes. The factors that affect the PED are the
availability of substitute commodities, income levels, necessity,...