Question

Business Effects of Globalization:

1. What does it mean to be global (Beyond the obvious sense of doing business in multiple countries)?

2. What is exchange rate regime? Analyze different types of currency regimes and the history of exchange rate regimes.

Answer 1

1.

In this era of globalization businesses tend to grow outside their home country to other geography’s in order to maximize profits & expand their brand image. What global means, it means having a common culture that recognizes & accommodates the different aspects of local business. The idea of Globalization allows individuals to share their ideas & impact the organization. This has led to increase in multicultural & cross culture working conditions resulting in diverse knowledge base & innovative business solutions to problems. We need to understand the broader meaning of global culture in order to gain deep insight in to it.

The immediate effect globalization brings is expanded market. It means a company which was selling its products & services in local market can now sell them in other countries. It also reduced trade barriers between countries to boost trade & expand markets.

Globalization increases competition as there are other competitive players. A company has to face competition in every aspect of business whether it is products, services, technology advancement, production capacity & operations of a company.

Because of globalization customers have large no of choices in the market. Customers tend to acquire goods & services quickly & in an efficient way. They also expect high quality & low prices. This changes course of actions of a company as it needs to fulfill customer demands.

One of the key development global companies bring is the use of advanced technology & techniques. Technology also creates competition & quality of goods & services. Globalization has also increased speed of technology transfer & development.

2.

Exchange rate regime is the way a country manages its currency with respect to other currencies & foreign exchange market. This is closely related to monetary policy framework & presented alongside to present the role of exchange rate in overall economic policy.

There are three types of exchange rate regimes.

a) Fixed exchange rate regime: In this type of system a government or central bank fixes the value of currency to other currencies. This system helps in maintaining value of currency in a narrow band.

b) Floating exchange rate regime: In this regime value of a currency is decide in foreign exchange market based on its demand & supply relative to other currencies.

c) Pegged exchange rate regime: In this system a currency’s value is pegged to other currencies. It is similar to fixed exchange rate system but in pegged system currency has wider range of value compared to fixed exchange rate regime.