Question

Define the concepts of globalization and international trade and generally discuss what financial implications they have in companies.

Answer 1

Globalization refers to the phenomenon where the nations open up their economies for trade and build international tieups and agreement among themselves. It facilitates nations coming up and joining each other at one platform. It gives origin to the international trade. With trade tie-ups in place, firms and other enterprises enter into the market of different economies and pursing business activities. Hence, globalization and international trade go together and promote each other.  

The international trade and globalization, will make companies to pursue operations in different overseas market and it will have financial implications that these companies have to move capital for investment in these countries. It will attract different levels of risk, depending upon the political, economical and regulatory stability of the overseas economies. It will create risk, but it will also bring control. To optimize the financial implications, and reduce the risk level, firms can identify different methods of doing international trade such as FDI, joint ventures, franchise model and licensing. Here, FDI brings the highest level of investment, as well as total control, whereas joint ventures make investment to be shared, but local expertise and knowledge of the market is gained. So, companies on the basis of market conditions, control the financial implication.