International Business

Assignment – I (10 x 3 = 30 marks)

Q1. Two countries, Great Britain and United States, produce just one product: Denim Jeans. Suppose the price of Denim Jeans in United States is $ 2.80 per pair and in Britain it is £ 3.70 per pair.

(a) According to PP theory, what should the dollar/pound spot exchange rate be?

(b) Suppose the price of jeans is expected to rise to $ 3.10 in the United States and to £ 4.65 in Britain. What should the one year forward dollar/pound exchange rate be?

Q2. A Canadian firm has developed some valuable new medical products using its unique biotechnology; and is trying to decide how best serve the European Community market. Its choices are:

(a) Manufacture the product at home and let foreign sales agent handle marketing

(b) Manufacture the products at home and setup a wholly owned subsidiary in Europe to handle marketing

(c) Enter into alliance with large European pharmaceutical company. The product would be manufactured in Europe by the 50/50 joint venture and marketed by European firm.

The cost of investment in manufacturing facilities will be major one for the Canadian firm, but it is not outside its reach. If these are the firm’s only options, take a decision, which one would you choose and why?

Q3. (a) What effect is creation of a single market and single currency within the EU likely to have on competition within EU? Why?

(b) How should a Indian company that currently exports only to ASEAN countries respond to the creation of single market in this regional grouping?