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Economics Concept - Assignment

   

Added on  2021-05-31

10 Pages2938 Words96 Views
Running head: ECONOMICS ASSIGNMENTEconomics assignmentName of the studentName of the universityAuthor Note

1ECONOMICS ASSIGNMENTPresently, Brexit has become a debatable concept among citizens of the UnitedKingdom and for the rest of the world, as well. Before analyzing the future impact Brexit onthe international businesses of the U.K, understanding the concept of Free Trade Agreements(FTAs) and the European Union is essential. Through FTAs, two countries or more than thatcan implement a unique customs to reduce trade barriers within them (Heilbron and Suarez2016). This custom influences those countries to import and export products freely or withminimum tariffs and quotas and consequently, affects the terms of trade of each countriespositively. Some countries of Europe, including the UK, have formed a union, where eachmember countries have followed a standardised custom with minimum trade restrictions tomove people, capital, goods and services within them. Hence, this union has formed thelargest single market within the world economy (Wetherly 2014). However, in 2016, the U.Khas decided to withdraw its name from the EU. After this declaration, economical, politicaland social environments of this specified country has changed significantly. The value ofpound has decreased while inflation has also occurred within the economy. Hence, byconsidering changes of some external factors, this essay has tried to describe the future ofinternational businesses of this country. Those external factors are foreign investment,financial services, manufacturing and trade. According to some economists, value of pound may decrease in future by 30% if takedecision to withdraw its name from the EU. This value has decreased by 12% in 2016 afterthe country has done its voting (Obstfeld 2016). For this, prices of imported goods haveincreased by large extend and this in turn has led the economy towards inflation. From this, itcan be said that the depreciation of pound has affected importers of the U.K, adversely. Onthe other side, due to this economical condition, prices of domestic products in foreignmarket have decreased significantly. As a result, exporters may be affected positively.

2ECONOMICS ASSIGNMENTFigure 1: Value of pound against the U.S dollarSource : (Caporale, Gil-Alana and Trani 2018)In this context, it can be mentioned that after Brexit, some negative effects can alsoinfluence the business activity of exporters. Being a member country of the EU, the U.K canexports and imports its product uninterruptedly from the largest market of the world. If Brexitoccurs, the country may remain unable to do business with minimal restrictions with rest ofthe member countries of the EU. This in turn may negative impacts on those internationalexporters. Trade negotiation may help the U.K to maintain good relations with thosecountries after Brexit. However, in world economy, U.K’s GDP share is low compare to theEU. Hence, it may be difficult for the U.K to negotiate any trade relations with thosecountries, as the country has possessed less bargaining power. On the other side, by removingtrade restrictions, the U.K can successfully made another trade relation with rest of the worldor even with member countries of the EU. As a result, a free trade relation with China, Indiaand the United Kingdom may bring positive impacts on the international business sectors ofthe U.K (Belke, Dubova and Osowski 2018). However, this positive outcome aboutinternational trade may not cover the loss that the country is going to face after Brexit. Thechief reason behind this is that, the EU has captured the largest market share andconsequently reducing trade relation with this may bring a huge loss for the U.K. In this

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