International Business: Economic Risks, Trading Blocs, and Canada

This report provides a comprehensive analysis of international business, addressing key aspects such as economic cooperation, regional economic integration, and the international monetary system. Part A explores trading blocs, including the advantages and disadvantages of membership, and examines the impact of NAFTA on Canadian producers trading with China and Germany. It differentiates between free trade agreements and economic unions, evaluates the benefits of a customs union for Canada, and analyzes the aims of ASEAN and the associated business risks. Part B delves into international money markets and foreign exchange, analyzing the relationship between savings, investments, and exchange rates, as well as the impact of exports and imports on currency values and inflation. The report examines the effects of purchasing power parity (PPP) and addresses currency risk management strategies. Part C compares the current economic, political, technical, and financial risks of international business in the context of Canada, China, and Germany, providing insights into the challenges and opportunities of operating in these markets. The report concludes with a synthesis of the key findings and implications for international business strategy. This assignment is a valuable resource for students seeking to understand the complexities of global trade and finance.

Running head: INTERNATIONAL BUSINESS
International Business
Name of the Student
Name of the University
Author’s Note

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Executive Summary
This current report has focused on the international monetary system that helps in comparing the
economic, political, technical and financial risk that are associated with the international business
for both of the selected countries. Both of the countries consist of similar accounting practices
along with potential changes in the administrative trade barriers. The producer have to face the
export tariff at the time of trade with China and Germany. The promotion of liberalisation of
financial sectors, money and capital market, insurance, customs and tax along with the
consultations of macroeconomic policies.

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Table of Contents
Introduction......................................................................................................................................3
Part A: Economic Cooperation and Regional Economic Integration..............................................3
Advantages and disadvantages of trading bloc............................................................................3
Advantage and Disadvantage to the producers for Canada, a member of NAFTA....................4
Difference between NAFTA and EU..............................................................................................4
Benefits of joining a custom union with USA and Mexico for Canada..........................................4
Aim of ASEAN and risk of business with ASEAN countries.........................................................5
Part B...............................................................................................................................................5
Part C...............................................................................................................................................9
Comparing current economic, political, technical and financial risk of international business......9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction
The regional economic integration is strengthen by making trade blocs, custom unions
and regional groups. The description of these part discusses about the trade blocks, advantage
and disadvantage of trade within trade bloc and external trade in different conditions.
International business includes the effective monetary system that operates between the financial
operations of the business. Two countries has been selected which are Canada and China and
Germany that might have better financial stability along with political stability during the overall
course of business. In this study, the comparison between the economic, political, technical as
well as the financial risk of international business has been identified.
Part A: Economic Cooperation and Regional Economic Integration
Answer to question 1
Advantages and disadvantages of trading bloc
The two targeted countries, China and Germany. China is in the ACFTA also known as
China-ASEAN Free Trade Area which is a free trade area consisting 10 members of the ASEAN
and the People’s Republic of China. Germany is a member of WTO, GATT and European
Union.
Advantage: Tariff is lower or removed within the trade bloc countries which creates
great opportunities for exporters. This raises the trade which enables the specialisation and
benefits form economies of scale. This raises the competition among producers and lowers the
price for the consumers of the participant countries of trade bloc.

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Disadvantage: Import tariffs on imports from non-bloc countries might get higher for the
trade bloc countries which can divert the trade direction. The countries may loss sovereignty and
independence in the field of trade as the trading block makes decisions for the whole area.
Answer to question 2
Advantage and Disadvantage to the producers for Canada, a member of NAFTA
Canada’s membership in NAFTA will provide benefits to the local producer in terms of
giving the opportunity of free trade within the country members of NAFTA (Blecker, 2018). The
producer have to face the export tariff at the time of trade with China and Germany. This is
because of different trade bloc in which the two countries belong from. Thus the producer have
to face the competition of the local producers of Germany and China. This will reduce the
amount of profit and even the producer may have to face lose.
Answer to question 3
Difference between NAFTA and EU
The North America Free Trade Agreement and the European Union has significant
differences which lies within their scope. NAFTA is a pure economic agreement among Canada,
USA and Mexico whereas EU is developed into political and social and union (Appendini &
Bislev, 2016). EU is territorial union with 28 countries. Moreover, EU has created the single
currency and this is accepted by most of the member countries while the member countries of
NAFTA are maintaining their own currency.
Answer to question 4

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Benefits of joining a custom union with USA and Mexico for Canada
The major advantage for Canada will be the free trade with the member countries of the
custom union, USA and Mexico. Custom union is the leading step for the economic integration
which works like a single market (Caliendo, & Parro, 2015). However, Canada will have to face
the common external tariff that can result in trade diversification. Moreover, Canada will not be
able to negotiate separate deals which declines the economic sovereignty.
Answer to question 5
Aim of ASEAN and risk of business with ASEAN countries
The aim of the ASEAN is to promote the small and medium modern and competitive
enterprises to contribute in the development of industries and to raise efficiency of regions in
ASEAN (Kumar, 2017). Moreover, its focus is on the promotion of liberalisation of financial
sectors, money and capital market, insurance, customs and tax along with the consultations of
macroeconomic policies. Except these all it aims to accelerate the improvement in science and
technology and enhancing food security and competitiveness in the food, agricultural and forest
products market.
The main risk of working with an ASEAN business partner is the geopolitical instability in
the region. This is highlighted by the existing tensions between India and China, two of the most
important nations. As political situations directly impact the business decisions, there is a risk of
the business suffering a loss due to the tensions.
Part B
1) There is a common relationship between investments and savings whereby savings
provides a good and sound source of monetary benefits allowing the firm or individual to

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earn more amount of goods and services. On the other hand, if the earnings of an
individual or entity is comparatively larger than the spending then the same would be
boosting the savings level of the consumers in the form of higher total income. The
exchange rate on an overall basis has an effect on the trade surplus (or deficit) that in turn
would be affecting the exchange rate. In the general context it could be better explained
that a weaker domestic currency stimulates exports and thereby makes imports more
expensive. On the other hand, a strong domestic currency would be hampering the
exports and imports comparatively cheaper. A stronger domestic currency hampers the
total export level in the economy and otherwise would be making the imports of the
company cheaper. The balance of payment effects the currency exchange rate with its
wide effect in the supply and demand of foreign exchange reserves that are held by the
country. The trade of the country can be significantly affected if the trade account does
not net to zero that is when the total exports of the economy are not equal to imports,
stating that there is relatively more level of supply or demand for a country’s currency
that would be influencing the price of that currency in the world market (What
determines exchange rates? 5 influencing factors, 2019).
2) Changes in the exports level and changes in the forex reserves of the economy would be
definitely affecting the overall money supply in the economy and the overall forex
reserves of the economy. In the case analyzed the export level of Canada has increased in
the trend period whereby the overall money supply has also increased in the economy
that have lead to the increase in the general level of inflation. In this case the currency of
Canadian Dollar would be improving which in turn would be resulting in a higher import
level affecting the overall inflation rate and causing the same to increase over a period of

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time. Thus, the rise in the export level increased the forex reserves of the company
impacting the appreciation of the Canadian dollar in respect to the US Dollar which in
turn increased the money supply and the import level causing higher inflation.
3) Import and Exports level in an economy directly affects the forex reserves that are held
by the economy which in turn affects many macro-economic factors like overall inflation,
growth rate of GDP and the prevailing interest rate in the economy (Canada GDP per
capita PPP | 2019 | Data | Chart | Calendar | Forecast | News, 2019). In the trend period
of 1960-2005 the inflation level in the US region has been comparatively higher making
the currency of US dollar depreciate significantly and as well the import from Canadian
Exporters saw a increase which in turn affected the overall forex reserves of the
economy. On the other hand, it is also key to note that the US dollar forex reserves have
increased to some extent due to higher amount of exports.
PPP of USA Trend Period (1960-2005)

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PPP of Canada Trend Period (1960-2005)
The PPP of US in the trend period has increased consistently for the company in the trend
period whereby a sustainable increase in the PPP was seen. On the other hand, in the case of
Canada the PPP has been consistently less in the period 1980-1995 but after that there was a
sharp trend increase in the data analyzed for the company (United States GDP per capita PPP |
2019 | Data | Chart | Calendar | Forecast, 2019).
The Canadian Company should make the payment of currency for the Brazilian Import it
has actually done in the futures market if the goods would be delivered on a 90 day basis. The
exchange rate of CAD/BRL has been volatile in the trend period and any changes in the
exchange rate could materially affect the overall value of the payment that would be done by the
Canadian Company (CAD BRL Historical Data - Investing.com, 2019). If the payment would be
done in the US Dollar then the volatility and factors affecting the US Dollar needs to be well
accounted by the Canadian Company and the historical trend between these pair of currency
should be better analysed.

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Part C
Comparing current economic, political, technical and financial risk of international
business
The economic condition of both of the companies includes the effective strategy for
increasing the overall productivity that are considered as largest trading partners. The population
of Canada is less than compared to the population of China and Germany along with comparing
the debt to equity ratio that is 89.7 % as compared to Germany which is 107.8 % (Ban, 2015).
The tax revenue generation rate is more than the GDP that is effective in nature of China and
Germany as compared to Canada. The annual growth of population in Canada is compared to the
overall rate of growth which is measured around 1.4 % more the normal rate of growth. The
global market of the economy includes the International Monetary Funds which mainly focuses
on the annual expansion as compared to the Germany in current economic years. The monetary
funds has increased from one $ 19.4 trillion in the financial year 2017 to $ 20.4 trillion in the
financial year 2018 (Reinhart and Trebesch, 2016). China has one of the highest growth in gross
income which might be effective for their growth and overall development.
The political system is maintained by the government of both of the countries that has the
focuses of introducing the democracy in both of the nation. Germany has no divisional state that
act as restrain on the power of the legal system in overall countries (Chwieroth, 2014). Both of
the countries has the two parliamentary bodies that takes legal action on other situation in the
country. House of Common and the Senate has been associated with the parliament which
includes the political system in both of the countries. The stability of both of the economies has
been considered as positive impact that act as currency inflation along with overall rate of
inflation (Chen et al., 2016). The potential changes in the view of administrative trade barriers

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includes the relevant cultures that forces in certain changes in overall technologies that are being
maintained by both of the countries.
Conclusion
From the above study, it can be concluded that the comparison between the economic,
political as well as technical and financial risk that are associated with the business. The
producers from Canada has to face a cut in their profits if they trade with other trade bloc
member countries due to common external tariffs. NAFTA and EU has significant basic
differences which directly impacts the trades of member countries. Trade diversification is
common while trading with other trade bloc countries. The fluctuation in the currency along with
rate of inflation might increase the economic stability of bothy of the countries that are been
included in this particular study. Moreover, it also involves the overall process of accounting
policies that includes potential changes along with administration in international trade barriers.
The rise in nationalism along with other political uncertainties might affect the economic
instability of the economies.

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References
Appendini, K., & Bislev, S. (Eds.). (2016). Economic integration in NAFTA and the EU:
Deficient institutionality. Springer.
Ban, C. (2015). Austerity versus stimulus? Understanding fiscal policy change at the
International Monetary Fund since the great recession. Governance, 28(2), 167-183.
Blecker, R. A. (2018). NAFTA. In Handbook of International Trade Agreements (pp. 177-195).
Routledge.
CAD BRL Historical Data - Investing.com. (2019). Investing.com. Retrieved 9 August 2019,
from https://www.investing.com/currencies/cad-brl-historical-data
Caliendo, L., & Parro, F. (2015). Estimates of the Trade and Welfare Effects of NAFTA. The
Review of Economic Studies, 82(1), 1-44.
Canada GDP per capita PPP | 2019 | Data | Chart | Calendar | Forecast | News .
(2019). Tradingeconomics.com. Retrieved 9 August 2019, from
https://tradingeconomics.com/canada/gdp-per-capita-ppp
Chen, Q., Filardo, A., He, D., & Zhu, F. (2016). Financial crisis, US unconventional monetary
policy and international spillovers. Journal of International Money and Finance, 67, 62-
81.
Chwieroth, J. M. (2014). Controlling capital: the international monetary fund and transformative
incremental change from within international organisations. New Political
Economy, 19(3), 445-469.

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Kumar, S. (2017). Trade and Human Development: Case of ASEAN. Pacific Business Review
International, 12, 48-57.
Reinhart, C. M., & Trebesch, C. (2016). The international monetary fund: 70 years of
reinvention. Journal of Economic Perspectives, 30(1), 3-28.
United States GDP per capita PPP | 2019 | Data | Chart | Calendar | Forecast.
(2019). Tradingeconomics.com. Retrieved 9 August 2019, from
https://tradingeconomics.com/united-states/gdp-per-capita-ppp
What determines exchange rates? 5 influencing factors. (2019). TransferWise. Retrieved 9
August 2019, from https://transferwise.com/gb/blog/factors-influencing-exchange-rates