International Business Report: Analysis of US Economy and Global Trade

This report analyzes the impact of exports and foreign investment on the US economy, addressing questions related to current account deficits, capital account surpluses, and the competitiveness of US businesses in the global market. The report discusses the benefits of increased exports, such as enhanced domestic industry and job creation, contrasting them with the implications of foreign investment. It also examines the relationship between current and capital accounts, highlighting how foreign investment can initially boost capital inflows but subsequently lead to interest payments and potential capital account deficits. The report further differentiates the impact on small and large institutions, and the consumer benefits and drawbacks from the discussed economic scenarios.

Running head: INTERNATIONAL BUSINESS
International business
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1INTERNATIONAL BUSINESS
Question: 7.21
From having the two options of inflow of foreign funds and initiation of more exports,
the economy of United States will be fortified with the initiation of export. This is due to the
reason that, in the case of the increased rate of foreign fund inflows in the economy, the initial
capital will get increased with having more foreign investment in the country. However, on the
other hand, the foreign firm invested in the economy of United States will take away the profits
after few years, which will degrade the flow of capital in the economy. In addition, with the
increase in more foreign investment by buying the shares and bonds of United States, the debt in
the international market for United States is increasing. Thus, it will have negative implication
for the global business competitiveness for them.
On the other hand, initiation of export will help to enhance the domestic industry by
opening the international market for them. On the other hand, the economy will also get
benefited from the inflow of foreign reserves from the export industry. The global
competitiveness will get increased along with more number of American investments across the
world. Initiation of export is having other benefits such as reviving the local job market. This is
due to the fact that, enhancement of the export will help the domestic industry to increase their
operational facilities, which will employ more number of domestic employees. Thus, initiation of
export will be more beneficial for them compared to increase in inflow of foreign fund.
Question: 7.22
United States is facing current account deficit and capital account surplus. This is due to
the reason that, in the recent time, the domestic industry of United States is trailing behind in the
competition in the international market. Thus, the rate of export is decreasing, which lead to the

2INTERNATIONAL BUSINESS
deficit in the current account. On the other hand, more foreign companies are buying the shares
and bonds of the American firms, which lead to the initial increase in the flow of capital.
However, there is a relationship or connection between the deficit in current account and surplus
in capital account. For instance, foreign investment firms investing in the shares of United States
are paying the initial amount, which lead to the increase in the current account. However, on the
other hand, the same firm invested is for profit and interest. Thus, the American subsidiary firm
will have to pay the interest to the foreign firm, which will lead to the deficit in the capital
account.
Question: 7.23
The scenario of “Sky is falling” will be applicable for the small institutions, whereas
“everything is fine will be applicable for the large institution”. This is due to the reason that,
small institutions such as the textile firms and workers are depended on the domestic market only
and inflow of more foreign goods will reduce their business potential in the market. On the other
hand, large institutions such as, Boeing and Merill Lynch will be profitable from the inflow of
foreign investment due to the increase in the investment in their organization from the foreign
investors. However, the consumers will have both merits and demerits from both the situation,
but they will have more benefits from the initiation of exports.