The monetary environment of America and how if affects businesses that are or want to operate internationally Essay
For this assignment I will be discussing the monetary environment of America and how if affects businesses that are or want to operate internationally. I will be relating the information to America and how businesses are affected by international trade affiliated with America.
Common currency has substantial benefits to international trade. Countries with the same currency find it much easier to trade between each other. For example recently the liberal government in the UK wanted to change our currency from Pounds to the Euro. By doing this we would increase the international trade between the UK and the A high majority of Europe. This occurs because of Europe being a free trade area. Throughout the United States of America they use the same currency of the US dollar, giving all the common currency benefits. International businesses see it as an incentive because it makes trade less complicated and there is no risk of losing money. In South America only Ecuador use the US dollar, so the benefit or incentive of common currency does not apply in this area. The minimum wage
Liquidity can determine whether a business decides to operate internationally. The inflation rate in America is 1.1% the lower the rate
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Factoring is used to describe services where finance is made available to provide funds against the security of trade debts. It is used for the trade between one business and another business; it ensures sufficient working capital to meet the cash flow requirements. There are generally good deals that factoring businesses provide because it is a very competitive market. It is a great alternative for obtaining money instead of lending from banks. America has a vast amount of companies that cover factoring. The benefits of Factoring for businesses are:
1. Factoring provides a large and quick boost of cash flow. This may be very valuable for businesses that are short of working capital especially businesses entering new markets.
2. there are many factoring companies, so prices are usually competitive
3. some customers that are businesses may respect factors and pay sooner
4. you can be given useful information about the credit standing of your customers and they can help you to negotiate better terms with your suppliers
5. factors can prove an excellent strategic – as well as financial – resource when planning business growth
6. you will be protected from bad debts if you choose non-recourse factoring
7. cash is released as soon as orders are invoiced and is available for capital investment and funding of your next orders
8. Factors will credit check your customers and can help your business trade with better quality customers and improved debtor spread.
Using two investment strategies to minimize any loss caused by price fluctuations is known as hedging. Hedging is used by businesses to protect them from sudden and unexpected increases in the cost of raw materials as well as raises in interest rates inflation or currency fluctuations. Businesses in risky markets therefore hedging can help avoid future issues by safeguarding prices. For example, airlines can choose to hedge against fuel prices. This is the best way to insure and protect against business risks. A way in which hedging is used is future contracts. This contract agrees a set price for supplies, if the price goes up the business only has to pay the agreed price but if the price falls it would be a costly decision. Hedging is a technique whereas factoring is carried out between the business and the factoring company.
Free trade areas are areas in which there are minimal or no taxation on trade within the boundaries of that area. Some good examples would be trade in the Americas or in Europe. Being members of the European Union and having the currency known as the euro makes trade significantly easier because certain things don’t need to be taken into account. These things include exchange rates, limited liability and trust in descriptions and embargoes. Open markets within a country are an incentive because it influences foreign businesses to take advantage of the opportunities wanting to start their business franchises in the country. Markets could be specific to some countries, if there is a demand of a certain product which may be related to a countries environment or culture. Normal trade barriers such as quotas and tariffs are eliminated and bureaucratic requirements are lowered for the purpose of attracting foreign investments and new businesses.
The North American Free Trade Agreement came into affect in 1994 and is one of the world’s largest free trade zones. The NAFTA has strengthened economics of Canada, Mexico and the US. They have demonstrated that free trade increases wealth and competitiveness benefiting families, farmers, workers, manufacturers and consumers. NAFTA provides USA businesses with better access to materials, technologies, investment capital, and talent available across North America. A success story would be caterpillar Inc.
Since its inception in 1925, Caterpillar has grown to be the largest producer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines in the world. Caterpillar’s chairman and chief executive officer attributes most of the company’s economic success to the benefits of free trade. Success stories like this would persuade international business to enter America’s markets as an international organisation.
The free movement of labour, goods and money is an incentive for international trade because it would attract big businesses. The free movement of these things make it easier for international organisations to carry out normal day-to-day activity. If this incentive was not in place, organisations would find it difficult to carry out duties and if it is not convenient for the business it is likely they would reduce their international activity when operating in this country.
Restricting international trade can be a good thing if it is directed at particular materials. If it is not then it is just creating a deficit in there’re own country’s economy. This is a common technique used if there is too much of a certain material or if there is a sufficient amount being made in the country. A great way to restrict trade of particular products is to tax or in some cases increase tax on the product to be brought in from another country. Another way to do this is impose laws on the specific materials which limit the amount that can be trade at one time. More transactions results in more money for the country, if not that then less of the selected materials. Even though it is very rare … If a country wants to restrict all trade they can increase the trade taxations to discourage the trade to and from that country. When a country is trying to reduce trade, they impose barriers which restrict trade.
To conclude companies would always consider the incentives of entering a new market before doing so. America have many reasons why and why not to operate there. America mainly attract new national originated, businesses that export not import their products or services.