Tasks:
Read widely and investigate further the facts in the article above and answer the following questions:
1. Explain the importance of international trade to an open economy such as the UK
(This provides evidence for assessment criteria 1.1)
2. a) Define Comparative Advantage, Absolute advantage and Terms of Trade & Exchange Rate
b) Assess the significance of comparative advantage, absolute advantage, the terms of trade and exchange rates to the UK economy
(This provides evidence for assessment criteria 1.2)
3. Assuming that the balance of payment of an imaginary country comprises the following main items (all figures in millions of £): exports of goods 0; imports of goods 500; government (invisibles) -150; other invisibles +200; investment and other capital flows -45.
Describe the structure of the balance of payments and calculate the:
a. Visible trade balance,
b. Current balance and
c. Balance for official financing.
(The above provides evidence for assessment criteria 1.3)
4. What is Surplus and Deficit in an economy?
a. Explain the terms ‘surplus’ and ‘deficit’
b. Explain the significance of long-term deficits to open economies
(This provides evidence for assessment criteria 1.4)
Task 2a
Productivity growth has increased in Central and Eastern European countries relative to Western European countries. This has implications for the real exchange rate. Let’s look at the Czech Republic versus France (suppose they are the only two European countries).
For your task you are required to explain the role played by exchange rates in European business.
(This provides evidence for assessment criteria 2.1)
Task 2b
The Euro is a single currency arrangement that came into theoretical operation between 11 members of the European Union in January 1999. On January 1st 2002, 12 EU members got rid of their own currencies and introduced the Euro as their sole currency. A single currency means that there are no longer separate national monetary policies, and instead a new central bank has been set up – The European Central Bank – that conducts a Europe wide monetary policy, in particular the setting of interest rates. That means a loss of separate national monetary policies – interest rates and exchange rates. Should Germany want to introduce an economic policy to fight back against unemployment, it cannot do so as this can only come from the European Central Bank.
For your task you are required to analyse the advantages attributed to the adoption of a single European currency.
(This provides evidence for assessment criteria 2.2)
Task 2c
Explain the difference between free trade and protectionism and the role played by tariffs, quotas and deregulation within the EU.
(This provides evidence for assessment criteria 2.3)
Task 2d
One of the founding principles of the European Union is the freedom of movement of workers (Article 39 of the Treaty establishing the European Community). The free movement of workers is essential for the creation of an area without internal frontiers, and for the strengthening of economic and social cohesion as well as active European citizenship in creating wealth for the economic development. Despite these obvious returns geographic and occupational mobility rates are still relatively low in the European Union, both within and between countries. For instance, on average between 2000 and 2005, workers’ mobility within EU Member States (regional mobility) amounted to only one per cent each year. This is much lower than mobility rates across Australian territories and US states, which exceed two and three per cent, respectively (Adapted from European Commission, 2007).
For your task you are required to evaluate the importance of geographic and occupational mobility in wealth creation for EU member countries.
Task 3a
The Communities Act 1972, which gives legitimacy to the UK’s membership of the EU is under threat. Mr Cameron, the UK Prime Minister, has promised a referendum by 2017 to allow the British people decide whether or not the UK should remain in the EU. If the majority vote is for the UK to pull out of the EU, it means that the Communities Act will be repealed and the UK will no longer be a member of the EU. One of the overarching arguments behind the referendum is that the UK seem to have relinquished too much powers to the EU, through the main EU institutions.
Read widely and investigate further the facts above and answer the following question:
1)A. dvise the UK government on what role the main EU institutions play in the determination and legitimising of EU policy; and briefly discuss whether there is any veracity to the argument that the UK has relinquished too much powers to these institutions.
Task 3b
A fictitious directive 267/14 was issued by the EU to all member states on 1 October 2014. It prohibits the export of fire arms out of the EU. The UK government has come to you for advice as they are concerned that if they implement this directive, they will be in breach of their contract with a non-EU country to whom they supply fire arms. The contract is due for renewal on 1 October 2015.
Consider the scenario above and answer the following questions
2) Advise the UK government on the function of EU directives and whether or not you think they will be in breach as described above. Further, should the UK decide to ignore the directive, what consequences, if at all, do you think may follow.
(This provides evidence for assessment criteria 3.2)
2) What are the main EU funding streams? Evaluate their structure and purpose.
(This provides evidence for assessment criteria 3.3)
Task 4
France and Italy pressed for an easing of budget restrictions to stimulate growth and cut unemployment in Europe, but won no concession from the German Chancellor Angela Merkel, who insisted that countries had to move faster on reforms.
The difference over budgetary policy overshadowed the Milan meeting of EU leaders on how to create jobs, as the multi-year budget plans of both France and Italy seemed likely to be rejected by the European Commission because of their fiscal backsliding.
While government leaders and EU officials agreed on the need to tackle record youth unemployment, which has exceeded 40 per cent in several Eurozone countries, they seemed no closer on the policy prescriptions.
Responding to a prior call by Hollande for Germany to exploit its trade surplus and balanced budget to adopt more expansionary policies, Angela Merkel said her country had already taken steps to boost domestic demand by 15bn Euros” (City AM 10 Oct.2014)
Tasks
1) Produce a profile of the EU as a trading bloc and discuss its importance to member states.
(This provides evidence for assessment criteria 4.1)
2) Evaluate the significance of:
a) Linguistics,
b) Cultural,
c) Logistical and
d) Environmental barriers to EU operations; and
e) Briefly, explain how these factors may influence as barriers to the national budgets of the member states.
(This provides evidence for assessment criteria 4.2)
3) Carry out an audit of possible EU funding streams that may be available and relevant directives to support companies in France or Italy during their financial situation in the case study.
(This provides evidence for assessment criteria 4.3)
4) Produce an action plan which lists the actions necessary for Wonga to begin an investment venture in EU.
(This provides evidence for assessment criteria 4.4)
1. Importance of the international trade
Importance of the international trade in an open market:
Exchange of goods in the international markets helps the countries to improve themselves. In the present situation, the economic barriers are broken by the international companies act(Deardorff and Stern, 2011). Key importance of the international open market is:
International trade helps the economy to reduce the poverty margins. Not only it reduces the poverty margins but it helps in the development of the private industries.
The international trade allows reducing the cost of production. This also allows the developing countries to collect the finance by accepting the investment from foreign.
In the open trade the foreign companies can introduce their products in a new market.
International trade allows the local companies to have a boost in their profit margins.
As mentioned earlier the international trade allows in the development of the local sector. The introduction of the new companies in the locality will generate employment.
Through the open market an economy can earn foreign money also(Balance of payments and the relationship to national accounts, 2011).
These are the main importance of the international trade. In this manner UK can get foreign money also
Comparative advantage
Comparative advantage is applicable if a company is able to produce the product in cheap than other companies in the market. In an open market the price of a commodity is fixed. Hence if a company can reduce the cost of production, the company can get more profit by selling the same number of production. This is only possible in the open market as the market is full of competition(Hoholm, 2015).
Absolute advantage:
If a company can give their best in producing a product then the company can get absolute advantage. The company should make their marketing strategies best, they have to make the best quality products and the promotional strategies should be the best one. In this way the company can make sure that they can get the absolute advantage in the market(Chinthapalli, 2012).
Terms of trade and exchange rates to the UK economy
UK economy has their active participation in the international trade and this allows open market also. The products which are included in the open international trade arevegetable oil and the software. The vegetable oils like the palm oils, Dekel oils etc. are the main marine products. These products are shipped in the market of Africa and south-east Asia.
Demand of palm oil in European economy has been increased by huge margins. At that time New Britain managed to increase their market share by huge margins. Market share of the palm oil in New Britain increased from 288.5p to 675p. Dakeloil boosted their share margins also. This is palm oil producer managed to increase their market share from 0.1p to 1.47p. The market demand in US and in the Asian market also helped to add huge margins in the share market and that too within an overnight. This market demand of the palm oil added 46.15 points upward in the share market(Coutts and Rowthorn, 2013).
Not only have the products, some companies also taken a vital role in the boost of the market share in UK economy. the companies which took the crucial role in this process are, Fresnillo, Randgold, Antofagasta, PolymetaGold rose, Egyptian gold producer Centamin etc. all of them added few points which pushed the economy upwards(Chinthapalli, 2012).
The visible trade balance
Export goods 400
Import goods 500
Government 150
Investment and other flow 45
Other invisible 200
The calculation of visible trade balance =
The Export Goods = 400*12.38% = 49.52
Import goods = 500*9.38% = 46.90
Government = 150*12.38% = 18.57
Therefore, the visible trade balance = 4.99
The Current Balance = ($150.00 – $114.99) = $35.01
the balance amount is = ($114.99 – $35.01) = $79.98
Trade surplus
In the language of economics, trade surplus occurs if the economy exports more than their import. This means they don’t have to depend too much in the imported goods. The economy has a positive balance in their trade. Surplus balance in an economy is good for the economy. This implies that an amount of inflow of the foreign currency in the domestic market(Kameda, 2014).
Trade deficit
Generally this term is used at the time of calculating the cash flows. This term suggests that, the outflow of cash is more than cash inflow. Actually this is the opposite side of the trade surplus. Deficit suggests an amount of outflow of the domestic currency in the international market. This is not good for an economy. In this manner value of the domestic currency will decrease in respect to the foreign currencies(Floyd, 2010).
The relationship between the long term deficit and openness of the economy is positive. There should be some key elements in the relationship, like government expenditure. Long term deficit implies that the economy is importing too much. In simple language the economy is trying to invest the foreign techniques in their domestic economy. This will help the domestic economy for the future profit. The deficit in trade implies that the economy is not exporting too much but they are fetching foreign products for the betterment of their economy in future(ChemViews, 2014).
Exchange rate is a relationship between two economies. With the help of the relationship the value of import and export are determined. This is a trade relationship which determines the value of money in respect to another. Here if Czech Republic versus France wants to make a trade relationship between them, then they have to determine the exchange rates. Economic conditions of the two countries are not same. Hence, if they are going to exchange their products, they have to pay according to the exchange rates(Greenaway, Kneller and Zhang, 2010).
Role of exchange rates:
Inflation:
The exchange rates can cause of inflation in an economy. If the exchange rate goes beyond the range of the economy then the economy can face inflation and which is not a good thing.On the other hand if the exchange rated stay under control, the economy doesn’thave to pay more and there will be no chance of inflation in that economy.
In case of Czech Republic versus France, which of these two has the better and developed economy will enjoy the benefit of exchange rates and the other one will face inflation(Kameda, 2014).
Interest rates:
Interest rates and inflation are highly interrelated with each other. Hence at the time of inflation the interest rates surely go beyond the reach of the common people. On the other hand if inflation rate stay under control then the public in general don’t have to pay extra amount of money as interest. By influencing the inflation rate exchange rate controls the interest rates also. This is another role of the exchange rates(Klein and Shambaugh, 2004).
Trade deficit and surplus:
Exchange rate also helps an economy to make trade surplus or leads an economy to the trade deficit. As mentioned before in case of high exchange rate, the have to pay extra in terms of money. In this process the money is drained and trade deficit noticed. Hence the exchange rate plays a crucial role in the trade deficits and surplus(Maurel and Schnabl, 2011).
Public debt
If an economy faces long term deficits then the relevant Government has to print extranotes to pay off the deficits. But this is not a permanent solution. In this manner the price of the products will increase and the economy will face inflation surely. Hence this is clear that the exchange rate plays a vital role in the issuing more money(May and Nesaretnam, 2014).
Euro is the second largest reserve currency in the globe. Euro notes and coins came into flow on January 1st 2002. It was expected that the euro will present too much benefit to their members.
Transaction cost:
If all of the European countries use the same currency then they don’t have to follow the exchange rates. In this manner the international open market will be treated as the domestic market in terms of the exchange of money. A result of a survey said the benefit of the Euro is equal to 1% of the total GDP of that relevant economy(Kumhof and Laxton, 2009).
Price transparency:
As mentioned earlier if the economies are using the same currency then they dint have to pay the extra as per the exchange rate. As they are using the same then the price of the products will also remain same. Hence the price transparency will be there(Melitz, 2009).
Inflation performance:
As per ECB the interest rates are low and for this particular reason the inflation of the economy is also under control.
Inward investment: as the transaction cost is very low, the economy allows the inward investment also.
In case of the free trade policy the barriers are missing. In this section the openness of the market is followed. In case of the protective market, there are so many protections and the companies have to maintain all of them. In case of the open market all of the barriers are missing. Exchange of the goods, services and the culture are also transferred in this market. In the protective market, the companies have to pay extra tax to the government and in case of the open market the companies don’t have to pay extra tax(Rupilius and Ahmad, 2007).
Geographic
According to the point of view of a policy maker the geographic mobility helps an economy a lot in the improvement of the total economy. With the help of the geographical mobility the economy can engage their skilled labor anywhere in their country. Mainly three types of advantage can be derived from geographic matter(Rupilius and Ahmad, 2007). They are:
Increase labor supply:
By engaging more workers in the economy, the production can be increased.
Productivity increased:
Geographic mobility helps the economy to engage more skilled labors. This also helps to increase the production level(Miller, 2002).
Occupational
Occupational mobility is also very important factor for the production department of the economy. Occupational mobility means transfer from one work to another. This will surely help the economy in increment of the production level.
Increase the supply of labor:
With the help of this mobility, the labor crisis can be neglected. in case if the new companies, they can use these labors from another industries(Rupilius and Ahmad, 2007).
Low wage rate:
As the supply of the labors increases than the supply, the cost of the labor falls.
Firstly, the goal of the policy makers and other institutions was to make a connection between the trade and legitimacy(Langdana, 2009). The role of the policy makers and the institutions was to make sure that the economy can feel the result of the achievement. The policy makers decided that they will connect the trade and the legitimacy in terms of empirical and theoretical link. The role of the institutions was to create the link between these two.
Secondly, the policy makers were bound to make transparent policies to make sure that all of the departments are free of corruption. In case of the anti-corruption department the policy makers and the EU institution played a vital role(Snehota, 2015)
Lastly, the policy makers and main EU institutions played a crucial role in the openness and the accountability of the policies.
In order to describe the role of EU directives it is perhaps best to first look at EU regulations(STORCK, 2001).
The key roles of the EU directives are to implement the working time regulations. In this manner the directives can assure that the private organizations are not forcing their workers to work more.
The directives played a crucial role in case of the in implementation of the Equal pay per act 1970. In this cast the directives aimed at the benefit of workers. They played their adequate role in this section also.
The directives are ordered to pass required legislations as per the law. They should play their role according to the law.
Making the decision is also a crucial role which the directives should follow(Waluszewski and Snehota, 2015).
Purpose
Mainly three purposes are there which the organization is following. The purposes of the main EU funding streams are:
Convergence objective: in this section the main streams of the organization aims at those areas in which per capita income is less than 75% of the total GDP. The goal of this section is to enrich those areas with human and physical capital, innovation and knowledge. By improving these sectors the economic growth can be noticed in those places(Oatley, 2010).
Regional competitiveness:
In this section the institution aims at the healthy competition of the companies. Here the main goal of the institution is to provide such environment where the companies can face a healthy competition. In this manner the production of the companies will increase surely(Zhang, 2000).
Structure
EU is such an organization which deals with the overall development of the economy. this is nor possible for the organization they can handle all of there work all by themselves. Here the organization made some fragments. These departments helps the organization to cover all of there targets. To achieve the goal, EU needs funds also and the organization helps them to collect the fund. The structure or the main body of the organization is divided into these departments and the departments are: European Regional Development Fund, European Social Fund (ESF), Cohesion Fund (CF), European Agricultural Fund for Rural Development (EAFRD) and European Maritime & Fisheries Fund (EMFF). With the help of the main elements makes the organization a successful one(Suliková, Sinicáková and Horváth, 2014).
Main goal of the EU is to connect the people closer together with the help of technology. This also helps to make a conclusion of the political issues. The institution follows some basic regional economic integration. The levels are:
In the first section EU allows the countries to remove the industrial barrier.
This EU adds some extra burdens to the non-members.
In the third stage the mobility of the resources and the productions are taken in the account.
In the last stage some basic economic policies and the political integration is followed(Tomlinson, 2006).
The institution was started their work after the World War II. After the destructive result of the war the organization felt the need of the purposes and they began to work. The organization is working hard to achieve their goal and they are doing this smoothly(Tomlinson, 2006).
After the addition of the new states in EU, the power of the EU increased. As the power of the institution increases they spread their area of work. They selected so many applications for the betterment of the economy. To improve the international trade EU removed the barriers of trade also. To open the market they started too many policies also. This was done in order to set up a local operation freely. Exchange of the culture was another issue.
Linguistic diversity is another issue to EU. In the current scenario this is one of the biggest social issues. At present almost all of the communities want to stay in the front of the line. Hence to make sure that the communities are not getting into any conflict the institution has to take the responsibility(Welfens, 2002).
Internal audit helps the companies to support the budget in order to make sure that the companies can achieve their goal. Hence the internal audit is important to the companies. EU should maintain the internal audit also. EU has so many sources of finance. They have to take the funds to achieve all of their goals. This institution also deals with lot of money. Hence the audit is mandatory in this company. The process of carrying out the internal audit has discussed below:
Internal audit helps the management to reach at the goal of the company. Hence in the first step the auditor determines that if the goal of the organisation has been achieved or not. After that the auditor collects the key evidence and then the complete the testing of the transparency of the evidences. After collecting the evidences the auditor precedes his work and discusses his finding with the managers to make sure that the statements are clear or not. In the next step the auditor prepares a draft report and he consult the report with the management and discuss the report with the head of the internal audit. After all of the valid discussions the auditor produces the report. The auditor is liable to all of the mistakes in the financial report. Hence he should make the audit properly (Zhang and Sato, 2012).
Tesco is a retail giant and the goal of the supermarket is
to provide the best quality to their customers in reasonable price.
Take care of the taste of the customers and provide goods and services according to their need.
The managers want to give the best after sale service to their customers in order to make them the permanent customers and to attract new customers.
The managements want to develop the managerial level of the company also.
The management of the retail giant wants to make a strong bond with the suppliers to fulfil the demand of the customers.
These are the objective of the supermarket.
Vision of Tesco
Vision of Tesco is consisted with five elements. The elements are:
They want to spread them in all around the world.
To make the business a growing one and full of opportunities
To use new techniques and technologies in their business.
To engage all of the resources of the business in proper places
To attract the customers and investors also
Mission of Tesco
The aim of Tesco is to make better relationship with the customers. The mission of this retail giant is to provide the vest quality to their customers. Make a strong relationship with the supplier in order to supply the customers whenever needed. The managers of the Tesco wants to know about the taste of the customers to serve them according to their will. These are some mission of the company. The main mission of the company is to beat all of their rivals in the market nd to get the top most position in the retail market.
Starting a venture is not that difficult. The venture is a small business and the lifespan of the business is also very small. To start a venture the owner should make the research about the taste of the locality. To know the taste of the locality he can run a survey. Then to carry out the business the proprietor has to arrange the adequate capital. Collecting the fund is an important task to do. He can take the loan or he can bring the personal savings also. Selecting a place is an important factor. The proprietor has to select a place where he can stay in the focus of the market.
These are the preliminary steps of starting a venture. As there is no advertisement cost in the venture, the owner has to take such plan in which he can attract more people. The quality of the products should be good.
EU is such an organisation who deals with different types of financial difficulties and the main aim of the institution is to bring a hike in the profit level of the local industries. Just after World War II, this institution started their journey. This organisation opened the barrier of economy. In this manner the market of the products increased. This also helped the industries in engaging the skilled labours in proper places. For the benefit of the member of this organisation EU instructed to use euro. This was a revolutionary decision taken by this organisation. This policy avoided the risk of exchange rates. Mobility of the workers is another feature which helped the company a lot to engage the skilled labours in anywhere of the country. To maintain all the activities of this organisation, they need source and the branches of this organisation help them to collect fund. As this organisation deal with the liquid cash, they need the internal audit. This is also important to maintain the goodwill of the company.
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