International Business Management - Assignment Example

The third measure used in managing foreign exchange risks is by use of foreign bank accounts and loan. Under this method, surplus currency is deposited in a foreign currency account (Mazin, 2007). Moreover, businesses may borrow foreign currency to make purchases. b) In a company that is trading in a country where the currency is weakening compared to its strengthening currency, the ultimate solution is to use the foreign currency option (Mazin, 2007). The foreign currency option ensures that the price of the goods is set at a premium and this helps to protect importer from fluctuations in price and allows the importer to take advantage of strengthening in local currency (Mazin, 2007). Q2. a) When an enterprise intends to achieve foreign expansion, it is critical for it to make three critical decisions.

One of the major decisions that the business should make is of which markets it will enter and when to make the entry (Godfrey, Jack and Verzi, 2007). A company should first identify the industry in which it will operate and the products or services it will be offering. The second decision that organization make when looking to achieve international expansion is on the scale of their entry (Godfrey, Jack and Verzi, 2007). . b) Decision on the mode of entry into a foreign market has great impact on the success of international entry and the amount of resources required in achieving foreign expansion.

There are four mechanisms that are used as modes of entry to a foreign market (Godfrey, Jack and Verzi, 2007). Exporting is the first mode of entry where products manufactured in one country are marketed and sold in another country. Exporting eliminates the need to set up facilities in the foreign country and therefore the costs associated with exporting are those on marketing (Godfrey, Jack and Verzi, 2007). To effectively the export business, a firm must coordinate with importer, government and the transporter.

The second mode of entry is licensing where a firm in the foreign country gains rights to use properties of the licensor (Godfrey, Jack and Verzi, 2007). Property takes the form of patents, trademarks and production methods. The firm that gains these rights pays a fee to the licensor for the technical assistance and other property rights given. The licensor firm makes little investment and this ensures that is high return on investment. Firms seeking foreign expansion may also rely on joint ventures.

The objective of pursuing a joint venture include enhancing market entry, sharing of profit and losses, sharing of technology, allowing businesses a chance to conform to government requirements and to benefit from shared product development (Godfrey, Jack and Verzi, 2007). The fourth mode of entry in foreign expansion is foreign direct investment (FDI). FDI refers to ownership of resources in the foreign country. Resources transferred to a foreign country include technology, personnel and capital.

FDI may be achieved via establishing new firm in a