This document outlines the key concepts to be covered in 5 units on international business. Unit I introduces basic concepts of international trade theory including classical theories from Adam Smith and David Ricardo, as well as modern theories from Heckscher and Ohlin. Unit II covers factors influencing gains from trade and the terms of trade. Unit III discusses tariffs, quotas, and exchange controls. Unit IV defines balance of payments and exchange rates. Unit V examines the roles of international organizations like the IMF and functions of trade blocs. Criticisms of Ricardo's and Heckscher-Ohlin's theories are also summarized.

1. INTERNATIONAL BUSINESS
SUB CODE:UCM20203J
• Unit I
• Introduction to basic concepts-Difference between inter and intra-regional trade and international
trade-Characteristics features of international trade-classical theory of international trade-Adam Smith
and Ricardo-Limitations of Adam smith and Ricardo-Absolute and comparative cost doctrines-
Limitations absolute and comparative cost doctrines- Modern theory of international trade-Heckscher
and Ohlin-H.O theorem- Limitations of H.O theorem.
• Unit II
• Introduction to basic concepts- Factors determining the gains from trade-terms of trade-Internal
terms of trade-International terms of trade -Factors affecting terms of trade- Advantages of Free trade-
Disadvantages of free trade-Protection of trade-For and against Protection of trade-Applications to
developed countries

2. INTERNATIONAL BUSINESS
• Unit-III
• Tariffs and quotas-meanings and types-advantages of traffis -limitations of traffic-Effects of traffic-
Advantages of Quota-Effects of quota-Exchange control-Objectives of Exchange control- Methods of
Exchange control- Merits of exchange control and demerits of exchange control.
• Unit -IV
• Meaning and components- Balance of trade and balance of payments- Current account and capital
account-Types of balance of payments-causes for disequilibrium in the balance of payments-measures
to correct disequilibrium in balance of payments-Foreign Exchange rate- Merits of Flexible exchange
rate-Demerits of Flexible exchange rate-Merits of fixed exchange rate-Demerits of fixed exchange
rate-applications to developing countries.

3. INTERNATIONAL BUSINESS
• Unit-V
• International monetary fund-Functions and role of IMF-International Bank for reconstruction for
rural development-Functions and role of IBRD-United Nations Conference on trade and development-
Functions and role of UNCTAD-South Asian Association for Regional Co-operation- Functions and
role of SAARC-Special drawing Rights- Merits and Demerits of Special Drawing Rights-
Globalization – Merits and Demerits of Globalization.

4. BASICS CONCEPTS OF INTERNATIONAL BUSINESS
Meaning of Business - A business is defined as an organization or enterprising
entity engaged in commercial, industrial, or professional activities.
International Business - International business refers to the trade of goods,
services, technology, capital and/or knowledge across national borders
Multinational Corporations - A multinational corporation (MNC) is one that has
business operations in two or more countries.
Foreign direct Investment - A Foreign Direct Investment (FDI) is a purchase of an
interest in a company by a company or an investor located outside its borders.

5. Inter trade industry
Is a trade of products that belong to different industries.
Ex: Trade of agriculture products produced in one country with technological
equipment produced in another country
Intra trade industry
Trading of products that belong to same industry

7. MEANING OF INTERNATIONAL BUSINESS
• International business denotes all those business activities which take place
beyond the geographical limits of the country. It involves not only the
international movements of goods and
services, but also of capital, personnel, technology and intellectual property
like patents, trademarks, know-how and copy rights.

8. DEFINITION OF INTERNATIONAL BUSINESS
Roger Bennet defines, International business involves commercial activities that
cross national frontiers
According to John D. Daniels and Lee H. Radebaugh, International business is all
business transactions-private and governmental- that involve two or more countries.
Private companies undertake such transactions for profits, governments may or
may not do the same in their transactions.
•

9. INTRA INDUSTRY TRADE
• Intra-industry trade
• refers to the exchange of similar products belonging to the same industry.
• The term is usually applied to international trade, where the same types of goods
or services are both imported and exported.
• Examples of this kind of trade include automobiles, foodstuffs and beverages,
computers and minerals.

10. INTER TRADE
• Inter-industry trade is a trade of products that belong to different industries.
For instance, the trade of agricultural products produced in one country with
technological equipment produced in another country can be classified to be
an inter-industry trade.

11. FEATURES OF INTERNATIONAL TRADE
• Immobility of factors
• Heterogeneous Markets
• Different National Groups
• Different Political Units
• Different Currencies
• Geographical and climatic differences
• Problem of Balance of payment
• High transport cost
• Different economic environment

12. DIFFERENCES B/W INTERNAL & EXTERNAL TRADE

19. Criticisms of David Ricardo’s Comparative Cost Theory
• Uses only labour cost and ignores non labour costs
• Considers labour as homogeneous
• Assumes similar tastes in both the countries
• Considers the usage of labour in fixed proportions
• Considers cost as fixed
• Fails to consider transport cost
• Assumes free mobility of factors of production within the country
• Considers trade between two countries for two commodities
• Unrealistically assumes free trade
• Assumes full employment
• Assumes static technical know – how
• Neglects the demand side of foreign trade
• Fails to explain the distribution of gains from trade

27. Criticisms of HO Theory
• Over simplified Assumptions
• Static analysis
• Assumptions of Homogeneous factors
• Assumptions of homogeneous
production techniques
• Unrealistic assumptions of identical
tastes and demand
• Assumptions of constant returns to
scale
• Ignores transport costs
• Neglects product differentiation
• Assumes relative factor proportions
• Only part of partial equilibrium analysis
• Ignores factor mobility
• Vague theory