DIBM301: International Financial Management Manipal University Jaipur (MUJ)

MASTER OF BUSINESS ADMINISTRATION

SEMESTER 3

DIBM301
INTERNATIONAL FINANCIAL
MANAGEMENT

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DIBM301: International Financial Management Manipal University Jaipur (MUJ)

Unit 1
International Financial Management

Table of Contents

SL Topic Fig No / SAQ / Page

No Table / Activity No
Graph
1 Introduction - -
3-4
1.1 Learning Objectives - -
2 Globalisation - 1
2.1 Historical Background 1 -
5-18
2.2 Types of Globalisation: - -
2.3 Goals of International Financial Management - -
3 Summary - - 19
4 Glossary - - 19
5 Terminal Questions - -
20-22
5.1 Answers - -
6 Case Study 2, 3, 4 - 23-26
7 References - - 26

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1. INTRODUCTION

We live in the 21st century; the world is now globalised and this provides many opportunities
as well as challenges to the people of the world. Today, we are connected with every part of
the world via social media (Facebook, Instagram, WhatsApp) and the Internet (e-mail, video
calls, text messages, video-conferences, etc.).

• You can easily talk with anyone who is located thousands of kilometres away.
• You can buy any product and service according to your tastes and preferences by just
clicking a button on a computer.
• You can pay anyone through internet banking, debit card, credit card, and other
banking facilities.
• You can easily convert your currency to the dollar, pound, and any other foreign
currency according to the exchange rate.
• You can easily travel to any part of the world via the many modes of transportation
available to us these days including an airplane, a train, or a cruise ship.

Nowadays, not only goods and services are being exchanged but also millions of skilled
workers who have migrated all over the world. So, we can say that the world has globalised
today.

You may know someone who is working abroad and sending back their earnings to their
home country. This is called NFIA (Net Factor Income from Abroad).When it is added to the
domestic income, it becomes the national income of a country.

National Income= Domestic Income+ Net Factor Income from Abroad

In the same way, finance has also globalised. We can invest in domestic companies as well as
foreign companies. We are free to invest our money across the border, too. We can also invest
in a foreign company. We can even purchase financial instruments of any company like
shares or bonds. For this, we can easily convert Indian rupees into any foreign currency.

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Many multinational companies are spreading their wings in India. These companies are
developing very fast and have made their way towards progress.

Multinational company - A multinational company is one that operates its

business in different countries along with its home country. Microsoft
Corporation, IBM, Nestle, Proctor & Gamble, Coca-Cola, PepsiCo, City Group
are some top MNCs which are working in India.

In short, we can say that tastes and preferences, production, competition, labour markets,
goods markets, and financial markets are rapidly globalising which also affects all of us–
consumers, workers, and investors.

We are living in a globalised economy. Our country imports petroleum products from the
Middle East; we purchase cars which are made in Japan, and we eat McDonald’s burgers
which is an American fast-food chain. We can go into a mall and purchase any product we
want from whichever part of the world.

There are many foreign banks that are working in India, like Citibank, Standard Chartered
Bank, HSBC Bank, etc. Many insurance companies have a foreign partner as well. For
example, Bajaj Allianz General Insurance Co. Ltd. has foreign partnership with Allianz SE
from Germany. ICICI Lombard General Insurance Co. Ltd. has collaborated with Lombard
Canada Limited.

1.1 Learning Objectives

After studying this chapter, you will be able to understand:

❖ What is globalisation?
❖ The history behind globalisation, what factors led to globalisation?
❖ What is the importance of globalisation? Types of globalisation.
❖ What are the consequences of globalisation?
❖ How globalisation influences the human standards of living.
❖ Goals of Globalisation

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2. GOBALISATION
“Globalisation is the process of interaction and integration among people, companies, and
governments worldwide.”…. [1]

Globalisation is the process of exchange of goods and services. It also involves exchange of
data, technology, capital, human resources, and economic resources. It promotes the
interaction of mankind from different parts of a country.

2.1 Historical Background

Globalisation started in the 15th century when Columbus discovered America and Vascoda
Gama discovered India. That was the time when Europe was climbing the stairs of
development. Now, the question arises that why did Europe experience progress that
differentiated it from the rest of the world? What were the main reasons behind the rapid
globalisation?

The answer is Industrial Revolution and the Renaissance.

Renaissance–‘The Renaissance was a fervent period of European cultural, artistic, political,

and economic “rebirth” following the Middle Ages. Generally described as taking place from
the 14th century to the 17th century, the Renaissance promoted the rediscovery of classical
philosophy, literature, and art.’….[2]

The Renaissance played an important role in the development of society. It generated the
ideas of logical thinking and scientific thinking. The Industrial Revolution was also the
consequence of the Renaissance.

Industrial Revolution–‘The Industrial Revolution was the transition to new manufacturing

processes in Europe and the United States, in the period from about 1760 to sometime
between 1820 and 1840.’…. [3]

The invention of the steam engine, automobile, steamship, airplane, telegraph ,and radio had
made transportation and communication very easy. That helped one country to
communicate with other countries, which finally led to globalisation.

The invention of cement developed the infrastructure of these countries.

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The Industrial Revolution transformed the economy of Western European countries from
agriculture and handicraft to economies based on large- scale industries, mechanised
manufacturing, and the factory system.

The Industrial Revolution increased the production capacity of Western European countries
due to which they required a market in other countries to sell their manufactured products
and earn profits.

The reason behind globalisation was a powerful doctrine that was called mercantilism.
Mercantilism is one of the oldest economic thoughts was developed around the 15th century
and continued till the 18th century. Colonisation also emerged as an idea of mercantilism.

So, you can say that globalisation was a positive consequence of mercantilism while
colonisation was a negative consequence of mercantilism.

Mercantilism- Mercantilism was an economic policy that was designed to maximise exports
and minimise imports for an economy. It promoted tariffs and subsidies on traded goods to
achieve that goal.

Mercantilism was an economic practice by which governments used their economies to

augment state power at the expense of other countries.

Governments aimed to ensure that their exports exceeded imports and that they accumulate
wealth in the form of bullion (mostly gold and silver).

Mercantilism was the prevalent economic system in the Western world from the 16th to the
18th century.

In mercantilism, wealth is viewed as finite and trade as a zero-sum game.

Zero sum game- Zero-sum game is a situation in game theory in which one person's gain is
equivalent to another's loss. Games like chess, tennis, cricket, or football where there is one
winner and the other one is a loser, are examples of zero-sum games.

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Now, the question arises that which countries practiced mercantilism?

Basically, mercantilism was practiced by Western European countries which included

Britain, France, Germany, Portugal, Italy, the Netherlands, etc.

Fig 1:Shows mercantilism had opened the door of trade and commerce with Asia, Africa,
America, and Australia. It had led to globalisation.

(Source: http://im-an-economist.blogspot.com/2013/12/economic-history-mercantilism-
and.html)

Phases of globalisation:
There were four phases of rapid globalisation. These were from years 1600-1700, 1870-
1914, 1945-1980, and 1980 to present.

Globalisation PhaseI - This phase was dedicated to India, where many European countries
came here and established their companies. A case study regarding this is given at the end of
this unit.

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Globalisation PhaseII - This phase was dedicated to North America(the USA and Canada),
South America (Argentina, Chile, Uruguay), Australia, New Zealand, and South Africa. These
lands received millions of immigrants and vast amounts of foreign investments, principally
from England, to open up new lands for food and raw material production.

Globalisation PhaseIII - This phasestarted with the end of World War II in 1945 and extended
till about 1980. It was characterised by the rapid increase of international trade.

Globalisation PhaseIV - This phase started in 1980 and is continuing till the present.

2.2 Types of Globalisation:

There are three major types of globalisation, (i) economic globalisation, (ii) cultural
globalisation, and (iii) political globalisation.

Economic Globalisation-Economic globalisation refers to the widespread international

movement of goods, capital, services, technology, and information. Economic globalisation
primarily comprises the globalisation of production, finance, markets, technology,
organisational regimes, institutions, corporations, and labour.

There are five elements of economic globalisation. These are (1) international trade, (2)
foreign direct investment, (3) capital market flows, (4) migration (movement of labour), and
(5) diffusion of technology.

Cultural Globalisation-Cultural globalisation means sharing of different customs and habits

among the local communities.

Political Globalisation-Political globalisation refers to the organisation of different countries

into trade blocs. Examples of trade blocs are the European Union, the WTO, BRICS, etc. These
organisations help to spread ideologies like democracy, protect human rights, intervene to
solve misunderstandings, and aid in international agreements.

2.3 Goals of International Financial Management

Globalisation has accelerated since the 18th century due to advances in transportation and
communication technology. This increase in global interactions has caused a growth in
international trade and the exchange of ideas and culture. Globalisation is primarily an

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economic process of interaction and integration that is associated with social and cultural
aspects.

Advancement in technology, communication, and transportation had led to the

internationalisation of finance and commerce, which finally led to globalisation.

The main goal of globalisation is to open up the economy; it means openness in the output
market, financial market, and labour market.

Output Market- This is the market in which product and services are exchanged. It includes
goods and services sold at different price levels, goods and services that are bartered, and
products used for payment in kind.

So, a country can trade with another country in an output market. Nowadays, a consumer
has the choice to buy domestic goods as well as foreign goods, and producers also have a
choice to sell goods and services in a domestic market or in the international market.

Financial Market–‘Financial Market refers to the marketplace where the activities related to
the creation and trading of the different financial assets such as bonds, shares, commodities,
currencies, derivatives, etc., takes place and it provides the platform to sellers and buyers of
the financial assets to meet and trade with each other at a price as determined by market
forces.’

There are various types of financial markets:

• Money Market
• Capital Market
• Derivatives Market
• Commodity Market
• Foreign Exchange Market
• Spot Market and Forward Market
• Insurance Market

Money Market-A money market is a type of financial market where the lending and the
borrowing are in short-term with a maturity of less than one year. The participants are

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usually corporates, banks, and financial institutions. The instruments dealt in the money
market are Treasury Bills, Commercial Papers, Certificate of Deposit, Bills of Exchange, etc.

Capital Market- A capital market is a financial market that is used for the trading of stocks
(shares) and bonds. This market is used for long-term lending or borrowing of money.
Capital markets are further divided into the primary and secondary markets. In primary
market, there is first allotment of shares and on the other hand secondary market is for
reselling of shares and bonds.

Derivative Market-A derivatives market is a type of financial market which deals with the
trading of Futures, Options, Forward Contracts, and Swaps. They can be dealt with either
over-the-counter or in exchange-traded derivatives. Derivatives derive their value from the
underlying asset and are used to manage financial risk due to a price change.

Commodity Market-A commodity market is a marketplace for buying, selling, and trading
raw materials or primary products. Examples of commodities are food grains, gold, silver,
oil, and natural gas.

Foreign Exchange Market- The foreign exchange (also known as FX or forex) market is a
global marketplace for exchanging national currencies against one another.

Because of the worldwide reach of trade, commerce, and finance, forex markets tend to be
the largest and the most liquid asset markets in the world.

Currencies trade against each other as exchange rate pairs. For example, EUR/USD.

Spot and Forward Market- A spot market is a market where transactions are done on-the-
spot and in cash only.

While a forward market is a marketplace that offers financial instruments that are priced in
advance for future delivery.

It tends to be referenced as the foreign exchange market, but it can also apply to securities,
commodities, and interest rates.

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Insurance Market-The insurance market is simply the buying and selling of insurance.
Consumers or groups buy insurance for risk management from insurers offering coverage
for specific risks.

Labour Market- A labour market is a place where workers and employees interact with each
other. The goal of globalisation is to hire an efficient human resource globally.

GOALS:
The main goal of international financial management is to globalise the financial market
along with goods and labour markets, and to maximise shareholder wealth.

Shareholder wealth maximisation is the main goal of international financial management.

The modern finance theory operates on the assumption that the business concern should
maximise the market value of shares, or you can say that it aims to increase the shareholder’s
wealth.

Shareholders’ wealth=N X (MV)

Here, N= number of shares held, and MV= market value of each share.

A business concern should undertake those projects internationally whose net present value
is positive, i.e. the present value of cash inflow should be greater than the present value of
cash outflow.

Another goal of a firm is profit maximisation. For maximising returns from investment and
to minimise the cost of finance, the firms have to make portfolio decisions based on the
analytical skills required for this purpose. Since the firm has to raise funds from different
financial markets of the world, they need to actively exploit market imperfections and rely
on superior forecasting abilities to generate purely financial gains.

The international finance function of a multinational firm has two functions, namely,
treasury and control.

In the treasury department, a treasurer is responsible for financial planning and Analyse is,
fund acquisition, investment financing, cash management, investment decision, and risk
management.

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Financial Planning and Analysis- This step involves forecasting the company’s profit and loss
and upcoming performance for the upcoming quarter and year.

Fund Acquisition- It involves generating funds from internal as well as external sources. The
main goal of international financial management is to get funds at the lowest possible cost.

Investment Financing-In this, you borrow money from a bank to invest. It also involves the
process of capital budgeting. It is a planning process of allocating resources for the capital of
shareholders’ funds. There are various factors that influence capital budgeting. These are
availability of funds, structure of capital, taxation policy, government policies, lending
policies of financial institutions, return from the investment, economic value of the project,
etc.

Cash management-This is the process that involves collecting and managing the cash flow
from operating, investing, and financing activities of a company.

Cash Flow- Cash flows are net amounts of cash and cash equivalent which are being
transferred into and out of a business. These are typically characterised by operating,
investing, and financing activities.

1. Operating Activities - It includes cash generated by a company’s main business

activities.

2. Investing Activities–This is cash generated or spent through investment activities. An

investment activity includes purchase and sale of physical assets, investments in
securities, or sale of securities.

3. Financing Activities- It includes that transaction that affects business equity and long-
term liabilities. Example, issue and repurchase of equity and debt, dividend payments
and borrowing and repaying of loans, etc.

It also includes cash balance need deployment in appropriate marketable securities to yield
extra income by various foreign exchanges hedging technique like forward, future, option
currency swaps.

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Investment Decision- It is concerned with deployment of acquired funds in such a manner

that it maximises the shareholders’ fund. Another decision is related with dividend payment,
working capital management, capital structure, etc.

Risk Management-While performing investment decisions, an international financial

manager has to consider three major dimensions set apart from domestic finance. These are:
1. Foreign Exchange Risk- When we trade domestically, foreign exchange risk is generally
ignored because a single currency serves as a medium of exchange and it is regulated
by the central bank of that very country, in India it is the RBI (Reserve Bank of India)
but when we are talking about international financial management, a manager has to
consider exchange rate fluctuation, or, you can say currency appreciation and
depreciation. The Mexican peso depreciated drastically against the U.S. dollar in
December 1994. The Asian currency crisis in 1997 is also an example of a difficult
situation.

After the Nixon shock and collapse of the Bretton Woods System, the world has abandoned
the fixed exchange rate and has accepted the free-floating fiat currencies.

These currencies are highly fluctuating and very volatile; they create an exchange rate
uncertainty.

2. Political Risk- Political risks are those that arise from unforeseen government actions
or such events that affects economic and financial activity of a country.

For example: Enron Power Development Corporation, a subsidiary of Houston-based Enron

Corporation, which was one of the largest energy companies, decided to establish the largest
power plant in Maharashtra at a cost of approximately $3 billion. The operating company
was known as Dabhol Power Corporation, a joint venture of three U.S. companies - the Enron
Corporation, General Electric, and the Bechtel Corporation. Enron was the overseer of the
company. At that time, it held 80 percent ownership, General Electric held 10 percent, and
Bechtel Corporation held 10 percent ownership.

In 1992, the Indian government adopted the policy of liberalisation, privatisation, and
globalisation after the economic crisis of 1991. Enron Power Development Corporation
signed a contract to build a power plant in India in Maharashtra. But that project was

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condemned by some intellectuals, a part of the Indian press, a few trade unions, some
opposition political parties and NGOs throughout India. They criticised what they thought
was the project’s lack of transparency, high costs, and a serious environmental impact. So,
the Maharashtra government suspended the project in 1995. A set of politicians in
Maharashtra argued that India did not require the power plant. But by that time, the
company had spent nearly $300 million in that project.

3. Market Imperfection- It means various types of barriers which prevent the market from
functioning perfectly. Different nations have different tax structures and different
economic and cultural environments. Imperfection in the world financial market tends
to restrict the extent through which an investor can diversify their portfolio.

On the other hand, in the control department, a controller deals with the functions related to
external reporting, international tax planning and management, management information
system, financial and management accounting, budget planning and control, and accounts
receivables, etc.

External Reporting- It is the duty of the controller to make plans and coordinate all
accounting operational functions. External reporting includes income statements, balance
sheets, and statements of cash flows.

A large-sized multinational corporation has worldwide activities which are generally

controlled by a control department of the parent company. These activities involve:
• Importing and exporting of goods and services
• Making significant investment in foreign countries
• Buying and selling of licenses in foreign markets
• Making the financial report of subsidiary companies
• Engaging in contract manufacturing
• Opening manufacturing facilities and assembling operations in foreign countries

International tax planning and management- International tax planning is a systematic way
of arranging cross-border transactions with the knowledge of international tax principles to
achieve the goal of minimal taxation. There are three levels of tax impact for cross-border
transactions:

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1. Source or host country- In this, country taxes are payable on income that is earned
through overseas subsidiaries or branches and the withholding tax (in India it is
TDS)on the payments by them.
2. Intermediary country (if used) - In this, country taxes are payable on overseas income
and withholding tax on the repatriation of profit and capital to the home countries.
3. Residence or home country- In this, country taxes are payable on profit and capital
received at home countries from the entities in the other countries.

The opportunities in international tax planning are limitless, the main aim of control
department is to minimise the tax burden with effective tax planning. Effective tax planning
focuses on tax minimisation.

Management Information System-It is the use of information technology and people and
business processes to record, store, and process the data to control the entire business
activity. This data helps decision makers to make day-to-day decisions.

Financial and Management Accounting- The role of the control department is to see both
financial and management accounting.

Financial accounting focuses on creating financial statements that are shared with the
stakeholders and public, while management accounting focuses on operational reporting
that is shared within a company.

Budget Planning and Control- For each and every organisation, time and money is scarce. A
budget provides an opportunity to the management to think of a future plan. A budget is a
tool that a financial controller uses to plan and control these scarce resources (basically
money).There are different types of budgets:
1. Capital Budgeting- It is a planning process used to determine effective allocation of fund
through investment decisions. It is a technique for evaluating big investment projects.
There are some capital budgeting techniques:
a. Payback Period-The payback method is used to know how much time it will take to
recover the investment. Suppose a foreign company has invested $5 million in India
and its profit is 0.5 million per year, then it will take 10 years to generate profit to
recover the cost. So, its payback period is 10 years.

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b. Discounted Payback Period- This method is the same as the payback period method
but the only difference is that it is considered discounted cash flow for finding
payback period.
c. Net Present Value (NPV) Method- This is the most common method used in capital
budgeting. It is performed by time and value of money. If the sum of all future
discounted cash flow is greater than the investment, then the project should be
accepted, otherwise it should be rejected.
d. Accounting Rate of Return- It is also known as return on investment and return on
capital. It is also known as ARR.

ARR= (Average annual profit after tax/ Number of year)/(Initial Investment) X 100

Suppose a company’s total net profit in five years is $10 million, so, the total profit is divided
by the project life i.e$10 million /5= $2 million. Suppose$15 million is the initial cost. Then
ARR= ($2million/ $15 million) X 100= 13.33%.

e. Internal Rate of Return - It is the discounting rate which brings the cost of a project
and its future cash flow at par with the initial investment.
f. Profitability Index- It defines how much you will earn per dollar. Suppose, the
present value of future cash flow is $11 million and the investment is $10 million.

Then Profitability Index or PI= Present value of cash flow/ Initial investment

PI= $11 million/$10 million=1.1%.

If the profitability index is greater than 1 then the project is accepted, otherwise it is
rejected.

2. Operating Budget- It helps to plan the future earning and results in the projected
income statement.
3. Financial Budget- It helps the management to make plans on financial assets and
liabilities of a projected balance sheet.

The decade of 80s and 90s saw a rapid integration of international capital and financial
market. In 1985, the Tokyo Stock Exchange allowed a limited number of foreign brokerage
firms. The London Stock Exchange began admitting foreign firms in 1986.

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International financial management’s primary role is to manage the finance of MNCs.

Some methods by which a firm conducts international business activities are international
licensing, franchising, joint ventures, management contracts, and establishing new foreign
subsidiaries.

International Licensing -An MNC permits the domestic company to use its trademark, brand
name, and technical knowhow for manufacturing and marketing process. The MNC charges
fees for issuing the license and it is a source of income for MNCs.

Franchising- In this case, MNCs not only provide their brand name and trademarks, but also
raw material. For example: McDonalds.

Joint Venture- A corporate entity or partnership that is jointly owned and operated by two
or more firms is known as a joint venture. For example: Modi Luft– Modi and Lufthansa.

Establishing New Foreign Subsidiaries - A firm can also enter the foreign market by
establishing new operations in foreign countries to produce and sell their products. In this
case, the parent company controls the subsidiary company. However, large amount of
investments are required in this method and the parent company will own more than 50 per
cent shares or have ownership of the subsidiary company.

Management Contract- A company in one country agrees to operate facilities or provide

other management services to a firm in another country for a fee already decided.

There are two types of foreign investment flows; one is Foreign Direct Investment (FDI) and
the other is Foreign Portfolio Investment(FPI). FPI is an indirect investment.

After the emergence of WTO in 1999, cross-border trade has grown tremendously with
increased capital flow and foreign direct investments.

Because of the changing nature of the environment at an international level, the knowledge
of the latest changes in forex rates, volatility in the capital market, interest rate fluctuations,
macro-level charges, micro-level economic indicators, savings, consumption pattern,
interest preference, investment behaviour of investors, export and import trends,

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competition, banking sector performance, inflationary trends, demand and supply

conditions, etc. are required by the practitioners of international financial management.

The objective of wealth maximisation can be achieved only if the financial manager has
knowledge of the economics, investment climate, tax implications, etc.

Secondary Objectives of International Financial Management:

1. Optimum Rate of Interest
2. Foreign Exchange Risk Management
3. Political Risk Management
4. Effectively Use Expanded Sets of Opportunities
5. Proper Tax Planning
6. Effective Inflation Risk Management
7. Maximization of Shareholder Value

SELF-ASSESSMENT QUESTIONS – 1

1. Globalisation is the process of interaction of the people of one part of the globe to
another.(True/False)

2. Mercantilism and the Industrial Revolution paved the way for globalisation.
(True/False)

3. There are three major types of globalisation, (i)_____________ globalisation, (ii)

________________ globalisation and (iii) ________________ globalisation.

4. A capital market is a financial market that is used for the trading of ____________and
___________.

5. The main goal of globalisation is to make the economy open; it means openness
in the ____________________ market, _______________ market and __________ market.

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3. SUMMARY
• Globalisation is the integration of the world economy through advancements in
transportation and communication.
• Due to globalisation, each country in the world is now getting connected with other
countries. This has led to the exchange of goods, services, capital, human resources, etc.
• Globalisation may be cultural, economic, and political. Globalisation leads to
improvement in technology of developing countries through interactions with
developed countries.
• Globalisation helps to transfer knowledge across the globe.
• Globalisation has led to multinational and multicultural management systems. Many
multinational companies are now working in India. They have created many job
opportunities in India.

4. GLOSSARY
❖ MNC- A multinational company is a corporate organisation that owns or controls the
production of goods or services in at least one country other than its home country.
❖ NFIA- The difference of factor income from abroad and factor income to abroad is
termed as ‘Net Factor Income from Abroad’ or popularly abbreviated as NFIA. So,
National Income = Domestic Income + NFIA.
❖ Primary Market-In the primary market, companies sell new stocks and bonds to the
public for the first time, such as with an Initial Public Offering (IPO).
❖ Secondary Market-The secondary market is where investors buy and sell securities
from other investors. Examples of popular secondary markets are the National Stock
Exchange (NSE), the Bombay Stock Exchange(BSE), the New York Stock Exchange
(NYSE), the NASDAQ (National Association of Securities Dealers Automated
Quotations), and the London Stock Exchange (LSE).
❖ Online Banking-Online banking allows a user to conduct financial transactions via the
Internet. Online banking is also known as internet banking or web banking. Online
banking offers customers almost every service traditionally available through a local
branch including deposits, transfers, and online bill payments.

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5. TERMINAL QUESTIONS
Short Answers Question
1. Define the term globalization.
2. What is cultural globalisation?
3. What is political globalisation?
4. What is economic globalisation?

Long Answer Questions

1. Write down the four phases of rapid globalisation across the world.
2. Make a list of MNCs working in India.
3. What is forex market?
4. Define five elements of economic globalisation.

5.1 Answers
Self-Assessment questions
1. True
2. True
3. economic, cultural, political
4. shares, bonds
5. 5 Output, Financial and Labour

Short Answer questions

1. Globalisation is the process of exchange of goods and services. It also involves exchange
of data, technology, capital, human resources, and economic resources. It promotes the
interaction of mankind from different parts of a country.
2. Cultural globalization means sharing of different customs and habits among the local
communities. Some of the examples are, eating in McDonald and Pizza Hut, wearing
western dresses, Listening foreign music, etc.
3. Political globalisation refers to the organisation of different countries into trade blocs.
Examples of trade blocs are the European Union, the WTO, BRICS, etc. These
organisations help to spread ideologies like democracy, protect human rights,
intervene to solve misunderstandings, and aid in international agreements.

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4. Economic globalisation refers to the widespread international movement of goods,

capital, services, technology, and information. Economic globalisation primarily
comprises the globalisation of production, finance, markets, technology, organisational
regimes, institutions, corporations, and labour.

Long Answers Questions

1. There were four phases of rapid globalisation. These were from years 1600-1700, 1870-
1914, 1945-1980, and 1980 to present.

Globalisation Phase I - This phase was dedicated to India, where many European countries
came here and established their companies. A case study regarding this is given at the end of
this unit.

Globalisation Phase II - This phase was dedicated to North America (the USA and Canada),
South America (Argentina, Chile, Uruguay), Australia, New Zealand, and South Africa. These
lands received millions of immigrants and vast amounts of foreign investments, principally
from England, to open up new lands for food and raw material production.

Globalisation Phase III - This phase started with the end of World War II in 1945 and
extended till about 1980. It was characterised by the rapid increase of international trade.

Globalisation Phase IV - This phase started in 1980 and is continuing till the present.

2. List of MNCs working in India

I. IBM- IBM India Private Limited, It is a part of IBM is known for invention and
integration of software, hardware as well as services.
II. Microsoft- It is a leading software company.
III. Nokia Corporation- It deals in the mobile handsets.
IV. PepsiCo- It is largest beverages manufacturer company.
V. Amazon-It is largest online selling platform.
VI. Reebok- It deals in sports and lifestyle product.
VII. Sony- It deals with electronics items.
VIII. Vodafone- It is a telecommunication company.
IX. Nestle- It is largest food and drink processing company.

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3. Foreign exchange market is a market where The foreign exchange (also known as FX
or forex) market is a global marketplace for exchanging national currencies against one
another.

Because of the worldwide reach of trade, commerce, and finance, forex markets tend to be
the largest and the most liquid asset markets in the world.

Currencies trade against each other as exchange rate pairs. For example, EUR/USD.

4. There are five elements of economic globalisation. These are (1) international trade- It
is exchange of goods, services and capital across the international border (2) foreign
direct investment- It is direct investment of foreign counties company to the domestic
market in the form of investment (3) capital market flows- It refers to international
flow of money in the stock market (4) migration (movement of labour)-It means
settlement of human capital across the border, and (5) diffusion of technology- It means
sharing of technology and working style in the form of patent, copyrights, franchise and
joint venture.

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6.CASE STUDY
Globalisation in India, First Phase of the World Globalisation PRESS: A LEVEL HEAD,
APPLY STYLE
India experienced the first phase of globalisation in the period ranging from 1600-1700 A.D.

Globalisation was also the consequence of colonisation. If you want to understand

globalisation in India, you have to go back in time to the medieval period.

Although the first phase of rapid globalisation started in 1600 A.D., globalisation in India
started with the arrival of the Portuguese in India.

The Portuguese in India

Vasco daGama reached India at Calicut in 1498.After six years, thePortuguese established
‘State of India’in 1505. The Portuguese not only started trade and commerce with India but
they also settled here to utilise the huge resources of the country as India was considered a
‘golden bird’.

They settled in Cochin, Goa, Daman, and several parts of the Malabar Coast.

Fig 2: India at the time of VascodaGama in 1498.

(Sources: https://www.indiatoday.in/education-today/gk-current-affairs/story/vasco-da-
gama-326603-2016-07-08,https://www.yovizag.com/unknown-facts-vasco-
gama/https://www.britannica.com/place/Portuguese-India)

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The Portuguese interaction and settlement in Indiadates back to before the arrival of the
Mughal Empire in India. Babur came toIndia in 1526 while the Portuguese established their
settlement in 1505. Economic and cultural globalisation with the Portuguese is the oldest
example of globalisation in India.

However, the Portuguese East India Company was established in 1628.

The British in India:

The British East India Company was established on 31st December 1600 A.D. At that time,
Elizabeth-I was the Queen of Britain and she encouragedthe East India Company to do
business in Asia, especially in India.The British East India Company was established during
Akbar's reign in 1600 A.D.. First, they came as traders but later acquired the whole of India
within 100-200 years.

India and the Netherlands - The United East India Company was a Netherlands-based
trading company founded in 1602 and was allowed to trade arbitrarily for 21 years by their
government. This company was also known as VereenigdeOostindische Compagnie
(VOC)(nowadays, Holland and the Netherlands are the same and their people are called
Dutch). The Dutch fought with the nobles and gradually occupied all the spice-producing
regions of India.

Fig 3: A ship of the United East India Company also known as VOC
Source:(https://www.peterfisk.com/2017/12/dutch-east-india-company-the-worlds-most-
valuable-company-of-all-time-worth-7-9-trillion-in-todays-money/)

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They settled in Goa in 1639 and, two years later, in 1641, they annexed Malacca. The Dutch
opened their trading bases at Coromandel Beach in Gujarat, Bengal, Bihar, and Orissa. They
generally traded in spices, neem, raw silk, glass, rice, and opium from India.

India and Denmark-The Danish East India Company was founded in 1616. They colonised
India for more than 200 years.This company had a tenure from 1616 to 1845 in this country.
They were present in the city of Tharangambadi in the present state of Tamil Nadu,
Serampore in present-day West Bengal, and the Andaman and Nicobar Islands, etc.

Fig 4: A picture of the Danish era in Tamil Nadu during the 1630s
(Source:https://en.natmus.dk/historical-knowledge/historical-knowledge-the-
world/asia/india/tranquebar/danish-era-1620-1845/)

India and France - The French East India Company was a trading establishment. It was
founded in 1664 to compete with the British East India Company and the Dutch East India
Company.

The French East India Company was formed in 1664 A.D. during the reign of King Louis XIV
to do business with India. The French established their first factory in Surat in 1669 A.D.

This venture was planned by Jean Baptiste Colbert whom Louis XIV granted the edict. Its
purpose was to trade in the Eastern Hemisphere especially in India. It was established by
combining three already existing companies.

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India and Sweden - The Swedish East India Company was established in 1731.

India experienced the first phase of globalisation due to its famed wealth and rich abundance
of natural resources.

7. REFERENCES
References:
1. Globalization - Wikipedia. En.wikipedia.org. (2021). Retrieved 30 March 2021, from
https://en.wikipedia.org/wiki/Globalization.
2. Renaissance. HISTORY. (2021). Retrieved 31 March 2021, from
https://www.history.com/topics/renaissance/renaissance.
3. Industrial Revolution - Wikipedia. En.wikipedia.org. (2021). Retrieved 31 March 2021,
from https://en.wikipedia.org/wiki/Industrial_Revolution.
4. Financial Market (Definition, Overview) | Top 6 Types of Financial Market.
WallStreetMojo. (2021). Retrieved 30 March 2021, from
https://www.wallstreetmojo.com/financial-market/.

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