Edexcel Business A Level Revision

Globalisation - the process of greater intergration and inter-connectedness between countries Trade liberalisation - Includes the removal or reduction of tariff obstacles such as duties and surcharges and non-tariff obstacles such as licensing rules, quotas and other requirements. Transnational Corporation - A business that is register and operates in more than one country at a time but selling the same products. Migration - The movement of people from one place to another International trade is increasing for a number of reasons: Reduction of international trade barriers/trade liberalisation Reduced cost of transport and communication Increased significance of transnational corporations Increased investment flows Migration within and between economies Growth of the global labour force Structural Change REDUCTION OF INTERNATIONAL TRADE BARRIERS/TRADE LIBERALISATION Countries impose trade barriers for many reasons. They include protecting local jobs, allowing new i...

Foreign Direct Investment - is investment made by a business or other entity from one country into the production capacity of a business or other entity from another country e.g. factories Inward FDI / Horizontal FDI - An investment into a country involving an external or foreign company either investing in or purchasing the goods of a local economy. Outward FDI / Vertical FDI - A business strategy in which a domestic firm expands its operations to a foreign country via an investment, merger/acquisition or expansion of an exisiting foreign facility. FDI can be used by businesses to achieve the aim of growth. Countries try to attract FDI using strategies such as lower levels of corporation tax, subsidies for the building of factories, and investment in infrastructure such as roads, ports and airports. It was originally believed that FDI occurred due to differing interest rates in different countries. Businesses would transfer money globally to where they could obtain the highest...

GDP (Gross Domestic Product) - The total value of output (goods and services) produced in the UK in a particular time period, used to measure change in economic activity.   NATIONAL INCOME / POPULATION To assess the economies development of growing economies the following indicators can be used; GDP (represented in US dollars ($), which allows for direct campariosn between countires) Literacy Health Human Development Index (HDI) GROSS DOMESTIC PRODUCT  The main measure used is GDP and is calculated by - NATIONAL INCOME / POPULATION Gross domestic product is the economic activity of a country and shows its up and downs if measured over time, known as the business cycle. This is the most commonly used method to measure a country's living standards. As GDP per capita rises, it is also assumed that living standards in that country also rise.   LITERACY   This refers to the percentage of adults who can read and write. Investment in human capi...

Investment Appraisal -  The use of numerical techniques to predict the financial outcomes of potential capital investments. Average Rate of Return (ARR) -   looks at the  total accounting return for a project  to see if it meets the target return Business investment projects need to earn a satisfactory rate of return if they are to justify their allocation of scarce capital. FORMULA  - AVERAGE RATE OF RETURN (TOTAL NET CASH FLOW / NUMBER OF YEARS) / INITIAL INVESTMENT X 100 = ARR% Interpretation of ARR revolves around comparison with other projects and should take into account the level of risk and the period of time over which the return is forecast to take place. If the investment was funded by outside investments they would compare the ARR with potential returns on other investments as well as the potential risks. For example the least risky investment may be to place the money in a bank deposit account, but the ARR on such an investment might only...

Investment Appraisal - The use of numerical techniques to predict the financial outcomes of potential capital investments. Payback - The length of time (payback period) required to recover the cost of an investment in a project. FORMULA  - PAYBACK NET CASH FLOW IN YEAR THE INITIAL INVESTMENT IS REPAID / 12 MONTHS = £?  REMAINING CASH TO BE PAID IN FINAL YEAR TO REACH THE REPAYMENT TOTAL / £? = DECIMAL = MONTHS A BUSINESS WANTS THE LOWEST PAYBACK TIME IN ORDER TO BECOME PROFITABLE QUICKER. Interpretarion of payback gives a prediction of when the investment will be paid back and more importantly the point at which it will start to  make a profit for the business. Businesses can use payback to consider a number of potential options and then choose the investment with the fastest payback. Alternatively, businesses may allow investment only if payback is within a maximum period of time, for example 24 months. Advantages Disadvantages ...

Interest Rates - is the price of borrowed money. Getting a loan will mean repaying with interest. If you borrow £10,000 at an interest rate if 5%, the repayment will, by the end of the year, be £10,000 + £500 (5%) i.e. £10,500. Interest rates vary depending on the level of risk involved in the loan. At any one time there are a variety of different interest rates operating within the external environment; for example: Interest rates on savings in bank and other accounts Borrowing interest rates Mortgage interest rates (housing loans) Credit card interest rates and pay day loans Interest rates on government and corporate bonds   Interest rates increase… Interest rates decrease… ·        Businesses are less likely to borrow money expand ·          Investment may increase; existing businesses may expand ·        ...

Venture capital - Investment from an established business into another business in return for a percentage. Typically invests in early stage, high risk businesses with potential for rapid growth and/or high returns. Venture capitalists will normally look for a high rate of return in a specific time period. The business or entrepreneur may also benefit from expertise and mentoring from the venture capitalist. OFTEN ASSOCIATED WITH HIGH RISK START UPS ADVANTAGES OF VENTURE CAPITAL Potential for large sums of money for investment Expertise to help the business Makes it easier to attract other sources of finance Provides the required capital for expansion DISADVANTAGES OF VENTURE CAPITAL A long and complex process (venture capitalist hard to find) Expert financial projections are likely to be required Initially expensive for the firm e.g. legal and accounting fees Partial loss of ownership Risk of conflict or received interference Venture capitalists requires a high r...