Question

Compared to other methods of international business, international trade generally results in ____ exposure to international political risk and ____ exposure to international economic conditions.

1) higher; lower
2) higher; higher
3) lower; higher
4) lower; lower

Answer 1

International trade involves lower political risk and higher exposure to economic conditions; the correct answer is option 3) lower; higher. Trade agreements provide political stability while market forces and competition dictate the economic risks.

Step-by-step explanation:

Compared to other methods of international business, international trade generally results in lower exposure to international political risk and higher exposure to international economic conditions. Therefore, the correct answer to the question is option 3) lower; higher.

International agreements can help protect against political risks by providing a political counterbalance to domestic special interests and discouraging the implementation of protectionist measures. However, businesses engaged in international trade are inherently subject to the ebb and flow of international economic conditions because trade barriers such as tariffs and quotas are reduced, and competition increases with firms that offer better or cheaper products.

Consumers benefit from international trade by accessing better or less expensive products, and countries with established trading patterns tend to engage more in international trade. Nevertheless, the impact of economic conditions can manifest in the balance of exports and imports, which affects the overall trade imbalance of an economy.

Answer 2

International trade results in lower exposure to political risk due to trade agreements and higher exposure to economic conditions given market competition. The correct answer is option 3.

Step-by-step explanation:

When comparing international trade to other methods of international business, international trade typically results in lower exposure to international political risk and higher exposure to international economic conditions. The reasoning behind this is that while international trade exposes businesses to global market dynamics and competition, which are economic factors, it often operates under established trade agreements that can mitigate political risks.

For instance, international agreements might prevent the rise of protectionist measures that would otherwise be encouraged by domestic special interests (point 16). Additionally, the leveling of tariffs and barriers (point 17) tends to foster a stable trading environment, though it exposes businesses to increased competition (point 18) and economic forces such as supply and demand, exchange rates, and global economic trends.

Overall, international trade can offer benefits such as a wider market for goods, potentially better or cheaper products for consumers, increased profits for competitive businesses, and higher income for employees in those competitive sectors (point 19). However, exposure to international economic conditions means that businesses must remain competitive against global offerings and are affected by changes in those economic conditions more directly than they would be by political changes.

Given the provided information and analysis, the correct option is 3) lower; higher.