Globalisation is the development of an increasingly integrated global economy marked especially by free trade, free flow of capital and the access of cheaper foreign labour markets. International expansion creates enormous possibilities for businesses but also exposes them to risks from financial, political, legal and social influences.

Financial Influences

Exchange rate
It is the price of one nation’s currency in terms of another currency. Exchange rates are not stable because the value of different currencies fluctuates over time. Changes in the value of one currency against others are referred to as appreciations or depreciations. A currency appreciates when its value rises relative to another currency, and depreciates when its value falls relative to another currency. The value of a currency will have an influence on businesses using that currency for trade.

Interest rate
It is the cost of borrowing. The general level of interest rates is determined by central bank. For example, the Reserve Bank of Australia will change the level of interest rates in the economy by lowering the interest rate in order to reduce the cost of borrowing for consumers. A possible outcome is that consumers will have greater access to funds and will therefore increase their spending, which stimulates the economy.

Political influences Governments can act to influence the economy both domestically and overseas.

Free trade
It is where there are no barriers made by the governments that restrict the free exchange of goods and services between countries. It allows the countries to access goods and services they were previously denied and encourages a