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Free Trade

answer

the absence of the barriers to the free flow of goods and services between countries

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New trade theory

answer

the observed pattern of trade in the world economy may be due in part to the ability of firms in a given market to capture first mover advantages

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mercantilism

answer

an economic philosophy advocating that countries should simultaneously encourage exports and discourage imports

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zero sum game

answer

a situation in which an economic gain by one countries results in an economic loss by another

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absolute advantage

answer

a country has _____ in the production of a product when it is more efficient than any other country producing it

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factor endowments

answer

a countries endowment with resources such as land labor and capital

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economies of scale

answer

cost advantages associated with large scale production

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first mover advantage

answer

advantages acurring to the first to enter a market

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General Agreement on Tariffs and Trade (GAAT)

answer

International treaty that committed signatories to lowering barriers to the free flow of goods across national boarders and led to the WTO

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Tariff

answer

tax on imports

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Specific Tariff

answer

tariff levied as a fixed charge for each unit of good imported

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Ad Valorem Tariff

answer

levied as a proportion of the value of an imported good

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Subsidy

answer

government financial assistance to a domestic problem

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Import Quota

answer

direct restriction on the quantity of a good that can be imported into a country

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Tariff Rate Quota

answer

Lower tariff rates applied to imports within the quota than those over the quota

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Voluntary Export Restraint (VER)

answer

a quota on trade imposed from the exporting country's side, instead of the importer's; usually imposed at the request of the importing country's government

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Quota Rent

answer

extra profit producers make when supply is artificially limited by an import quota

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local content requirement

answer

requirement that some specific fraction of a good be produced domestically

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Administrative Trade Policies

answer

administrative polices, typically adopted by government bureaucracies, that can be used to restrict import or boost exports

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Dumping

answer

selling goods in a foreign market for less than their cost of production or below their "fair" market value

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Antidumping policies

answer

designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition

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countervailing duties

answer

antidumping duties

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Strategic Trade Policy

answer

government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market

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Smoot-Hawley Act

answer

enacted in 1930 by the US congress, this act erected a wall of tariff barriers against imports into the US

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Greenfield investment

answer

The establishment of a new operation in a foreign country.

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Flow of FDI

answer

The amount of foreign direct investment undertaken over a given time period (normally one year).

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Stock of FDI

answer

The total accumulated value of foreign-owned assets at a given time.

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Outflows of FDI

answer

Flow of foreign direct investment out of a country.

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Inflows of FDI

answer

Flow of foreign direct investment into a country.

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exporting

answer

Sale of products produced in one country to residents of another country.

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licensing

answer

Occurs when a firm (the licensor) licenses the right to produce its product, use its production processes, or use its brand name or trademark to another firm (the licensee). In return for giving the licensee these rights, the licensor collects a royalty fee on every unit the licensee sells.

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internalization theory

answer

Marketing imperfection approach to foreign direct investment.

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market imperfections

answer

Imperfections in the operation of the market mechanism.

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oligopoly

answer

An industry composed of a limited number of large firms.

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off-shore production

answer

FDI undertaken to serve the home market.

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Current account

answer

in the balance of payments, records transactions involving the export or import of goods and services

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Balance of payments accounts

answer

national accounts that track both payments to and receipts from foreigners

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Regional Economic Integration

answer

Agreements between countries that reduce tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other

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Free Trade Area

answer

A group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursing independent external trade policies

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the European Free Trade Association (EFTA)

answer

A free trade association between Norway, Iceland, Liechtenstein, and Switzerland

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Customs Union

answer

A group of countries committed to removing all barriers to the free flow of goods and services between each other and the pursuit of a common external trade policy

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Common Market

answer

A group of countries committed to removing all barriers to the free flow of goods, services, and factors of production between each other and the pursuit of a common external trade policy

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Economic Union

answer

A group of countries committed to removing all barriers to the free flow of goods, services, and factors of production between each other, the adoption of a common currency, the harmonization of tax rates and the pursuit of a common external trade policy

question

Political Union

answer

A central political apparatus that coordinates economic, social, and foreign policy

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Trade Creation

answer

Trade created due to regional economic integration, occurs when high-cost domestic producers within a free trade area

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Trade Diversion

answer

Trade diverted due to a regional economic integration; Occurs when low-cost foreign suppliers outside a free trade area are replaced by higher-cost suppliers within a free trade area

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European Union

answer

An economic and political union of 28 countries that are located in Europe

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Treaty of Rome

answer

the 1957 treaty that established the European Community

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European Commission

answer

Responsible for proposing EU legislation, implementing it, and monitoring compliance

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European Council

answer

The heads of state of EU members and the president of the European Commission

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European Parliament

answer

Elected EU body that provides consultation on issues proposed by European Commission

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Treaty of Lisbon

answer

A European Union-sanctioned treaty that will allow the European Parliament to become the co-equal legislator for almost all European laws

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Court of Justice

answer

Supreme appeals court for EU law

question

Maastricht Treaty

answer

Treaty agreed to in 1992, but not ratified until January 1, 1994 , that committed the 12 members-states of the European Community to a closer economic and political union

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Optimal Currency Area

answer

An area where similarities in the underlying structure of economic activities make it feasible to adopt a single currency and use a single exchange rate as an instrument of macro-economic policy

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North American Free Trade Agreement (NAFTA)

answer

Free trade area among Canada, Mexico, and the United States

question

Andean Community

answer

A 1969 agreement among Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union

question

Mercosur

answer

Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area

question

Central American Common Market

answer

A trade pact amoung Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, which began in the early 1960s but collapsed in 1969 due to war

question

Central America Free Trade Agreement (CAFTA)

answer

The agreement of the member states of the Central American Common Market joined by the Dominican Republic to trade freely with the United States

question

Innovation

answer

"development of new products, processes, organizations, management practices, and strategies."

question

Entrepreneurs

answer

"those who first commercialize innovations"

question

Culture

answer

"a system of values and norms that are shared among a group of individuals and that when taken together constitute a design for living"

question

Values

answer

"abstract ideas about what a society believes to be good, right, and desirable"

question

Norms

answer

"social rules and guidelines that prescribe appropriate behavior in particular situations and can be further divided into two subcategories, which are folkways and norms."

question

Folkways

answer

"routine conventions of everyday life"

question

mores

answer

Like folkways, the customary behavior in a country but are taken more seriously and "seen as central to the functioning of a society and to its social life"

question

Social structure

answer

"the basic social organization of a society"

question

Religion

answer

"a system of shared beliefs and rituals concerned with the realm of the sacred"

question

A regional trade agreement

answer

free trade amongst various nations in a particular region or area.

question

Foreign Direct Investment (FDI)

answer

"an investment made by a company that is based in one country into a company based in another" (Investopedia, 2003).

question

An import quota

answer

"a direct restriction on the quantity of some good that can be imported into a country"

question

Administrative policies

answer

Usually adopted by governmental authorities, able to boost exports or constrain imports

question

Translation exposure

answer

extent to which the reported consolidated results and the balance sheets of a corporation are affected by fluctuations in foreign exchange values. This is the overall effect of certain transactions affected by fluctuating foreign exchange rates, which results in accounting gains or losses

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Economic exposure

answer

"the extent to which a firm's future international earning power is affected by changes in exchange rates"

question

Supply chain management

answer

"integration and coordination of logistics, purchasing, operations, and market channel activities from new material to end-customer"

question

Human resources

answer

personnel of a business or organization that deals with hiring, employee complications, and firing.

question

Foreign Corrupt Practice Act

answer

In 1977, it was established as a United States federal law, which outlaws the payment of bribes to foreign officials.

question

OECD Convention

answer

the only global anti-corruption organization that concentrates on the 'supply side' of bribery exchanges. This organization has representatives from countries that are members who attempt to reduce bribery transactions in international business deals. Among the 41 total members, there are 34 countries who are members and 7 countries who are non-members.

question

(10) Foreign Exchange Risk

answer

The risk that changes in exchange rates will hurt the profitability of a business deal.

question

(10) Currency Speculation

answer

short-term movement of funds from one currency to another in hopes of profiting from shifts in exchange rates.

question

(10) Carry Trade

answer

A kind of speculation involving borrowing in one currency where interest rates are low, and using proceedings to invest in other currency where rates are high.

question

(10) Spot Exchange Rate

answer

The exchange rate which a foreign exchange dealer will convert one currency into another that particular day.

question

(10) Currency Swap

answer

Simultaneous purchase and sale of given amount of FE for 2 different value dates.

question

(10) Arbitrage

answer

Purchase of securities in 1 market for immediate resale in other to profit from a price discrepancy.

question

(10) Bandwagon Effect

answer

Movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions.

question

(10) Economic Exposure

answer

Extent which firms future international earning power is affected by changes in exchange rates.

question

(11) notes in the chapter:

answer

finance building of Europe's economy by providing low-interest loans attention to development

question

(11) Moral Hazzard

answer

Arises when people behave recklessly because they know they will be saved if things go wrong.

question

(12) Location Econ

answer

Cost advantage from performing a value creation activity at the optimal location for that activity.

question

(12) Economics of Scale

answer

Cost advantage associated with large-scale production.

question

(12) Global Standard Strategy

answer

strategy focusing on increasing profits by reaping cost reductions from experience curve & location econs.

question

(12) Transnational Strategy

answer

Plan to exploit experience based cost & location econs., transfer core competencies within the firm, and pay attention to local responsiveness.

question

(12) Localization Strategy

answer

Plan focusing on increasing profits by customizing goods/services to match national market taste.

question

(12) International Strategy

answer

Trying to create value by transferring core competencies to foreign markets where indigenous competitiors lack those competencies.

question

(13) licensing agreement

answer

Arrangement which licensor grants rights to intangible property to a licensee for a specified period and receives a royalty fee in return.

question

(13) franchising

answer

Specialized form which franchiser sells intangible property to franchisee and insists on rules to conduct the business.

question

(14) letter of credit

answer

Issued by bank, indicates that bank will make payments under circumstances.

question

(14) bill of exchange

answer

Order written by exporter instructing importer to pay certain amount of money at a certain time.

question

(14) draft

answer

Order written by exporter tells an an importer what/when to pay.

question

(14) bill of lading

answer

Document issued to exporter by common carrier transporting merchandise. It serves as a receipt/ contract/ document of a title.

question

(14) Export-Import Bank

answer

agency of U.S. gov. whose mission is to provide aid in financing and facilitating export/imports.

question

(15) Supply Chain

answer

Integration and coordination of logistics, purchasing, operations and market channel activities from new material to end-customer

question

(15) Upstream S.C.

answer

Raw materials to production

question

(15) Downstream S.C.

answer

Production to end user (customer)

question

(15) Six Sigma

answer

based philosophy to reduce defects, boost productivity, eliminate waste, and cut cost.

question

(15) ISO 9000

answer

certification process requiring certain quality standards that must be met. International Organization for Standardization Required of manufacturing processes in EU. ISO is derived from the Greek "isos", meaning "equal". This was to avoid confusion in the acronyms that would result from different languages

question

(15) Offshore Factory

answer

Developed and set up mainly to produce component parts or finished goods at a lower cost than producing them at home

question

(15) Source Factory

answer

Purpose is to drive down costs, but differs from an offshore factory. Managers of a source factory have more of a say in decisions.

question

(15) Server Factory

answer

Linked into the global supply chain for a firm to supply specific country or regional markets around the globe

question

(15) Outpost Factory

answer

Intelligence gathering unit; May be placed near competitor headquarters or demanding customers. Based on strategic importance of the country

question

(15) Lead Factory

answer

Creates new processes, products, and technologies that can be used throughout the firm. Has much decision-making authority

question

(15) Reverse Logist

answer

Disposal & recycling of finished goods

question

Forward exchange

answer

When two parties agree to exchange currency and execute a deal at some specific date in future

question

Pegged exchange rate

answer

Currency value is fixed relative to a reference currency

question

International monetary system

answer

Institutional arrangements countries adopt to govern exchange rates

question

Dirty float

answer

A system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value

question

Hedging

answer

When a firm insures itself against foreign exchange risk

question

Fixed Exchange Rate

answer

A system under which the exchange rate for converting one currency into another is fixed

question

Functions of the foreign exchange market

answer

currency conversion, insuring against foreign exchange risk

question

The Law of One Price

answer

In competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in the same currency

question

Efficient Market

answer

A market where prices reflect all available information

question

The Gold Standard

answer

Practice of pegging currencies to gold and guaranteeing convertibility

question

Antidumping policies

answer

designed to punish foreign firms that engage in dumping and thus protect domestic producers form unfair foreign competition

question

Infrastructure

answer

composed of different natural and manmade resources within a country.

question

Globalization

answer

trend away from distinct national economic units and toward one huge global

question

Contract law

answer

the body of law that governs contract enforcement

question

Property rights

answer

bundle of legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource

question

Product safety laws

answer

set certain safety standards to which a product must adhere

question

Gross national income (GNI)

answer

The yardstick for measuring economic activity of a country, this measures the total annual income of a nation's residents

question

Gross domestic product (GDP)

answer

the total value of goods produced and services provided in a country during one year

question

Purchasing Power Parity

answer

number of units for a country's currency used to buy the same goods as the United States in its internal economy.

question

Human Development Index (HDI.)

answer

An attempt by the UN to assess the impact of a number of factors on the quality of human life in a country

question

Hofstede's Dimensions

answer

Professor Geert Hofstede created a study on how society and culture affects values in the workplace, which consist of six dimensions of nationwide culture.

question

Power Distance

answer

theory of how a society deals with the fact that people are unequal in physical and intellectual capabilities. High power distance cultures are found in countries that let inequalities grow over time into inequalities of power and wealth; low power distance cultures are found in societies that try to play down such inequalities as much as possible

question

Uncertainty avoidance

answer

Hofstede's dimension focuses on the way society should deal with unusual circumstances.

question

Long-term orientation

answer

Hofstede's dimension that deals with the challenges of the country's past, present, and future.

question

Confucian dynamism

answer

acceptance of the legitimacy of hierarchy and valuing of perseverance and thrift, without undue emphasis on tradition and social obligations that could impede business initiative.

question

Export-Import Bank

answer

Agency of the U.S. government whose mission is to provide aid in financing and facilitate exports and imports

GBU 355 – Global Dimensions of Business (Final Exam) – Flashcards

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