Understanding Business – chapter 3

Flashcard maker : Lily Taylor
buying products from another country
selling products to another country
free trade
the movement of goods and services among nations without political economic barriers
comparative advantage theory
theory that states that a country should sell to other countries those products that its produces most effectively and efficiently, and buy from other countries those products that it cannot produce as effectively or efficiently
absolute advantage
advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries
balance of trade
total value of nation’s exports compared to its imports, measured over a particular period of time
trade surplus
favorable balance of trade that occurs when the value of a country’s exports exceeds imports
trade deficit
unfavorable balance of trade that occurs when the value of a country’s imports exceeds exports
balance of payments
difference between money coming into a country and money leaving the country, plus money flows from other factor such as tourism, foreign aid, military expenditure, and foreign investment
selling products in a foreign country at lower prices than those charged in the producing country
global strategy in which a firm allows a foreign company to produce its products in exchange for a fee
contract manufacturing
foreign country’s production of private-label goods to which a domestic company then attaches its brand name or trademark; part of the broad category of outsourcing
joint venture
partnership in which two or more companies join to undertake a major project
strategic alliance
long-term partnership between two or more companies established to help each company build competitive market advantages
foreign direct investment (FDI)
buying of permanent property and businesses in foreign nations
foreign subsidiary
one company that is owned in a foreign country by another company, which is the parent company
multinational corporation
organization that manufactures and markets products, has stock ownership, and management in many different countries
sovereign wealth funds (SWF)
investment funds controlled by governments holding large stakes in foreign companies
exchange rate
value of one nation’s currency relative to other nations’
lowering the value of a nation’s currency relative to other currencies
complex form of bartering in which several countries may be involved, each trading goods or services for services in order to avoid financial problems and currency constraints
trade protectionism
use of government regulations to limit the import of goods and services
tax imposed on imports
import quota
limit on the number of products in certain categories that a nation can import
complete ban on the import or export of a certain product or the stopping of all trade with a particular country
general agreement on tariffs and trade (GATT)
1948 policy establishing an international forum for negotiating mutual reductions in trade restrictions
world trade organization (WTO)
international group that replaced GATT and was assigned the duty to mediate trade disputes among nations
common market
trading bloc; regional group of countries that have a common external tariff, not internal tariffs, and a coordination of laws to facilitate exchange (e.g. European Union)
north american free trade agreement (NAFTA)
policy creating a free-trade area among the US, Canada, and Mexico

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