D080- Managing in a Global Business Environment

Balance of Payment

the difference in total value between payments into and out of the country over a period of time

Fixed-rate Currency Exchange System

when a country’s currency value is fixed or pegged by a monetary authority against the value of another currency., a basket of currencies, or another measure of value

What was the initial primary purpose of International Monetary Fund (IMF)?

to help manage the fixed-rate currency exchange system

What did International Monetary Funds (IMF) start doing, once it evolved from helping managing the fixed-rate currency exchange system?

helped governments correct temporary trade imbalances (typically deficits) with loans

What two organizations created the World Bank?

International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD)

What was the original purpose of the World Bank?

help with post-World War II European reconstruction

What country was the first to borrow from the IMF?

France

What is Special Drawing Right (SDR)?

a unit of account in the IMF that represents a claim to currency held by IMF member countries / international monetary reserve asset

What are the conditionality (policies or conditions) that the IMF requires on exchange for financial resources?

requires the government seeking assistance to correct its financial practices that led to debt in the form of policy reform

What are the forms of conditions or policy commitments of the IMF?

quantitative, performance criteria, indicative targets, and structural benchmarks

What activity of the international Monetary Fund (IMF) impacts policymaking?

being owned and directed by the governments of the member nations

What is a characteristic of the International Monetary Fund (IMF)?

it is a cooperative institution and proves more effective currency exchange

What is the purpose of the IMF?

support developing nations by helping them overcome monetary challenges and maintain a stable international financial system

What criticism does IMF face?

conditions of the loans, lack of accountability and willingness to lend to countries with poor human rights records

Privatization

selling government holdings to private companies

Deregulation

the removal of regulations or restrictions in a particular industry

How does the International Monetary Fund (IMF) impact international organizations and governments?

it reduces funding for social programs

What is another name for World Bank?

International Bank for Reconstruction and Development (IBRD)

What is the primary purpose of the World Bank?

financing economic development; first loans were for the reconstruction of the war-ravaged economies of Western Europe

What institutions is the World Bank comprised of?

the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)

AAA Ratings

the highest possible rating that may be assigned by a credit rating agency for a bond

Debt Instruments

a tool used by a company or any other entity to rise money or capital

What is a criticism of the World Bank?

it does not consider how funding projects will adversely affect the environment

Smoot-Hawley Tariff Bill

provided legislative support for a campaign promise he made to protect farmers from foreign competition

What was the name for the original WTO?

General Agreement on Tariffs and Trade (GATT)

What are the functions of the WTO?

oversee agreements, transparency of trade policy, assist developing nations, provide outreach, settle disputes, ensure non-discrimination

Uruguay Round of Trade Negotiations

an agreement that dramatically lowers trade barriers worldwide

Trade-Related Aspects of Intellectual Property Rights (TRIPS)

covers services, intellectual property rights, and trade-related investment measures such as exchange control

Commodities

raw material or primary agricultural product that can be bought or sold

What is a criticism of the WTO?

serves the interests of multinational corporations, promotes trade over preserving the environment, and treats developing nations unfairly

What was one of the results of the Uruguay Round of the World Trade Organization negotiations?

Decrease in tariffs

What strategic network was established to work towards decreasing tariffs rates and protecting commerce and intellectual property globally?

World Trade Organization (WTO)

What does the WTO trade rules prohibit?

developed countries using a system of tariff protections in the development phase

Mercantilism

one of the earliest economic theories, which stated that a country’s wealth was determined by the amount of gold and silver they had in their possession

Protectionism

the theory or practice of protecting a country’s domestic industries from foreign competition by taxing imports (objective: trade surplus)

Absolute Advantage

focuses on the ability of a country to produce a good more efficiently than another nation

What does Absolute Advantage state about a nation’s wealth?

it should not be judged by how much gold and silver it has but rather by the living standards of its people

Comparative Advantage

having the ability to produce a good or service at the lowest opportunity cost

Factor Endowment Theory

countries would produce and export goods that required resources or factors that were in abundant supply and therefore cheaper; countries would import goods that require resources that were in short supply but higher in demand

Firm-based theories

incorporate other product and service factors, including brand and customer loyalty, technology, and quality, into understanding the trade flows

Country Similarity Theory

consumers in countries that are in the same or similar stage of development would have similar preferences; often most useful in understanding trade in goods where brand names and product reputations are important factors in the buyer’s decision-making and purchasing processes

Global Strategic Rivalry Theory

focuses on multinational corporations and their efforts to gain a competitive advantage against other global firms in their industry

Absolute Quota

a quota that strictly limits the quantity of goods that may enter a country

tariff-rate quota

a quota that permits a specified quantity of imported goods to enter a country at a reduced rate during the quota period

Voluntary export restrictions

a trade restriction on the quantity of a good that an exporting country is allowed to export to another country

Government Procurement Programs

the process of buying goods and services by a government agency through a specific process of issuing bid proposals and seeking responses from companies

How are free trade agreements handled differently than treaties in the US?

treaties must be approved by the senate, whereas a free trade agreement must pass both houses of congress

Sanctions

laws passed that restrict or abolish trade with certain countries

Embargos

prohibitions on trade that ban imports or exports and may apply to certain categories of products or strictly to goods supplied by certain countries. generally involve a direct military or air blockade

Autarky

a political or economic system that becomes self-sufficient to survive

Colonialism

the policy or practice of acquiring full or partial political control over another country to exploit it economically

Portfolio Investment

an investment in another country is purely financial and does not involve any management responsibility. ex stocks, bonds, or assets

Diversifying

the process of allocating capital in a way that reduces the exposure to any one particular asset or risk

Dividend Repatriation

the return of earnings from foreign subsidiaries to their parent companies back in the home country

Market Capitalization

the total dollar value of a company’s outstanding shares of stock

Horizontal FDI

company is trying to open a new market and establish the same type of business operation in that foreign market

Vertical FDI

company invests internationally within the supply chain of the company

backward Vertical FDI

going step(s) back in the supply chain of the final product

Forward Vertical FDI

moving step(s) past the final production (selling goods or distributes goods in a foreign market)

Greenfield FDI

multinational corporations enter into developing countries to build new factories or stores

Brownfield FDI

a company or government entity purchases or leases existing production facilities to launch a new production activity

What is a benefit of foreign direct investment?

the inflow of capital benefits global and local economies

What defines a Multinational Corporation?

corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located

five stages of economic integration:

free trade area, customs union, common market, economic union, political union

Free trade area

member countries remove all barriers to trade such as tariffs, quotas, and nontariff barriers while keeping their own external trade policies with nonmember countries

Customs Union

all members of the economic integration will use the same external tariff with nonmember countries

Common Market

cooperation from all member countries when making policies about economics and labor practices. workers do not require a visa or work permit to work in another member country

Economic Union

countries enter into an economic agreement removing barriers to trade and adopting common economic policies

Political Union

member countries will behave as a single country

Which level of economic integration permits the free movement of capital, labor, and technology from member countries?

Common Market

Preferential tariff

a tariff that is lower for some nations than others

Free-Trade Zone

an area where the nations allow free, or almost free, trade among each other while imposing tariffs on goods of nations outside the zone

North American Free Trade Agreement (NAFTA)

encourages trade between Canada, the US, and Mexico by reducing tariffs and trade barriers, the countries hope to create a free-trade zone where companies can benefit from the transfer of goods

What was the NAFTA renamed to?

United States-Mexico-Canada Agreement (USMCA)

Which agreement was established in 1988 and now has both political and economic goals to keep peace and stimulates economic growth in South American countries?

MERCOSUR

European Union (EU)

originally began to end the frequent wars between neighboring countries in Europe. Focused on the development of the coal and steel industries for peaceful purposes

The Association of Southeast Asian Nations (ASEAN)

primary focus is on economic, social, cultural, and technical cooperation as well as on promoting regional peace and stability. earliest primary mission was to prevent domination of Southeast Asia by external powers

Which agreement was formalized in 1993 to create a political and economic union to help a large group of countries cooperate and coordinate key aspects of their economic policy?

EU

CAFTA-DR

goal of the agreement is the creation of a free trade area similar to NAFTA

Foreign Exchange Market

the market in which people use one currency to buy another currency

What economic actors are suppliers of US dollars?

foreign firms exporting to the US, firms will earn US dollars but will need their own currency to pay the workers based in their country; thus they are suppliers of US dollars and demanders of their home currency

Exchange Rate Regime

the way in which an authority manages its currency in relation to other currencies and the foreign exchange market

Floating Exchange Rate

a system where the value of currency in relation to others is allowed to freely fluctuate subject to market forces

managed Float Regimes or Dirty Floats

exchange rates fluctuate from day to day and central banks attempt to influence their countries’ exchange rates by buying and selling currencies

Fixed Exchange Rate System

a system where a currency’s value is tied to the value of another single currency, to a basket of other currencies, or to another measure of values, such as gold

Peg Exchange Rate

a currency system that fixes an exchange rate around a certain value but still allows fluctuations, usually within certain values, to occur

Crawling bands

market value of a national currency is permitted to fluctuate within a range specified by a band of fluctuation

Crawling Pegs

an exchange rate regime, usually seen as a part of fixed exchange rate regimes, that allows gradual depreciation or appreciation in an exchange rate

What economic actor benefits as the US dollar weakens?

a US investor abroad; the investor abroad invests money in another country by first converting US dollars to a foreign currency, making the investment, then later converting it back to the US Dollar. As the US dollar becomes weaker, the rate of return on the investment is larger as the investor gets more US dollars from converting back from the foreign currency

What economic actor benefits as the US dollar Strenthens?

a foreign firm exporting to the US; the firm earns US dollars through export sales, then converts it back into their home currency. A stronger US dollar would mean they can buy more of the home currency

What is true regarding free trade?

free trade leads to specialization of each country and increased production efficiency

Which core principle of the world trade organization supports equality among member nations and helps fight discrimination among them?

Most-favored-nation (MFN) Status

How do governments help companies offset the cost of manufacturing domestically?

subsidies

Antitrust Laws / competition laws / antimonopoly laws

Consumer protection policy used to limit unfair business practices related to competition and control prices

Sherman Antitrust Act

the first American antitrust policy. Established in 1890, it delt with limiting the power of price controlling cartels

Collective Environment

Understanding that the environment not only belongs to everyone to enjoy but is also everyone’s shared responsibility

Antarctica Treaty

prohibited mining of the region, limiting pollution of the environment, and protecting its animal species

United Nations Environment Programme (UNEP)

UN created. specific branch aimed at dealing with worldwide environmental problems.

Paris Agreement

universal global climate deal aimed at keeping long-term global temperatures increase at below 2c

National Environmental Policy Act (NEPA)

American environmental act from the 1970s that required federal agencies to prepare environmental impact statements for every recommendation or report