CH 3

These flashcards cover key vocabulary terms related to global trade concepts, providing definitions for each term.

Absolute Advantage

The situation when a country can produce and sell a product at a lower cost than any other country.

Balance of Payments

A summary of a country’s international financial transactions showing the difference between total payments to and receipts from other countries.

Balance of Trade

The difference between the value of a country’s exports and imports during a specific time.

Buy-National Regulations

Government rules that give special privileges to domestic manufacturers and retailers.

Contract Manufacturing

The practice in which a foreign firm manufactures private-label goods under a domestic firm’s brand name.

Countertrade

A form of international trade in which part or all of the payment for goods or services is in the form of other goods and services.

Devaluation

A lowering of the value of a nation’s currency relative to other currencies.

Direct Foreign Investment

Active ownership of a foreign company or of manufacturing or marketing facilities in a foreign country.

Dumping

The practice of charging a lower price for a product in foreign markets than in the firm’s home market.

Embargo

A total ban on imports or exports of a product.

European Integration

The delegation of limited sovereignty by EU member states to the EU for common laws and policies.

European Union

Trade agreement among 28 European nations.

Exchange Controls

Laws that require a company earning foreign exchange from its exports to sell it to a control agency.

Exporting

The practice of selling domestically produced goods to buyers in another country.

Exports

Goods and services produced in one country and sold to other countries.

Floating Exchange Rates

A system where currency prices move based on demand and supply of various currencies.

Free Trade

The policy allowing people and businesses of a country to buy and sell without restrictions.

Free-Trade Zone

An area where nations allow free trade among each other while imposing tariffs on external goods.

G20

Informal group that brings together 20 countries and the EU—the leading economies in the world.

Global Vision

The ability to recognize and react to international business opportunities and threats.

Import Quota

A limit on the quantity of a certain good that can be imported.

Imports

Goods and services that are bought from other countries.

Infrastructure

Basic institutions and public facilities necessary for economic development.

International Monetary Fund (IMF)

An organization that promotes trade, makes loans to member nations, and serves as a lender of last resort.

Joint Venture

An agreement in which a domestic firm buys part of a foreign firm or forms a new entity.

Licensing

A legal process where one firm allows another to use its proprietary knowledge in exchange for royalties.

Mercosur

Trade agreement between Peru, Brazil, Argentina, Uruguay, and Paraguay.

Multinational Corporations

Corporations that move resources across national boundaries without regard to their headquarters.

Nationalism

A sense of national consciousness that promotes one country’s interests over others.

North American Free Trade Agreement (NAFTA)

A 1993 agreement creating a free-trade zone including Canada, Mexico, and the United States.

Outsourcing

Sending work functions to another country, resulting in domestic job losses.

Preferential Tariff

A tariff that is lower for some nations than for others.

Principle of Comparative Advantage

The concept that each country should specialize in products it can produce most readily and trade for others.

Protectionism

The policy of protecting home industries by establishing barriers like tariffs and quotas.

Protective Tariffs

Tariffs imposed to make imports less attractive than domestic products.

Tariff

A tax imposed on imported goods.

Trade Deficit

An unfavorable balance of trade that occurs when a country imports more than it exports.

Trade Surplus

A favorable balance of trade that occurs when a country exports more than it imports.

Uruguay Round

A 1994 agreement among 117 nations to lower trade barriers globally.

World Bank

An international bank offering low-interest loans and advice to developing nations.

World Trade Organization (WTO)

An organization created by the Uruguay Round in 1994 to oversee international trade and resolve disputes.