Chaper 3 Doing Business in Global Markets

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31 Terms

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absolute advantage

The 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.

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balance of payments

The difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

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balance of trade

The total value of a nation’s exports compared to its imports over a particular period.

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common market

A regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc. An example is the European Union.

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comparative advantage theory

Theory that states that a country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products that it cannot produce as effectively or efficiently.

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contract manufacturing

A foreign company’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.

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countertrading

A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services.

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devaluation

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

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dumping

Selling products in a foreign country at lower prices than those charged in the producing country.

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embargo

A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

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exchange rate

The value of one nation’s currency relative to the currencies of other countries.

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exporting

Selling products to another country.

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foreign subsidiary

A company owned in a foreign country by another company, called the parent company.

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foreign direct investment (FDI)

The buying of permanent property and businesses in foreign nations.

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free trade

The movement of goods and services among nations without political or economic barriers.

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General Agreement on Tariffs and Trade (GATT)

A 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.

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importing

Buying products from another country.

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import quota

A limit on the number of products in certain categories that a nation can import.

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joint venture

A partnership in which two or more companies (often from different countries) join to undertake a major project.

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licensing

A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).

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multinational corporation

An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management.

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North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico.

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offshore outsourcing

Contracting with other companies abroad to do some or all of the functions of a firm, like its production or accounting tasks.

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sovereign wealth funds (SWFs)

Investment funds controlled by governments holding large stakes in foreign companies, real estate, and other investments.

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strategic alliance

A long-term partnership between two or more companies established to help each company build competitive market advantages.

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tariff

A tax imposed on imports.

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trade deficit

An unfavorable balance of trade; occurs when the value of a country’s imports exceeds that of its exports.

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trade protectionism

The use of government regulations to limit the import of goods and services.

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trade surplus

A favorable balance of trade; occurs when the value of a country’s exports exceeds that of its imports.

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United States–Mexico–Canada Agreement (USMCA)

Free-trade agreement among the United States, Mexico, and Canada that replaced NAFTA in an effort to create more balanced and reciprocal trade

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World Trade Organization (WTO)

The international organization that replaced the General Agreement on Tariffs and Trade, and was assigned the duty to mediate trade disputes among nations.