Ch 2 International Business Test

Why Canada trades

• Company growth

• New market entry

• Access to inexp. supplies & low financing

• New customer bases

• Incr. profits

• Low labor costs

Foreign portfolio investment

Investing in foreign companies via:

• Stocks

• Bonds

• Other financial instruments

Importing

Bringing products/services into a country

Exporting

Selling products/services to another country

Value added

Amount of worth added to a product as it is processed

Licensing agreements

Gives a company permission to use a product, service, brand name, or patent in exchange for a fee or royalty

Exclusive Distribution Rights

Allowing a company to be the only distributor of a product, geographic area, or specfic country

Franchising

Agreement to use a company’s name, services, products, and marketing

Franchisee agrees to T&C of franchisor

Joint venture

Occurs when two businesses, one of which is usually located in a foreign country, form a company with shared ownership

Foreign Subsidiaries

A parent company allows a branch of its company in another country to be run as an independent entity

Protectionism

Shielding against foreign competition

Tariffs

Taxes/duty charged on imported products/services

Trade quotas

Government-imposed limit on the amount of product that can be imported in a certain period of time

Trade embargo

Trade between countries is banned completely

Trade sanctions

Limiting trade of specific products or with specific companies/indivs.

Foreign investment restrictions

Laws in Canada influence foreign investment rules & regs.

Ex. ICA, BA, limit foreign ownership amnt

Standards

Possible trade barriers

Ex. ISO

Time zones

Also a possible barrier, have to consider appropriate times for everybody

Exchange rate

Amount of currency in relation to the currency of another country

Winners of a low CAD

• Exporters

• CAN Tourism

• CAN retail

Losers of a low CAD

• Importers

• CAN travellers

• Major sports teams

Factors affecting exchange rate

• Economic cond. w/in CAN

• Trade b/w countries

• Politics

• Psychological factors

Floating rate

Exchange rate changes w/ respect to other currencies

Currency devaluation

Occurs when supply > demand & CAD value decr.

Currency Speculating

Involves buying, holding, or selling foreign currency in anticipation of its value changing

Done to profit from price fluctuations