FBLA International Business Terms

Hard Currency

A currency, usually from a highly industrialized country, that is widely accepted around the world as a form of payment for goods and services. It is expected to remain study.

Hedging

Involves taking out contracts to avoid losses from currency rate fluctuations.

Factors affecting FOREX rate

• Difference in inflation: countries with greater inflation will see the value of their currency decrease, and concurrently their currency will deprecate

• Difference in Interest Rates: countries with greater interest rate will see greater foreign interest in their currency, and so their currency will appreciate

• Current Account Deficit: If the current amount is in deficit, then the country will be in a trade deficit, and so it is demanding large amounts of foreign goods. This shifts the demand curve of foreign currencies, and the domestic currency depreciates in FOREX

• Public Debt: Public debt leads to a greater demand curve for loanable funds, and subsequently a higher interest rate (Crowding out effect). Thus, the difference in interest rates affects FOREX

• Terms of Trade: If two countries agree to certain terms, this can affect the flow of capital between the countries and will affect FOREX

• Economic Performance/Predictions: If a country is predicted to do well, foreign investors will demand domestic assets, and the interest rate will increase

International Companies

Importers and Exporters with no investment outside home countries

Multinational Compies

Investments in other countries, but adapt each product to the specific place

Global Companies

Investments in other countries, but general global marketing

Transnational Companies

Give more power to each subculture within the organization

Debt vs Equity Financing

Debt is borrowing with promise to eventually pay back while Equity is giving ownership away

Trade Finance Relationships

Exporter generally requires imports to pay for goods. Importer provides Letter of Credit to exporter as a promissory note that when the Bill of Lading is shown, the transporter will be paid.

Export Credit Agencies

Provide export financing or credit insurance

Trade Credit Agencies

Credit given by manufacturers/suppliers that let importers buy now pay later

Credit Insurance

Insurance protecting the exporter if the importer is unable to pay

Political Risk Insurance

Insurance protecting the exporter from any political risks that arise

Foreign Bond

Bond of a non-domestic company issued in the domestic bond market using the currency of the domestic country

American Depository Receipt

Traded in America representing a country not headquartered in America; issued by banks

Global Depository Receipt (GDR)

Traded globally representing foreign firms

Countertrade

Trading products for products (like bartering); international trade with goods

The trade of goods and services for other goods and services

Offset Transaction

Transaction that cancels out another transaction, cancels risks and benefits of another element (a transaction that chooses the investor's decision in another transaction)

Noncash Transaction

Doesn't chance cash outflows or inflows, but simply changes equity/ long terms assets and liabilities

Investing or financing activity that does not affect the cash inflows or outflows, but involves only owners' equity or long-term assets and liabilities. if it represent a significant amount, a noncash transaction is disclosed in the notes (footnotes) to the cash flow statement

International Monetary Fund

Founded in 1944 at Bretton Woods, this organization tries to create monetary cooperation by promoting free trade, employment, and exchange rate stability

International institution set up to maintain order in the international monetary system

World Bank

Provides loans to developing countries, part of the United Nations

Certificate of Origin

Shows where products originated, particularly at customs

Bill of Lading

Held by the shipper, details whats being shipped, and transfers ownership to importer

Commercial Invoice

Document required by customs to determine the true value of imported goods, in depth description of shipment

Letter of Credit

Document from bank saying that exporter will receive payment as long as certain conditions are met

Fronting a Loan

Loan within multinational company uses international banks (give money to bank at home country, bank in international country pays host country)

Debt and Equity Financing

SBA (Small Business Administration in the United States) for domestic operations

Foreign Exchange Risk (FX Risk)

Financial transaction in currency different from base currency

Financial Structure

Mix of debt and equity used to finance a business

Financial Accounting Standards Board (FASB)

The body that writes the generally accepted accounting principles by which the financial statements of the US firms must be prepared

Foreign Portfolio Investment

Investments by individuals, firms, or public bodies (e.g. national and local governments) in foreign financial instruments (e.g. government bonds, foreign stocks)

Fronting Loans

A loan between a parent company and a foreign subsidiary that is channeled through a financial intermediary

Hedge Fund

Investment fund that not only buys financial assets (stocks, bonds, currencies) but also sells them short

Historic Cost Principle

Accounting principle founded on the assumption that the currency unit used to report financial results is not losing its value due to inflation

Market Makers

Financial service companies that connect investors and borrowers, either directly or indirectly

Short Selling

Occurs when an investor places a speculative bet that the value of a financial asset will decline, and profits from that decline

Subsidy

Government financial assistance to a domestic producer

Current Cost Accounting

Method that adjusts all items in a financial statement to factor out the effects of inflation

Current Rate Method

Using the exchange rate at the balance sheet date to translate the financial statements of a foreign subsidiary into the home currency

Transnational Financial Reporting

The need for a firm headquartered in one country to report its results to citizens of another country

Unbundling

Relying on more than one financial technique to transfer funds across borders

Foreign Direct Investment (FDI)

The net inflows of investment to acquire a lasting management interest (10% or more of voting stock) in an enterprise operation in an economy other than that of the investor

Inflows of FDI

Flow of foreign direct investment into a country

Multilateral Agreement on Investment

An agreement that would make it illegal for signatory states to discriminate against foreign investors; would have liberalized rules governing FDI between OECD states

Outflows of FDI

Flow of foreign direct investments out of a country

Eclectic Paradigm

Argument that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI; it requires the firm to establish production facilities where those foreign assets or resource endowments are located

Impacts of FDI

• Within host countries, it has been abundantly shown that foreign-owned firms pay higher wages than domestically-owned firms

• Small or inefficient local firms may be forced to contract or leave the industry altogether. That may be viewed as a healthy redeployment of capital, but it is an explanation for some host country opposition to foreign multinationals

Bilateral Netting

Settlement in which the amount one subsidiary owes another can be cancelled by the debt the second subsidiary owes the first

Capital Account

In the balance of payments, records transactions involving the purchase or sale of assets

Capital Controls

Restrictions on cross-border capital flows that segment different stock markets; limit amount of a firm's stock a foreigner can own; and limit a citizen's ability to invest outside the country

Gross Fixed Capital Formation

Summarizes the total amount of capital invested in factories, stores, office buildings, and the like

International Accounting Standards Committee

Organization of representatives of 106 professional accounting organizations from 79 countries that is attempting to harmonize accounting standards across countries

Eurobonds

A bond placed in countries other than the one in whose currency the bond is denominated

Systematic Risk

Movements in a stock portfolio's value that are attributable to macroeconomic forced affecting all firms in an economy, rather than factors specific to an individual firm (unsystematic risk)

Debt Financing

You borrow the money and agree to pay it back in a particular time frame at a set interest rate. You owe the money whether your venture succeeds or not. Bank loans are what most people typically think of as debt financing

Equity Financing

You sell partial ownership of your company in exchange for cash. The investors assume all (or most) of the risk--if the company fails, they lose their money. But if it succeeds, they typically make much greater return on their investment than interest rates. In other words, equity financing is far more expensive if your company is successful, but far less expensive if it isn't

Multinational Corporation (MNC)

Maintains operations in multiple countries

Ethnocentric Attitude

Behavior that is based on the belief in the superiority of one's own ethnic group or culture; often shows disregard or contempt for the culture of other countries

Ethnocentric Staffing

A staffing approach within the MNE in which all key management positions are filled parent-country nationals

Polycentric Staffing

The view that the managers in the host country know the best work approaches and practices for running their businesses

Geocentric Staffing

A staffing approach within the best people are sought for key jobs throughout MNE, regardless of nationality

Parochialism

Viewing the world solely through your own perspectives, leader to an inability to recognize differences between people

Multidomestic Corporation

An MNC that decentralizes management and other decisions to the local country

Culture Shock Process

1) "Honeymoon" stage 2) Confrontation (depressed, homesick, etc) 3) Adjustment 4) Adaptation (Biculturalism)

Contingency Approach/Perspective

Based on the idea that there is no one best way to manage and that to be effective, planning, organization, leading, and controlling must be tailored to the particular circumstances faced by an organization

BEST FORM OF INTL MANAGEMENT

Business Ethics

The study of proper business policies and practices regarding potentially controversial issues, such as corporate governance, insider trading, bribery, discrimination, corporate social responsibility and fiduciary responsibilities. Business ethics are often guided by law, while other times provide a basic framework that businesses may choose to follow in order to gain public acceptance

Social Responsibility

Actions for which a person or a group of people can be held responsible for, either rewarded or liable for

Integrity

An all-encompasing characteristic of an ethical business.

The ethical business adheres to laws and regulations at the local, state, and federal levels. It treats its employees fairly, communicating with them honestly and openly. It demonstrates fair dealings with customers and vendors including competitive pricing, timely payments and the highest quality standards in the manufacture of its products

Respect

• Ethics and respect go hand in hand. An ethical business demonstrates respect for its employees by valuing opinions and treating each employee as an equal. The business shows respect for its customers by listening to feedback and assessing needs. An ethical business respects its vendors, paying on time and utilizing fair buying practices. And an ethical business respects its community by being environmentally responsible, showing concern and giving back as it sees fit

Loyalty

Solid relationships are a cornerstone of an ethical business. Loyal relationships are mutually beneficial and both parties reap benefits. Employees who work for a loyal employer want to maintain the relationship and will work harder toward that end. Vendors and customers will remain loyal to a business that is reliable and dependable in all situations. An ethical business stays loyal to its partnerships even in challenging times. The result is a stronger relationship when emerging from the challenge

Employee Performance

A lack of ethics has a negative effect on employee performance. In some cases, employees are so concerned with getting ahead and making money that they ignore procedures and protocol

Employee Relations

When a manager or head of a business exhibits a lack of ethical behavior, he faces losing the respect of his employees

Company Credibility

If a lack of ethics in a business becomes public knowledge, that business loses credibility

Countries that use the dollar

Australia, Belize, Brunei, Canada, Hong Kong, Jamaica, Namibia, New Zealand, Singapore, Suriname, Taiwan, the United States

Countries that use the US dollar

East Timor, Ecuador, El Salvador, Federated States of Micronesia, Marshall Islands, Palau, the Caribbean Netherlands, and for banknotes, Panama

Heckscher-Ohlin Theory

Countries will export those goods that make intensive use of locally abundant factors of production and import goods that make intensive use of locally scarce factors of production.

Globalization of Markets

Moving away from an economic system in which national markets are distinct entities, isolated by trade barriers and barriers of distance, time, and culture, and toward a system in which national markets are merging into one global market.

Freight forwarder

The firm that arranges shipping of goods to customers in other countries European Union Members: Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK.

Interdependency

the quality or condition of being interdependent, or mutually reliant on each other. This describes the global economy

Expropriation

occurs when a public agency takes private property for a purpose deemed to be in the public interest

Expatriate

a person who lives outside their native country

Largest US Trading partners

Canada, China, Mexico, Japan, Germany

Largest World Exporters

China, EU, USA, Germany, Japan

Largest World Importers

USA, EU, China, Germany, Japan

ISO 9000

A series of standards, developed and published by the International Organization for Standardization (ISO), that define, establish, and maintain an effective quality assurance system for manufacturing and service industries.