Global Business Study Guide (Chapters 5-8)

This set of flashcards covers key terms and concepts from Chapters 5 to 8 of 'Global Business' by Mike Peng, focusing on international trade, foreign direct investment, foreign exchange, and economic integration.

Comparative advantage

Specialization in goods with lower opportunity cost yields gains from trade even if one country is less efficient in all goods.

Absolute advantage

When a country can produce a good more efficiently than another country.

Heckscher-Ohlin Theory

Theory stating that countries export goods that intensively use their abundant resources and import goods that use scarce resources.

Tariff

A tax on imported goods.

Quota

A limit on the quantity of an imported good.

Non-tariff barrier

Policies that restrict trade without explicit tariffs, such as import licenses.

Foreign Direct Investment (FDI)

Investment by a firm in foreign value-adding activities with control.

Ownership advantage

Firm-specific assets that give competitive edge abroad.

Location advantage

Benefits of operating in a specific country, such as resources and market access.

Internalization advantage

Firms keep operations in-house to reduce transaction costs.

Obsolescing bargain

The phenomenon where host governments may renegotiate terms once multinational enterprises (MNEs) are committed.

Spot exchange rate

The rate for immediate currency exchange.

Forward exchange rate

The rate agreed now for exchange at a future date.

Appreciation/Depreciation

Increase/decrease in a currency's value.

Fixed exchange rate

Currency pegged to another currency or basket.

Floating exchange rate

Currency value determined by market forces.

Hedging

Using instruments, such as forward contracts, to manage foreign exchange risk.

Economic integration

Agreements to reduce or eliminate trade barriers among members.

Free trade area

No tariffs within the bloc but independent external trade policies.

Customs union

A free trade area plus a common external tariff.

Common market

A customs union allowing free movement of labor and capital.

Economic union

Deep integration of economies, exemplified by the Eurozone.

Trade creation

Integration that increases efficiency within a trading bloc.

Trade diversion

Integration that shifts imports to less efficient member nations.

First-mover advantage

The benefits of being the first to enter a market, such as building brand recognition and securing resources.