Global Dimensions Final Exam Study Set

to reduce and eliminate barriers to trade

the goal of regional trade agreements is:

Increased exports within the group and an increase of power in international organizations

what are the 2 potential positive effects to regional economic integration?

european commision

This institution of the EU proposes legislation, implements the legislation, and monitors compliance with it

european council

this institution of the EU has representation from each member state, but the member varies based on the topic being discussed

European council

This institution of the EU is considered the ultimate controlling authority

European parliament

The members of this EU institution are elected directly by the populations of their individual countries. its power increased under the treaty of lisbon

the court of justice

this institution is the ultimate authority in issues of appeal among the EU members

increase

according to charles Hill (authort of the textbook) will regional trade blocs increase or decrease in the coming years?

free trade area

this level of regional economic intergration removes the barriers to the free flow of goods and services between countries, but all countries can maintain their own trade policies with other countries. It is the least restrictive of the levels of economic intergration

customs union

this level of regional economic integration removes the barriers to the free flow of goods and services between countries and adds a common external trade policy among the partners

common market

in this level of regional economic integration, partner countries (1) have free flow of goods ad services between themselves, (2) have a common external trade policy, and (3) allow the free movement of the factors of production

economic union

in this level of regional economic integration, partner countries (1) allow free movement of the factors of production, (2) have a common currency, and (3) have a harmonized tax policy

political union

this level of regional economic integration has a central government to oversee policy and trade

trade creation

when regional trade agreement leads to replacement of higher cost domestic production and lower cost imports

trade diversion

when a country shifts its imports from a more efficient external producer to a less efficient one within a trade bloc, often due to the formation of a free trade agreement or customs union

they lead to trade creation rather than traded diversion

trade agreements only work if:

they are likely to increase trade among members and lead to overall economic welfare gains for member countries

free trade areas should only be formed if:

(1) promote peace and stability (2) to foster economic cooperation and intergration

give 2 reasons for the formation of the european union

european coal and steel commuity 1951

what was the first formalized community that led to the european union, and when was it created?

treaty of rome

what was the name of the treaty that created the european community?

Maastricht Treaty

what was the name of the treaty (1993) that adopted the name European Union and established the timeline for the common currency to be acheived by 1999?

Euro

What is the name of the currency that was created by the european union?

Industry , jobs

if a country encourages its citizens to consume and purchase domestic products, it is a way of protecting domestic______________and______.

appreciation

an increase in the value of a currency is referred to as_______of the currency

depreciation

a decrease in the value of a currency is referred to as_________of the currency

transaction exposure

impact of exchange rate changes on individual transactions

foeign exchange, FX

the market for exchanging the currency of one currency into that of another currency is the ____________________(two words) market. It is abbreviated as____(two letters)

exchange rate

the rate at which a currency is exchanged for another is known as the

1.00/.92

if $1 US will purchase 0.92 Euro, which of the following tells how much US currency can be purchased in euro?

currency speculation

the short-term movement of funds from one currency to another in hopes of profitting from shifts in exchange rates is

arbitrage

the purchase of securities in one market for immediate resale in another to profit from price discrepancies is known as

carry trade

borrowing in one currency where interest rates are low and using the proceeds to invest another currency where interest rates are high is

currency swap

simultaneously buying and selling a given amount of foreign exchange for two different dates is

convert currencies for international trade/investment, headge against exchange rate risk

list the 2 main purposes of currency exchange rate

forward rate

the forecast rate for the purchase and sale of currency in the future is known as the

law of one price

identical products in different markets should cost the same when expressed in the same currency (free of barriers to trade)

PPP

changes in prices should result in changes in exchange rates

Money supply & price inflation

if you can predict the future inflation rate, then you can predict the future exchange rate

fisher effect

nominal interest rate equals the sum of the real rate of interest plus the expected rate of inflation over the period for which the money is lent

international fisher effect

connects interest rates with exchange rates

investor psychlogy

seeks to explain short-term movements in exchange rates by examining human actions

bandwagon effect

suggests that investors respond as a herd

efficient market school

all information is known, and forward rates are the best predictor of future spot rates

inefficient market school

prices don't reflect all available information, so business should invest in forecasting tools

fundamental analysis

uses scope of economic theory to build models using money supply, inflation, interest rates

technical analysis

price and volume data used to create a model that can be examined historically

freely

when anyone can buy a currency, including foreign investors, the currency is said to be________convertible

externally

when only those outside a country can convert the domestic currency, it is said to be_________convertible.

nonconvertable

when a currency cannot be converted, it is said to be______________

advantage: can reduce currency risk and stabalize the economy, disadvantage: loss of independent monetary policy

list one advantage and disadvantage of dollarization

floating exchange rate

country XYZ continually adjusts its currency's exchange rate compare to others based on supply and demand. it is operating under a___________regime

fixed exchange rate

country QRS has set the value of its currency against 3 other currencies based on a mutually agreed upon price. It is operating under a_____ regime.

managed float

country DEF allows its currency to nominally float, but its government intervenes by buying and selling currency if it thinks the currency isn't valued fairly in the world markets

dirty float

countries GHI and JKL are in a system where some currencies float, others are pegged, and still others are managed. these countries are in a__________system.

pegged exchange rate

the country of "tiny" has fixed the value of its currency to that of the country of "huge" tiny is operating under the_________regime

gold standard, gold

following the bretton woods agreement, countries agreed to a_________system, and only the US dollar was exchangeable for________.

speculation

what action did US president nixon say forced the US to discontinue the terms of the Brettons Woods agreement

gold price per ounce

the amount of currency needed to purchase one ounce of gold is

currency board

a_________helps control a country's currency through guaranteed convertibility at a fixed exchange rate. it operates in tandem with the central bank. in such cases, reserves of foreign currency must equal 100% of the domestic currency

currency crisis

when a speculative attack on the exchange value of a currency that results in a sharp depreciation is the value of the currency or forces authorities to expend large amounts of reserves and increase interest rates to preserve the value of the currency, this occures:

banking crisis

when there is a loss of faith in the banking system, this occurs

foreign debt crisis

when a government cannot pay its foreign debt obligations, this occurs

fraudulent conveyance

the CEO and CFO of really bad industries, inc. have realized the company will have to file for bankruptcy. rather than alert suppliers of the impending action, the firm continues to place orders for supplies on credit. the leaders are engaging in what is known as:

Location economies

Cost advantages from performing value creation in the optimal location are known as

experience curve

as a firm reduces production costs over the life of a product, it enjoys the benefits of its

learning effects

the cost savings a firm earns from learning by doing are its

economies of scale

reductions in unit costs acheived by producing large volumes of a product reduce the unit costs and raise profitability for the firm. This process is known as the acheivement of:

intense competition; high production costs

list two causes for cost pressures

differences in distribution channels; rise of regionalism

list two causes for pressure of local responsiveness

the export process using a letter of credit

financial document from bank to seller saying they will give payment as long as special delivery & documentation conditions are met

the export process using the documentary collection

1. exporter ships goods & sends documents to their bank; 2. exporter's bank sends documents to importer's bank; 3. importer pays (or accepts draft) to receive documents & claim goods

exporting

the sale of products produced in one country to residents of another country is:

turnkey

design, construction, and startup are handled by a contractor in this entry mode. it may limit FDI, but it may also give firms an entry mode for otherwise closed markets, despite no being long-term

licensing

one company that holds the rights to intangible products grants those rights to another in exchange for royalties. it does not offer tight control for the producer/owner of the products

franchising

this form of entry gives the firm more control over marketing and processes even though rights to use are granted to another operator

joint venture

two or more otherwise independent firms established a purposeful operation. control is established at the founding with an understanding of the percentage ownership of each firm

wholly owned subsidary

when a firm owns 100% of its own stock and enters a market through a greenfeild or M&A form of foreign direct investment, the entry mode is known as:

freight forwarder

this form of export help mainly handles transportation

export management company

this is a full service export assistant, handling transport, packaging and labeling

export trading company

this type of export assistant provides contract services to secure marketing and sales in an export partner country

export packer

this export assistant mainly deals with packaging requirements

customs broker

this export assistant deals with the range of legal requirements in exporting

confirming house or buying agent

this type of export assistant works with firms that want to buy your product. they will negotiate and are paid by the purchaser (usually a commision)

export remarketer

this type of export assistant will buy products directly from the producer, then repackage and label the product to their own specifications

piggyback marketer

this type of export assistant distributes another's products as part of a lot or larger group of products

export processing zone

designated area where goods can be imported, manufactured, and re-exported without typical customs duties or taxes, to encourage trade and investment

bill of exchange (draft)

like an invoice, this document is issued by the exporter and instructs the importer to pay

bill of lading

this document is issued to the exporter by the common carrier. it serves as a receipt, a contract, and document of title

time

a_____draft is a promise to pay, by the accepting party, at a particular time

sight

a____draft may be presented for immediate payment (on sight)

offset

this is a reciprocal buying agreement. a firm agrees to buy back a certain amount of goods from a country to which a sale is made

US Gov. agency that helps to finance and insure exports for US exporters & foreign buyers (helps reduce the financial risk of international trade)

what is the export-import bank?

production

activites involved in creating a product or service

supply chain management

The procurement and physical transmission of material through the supply chain from suppliers to customers

purchasing

worldwide buying of raw material, component parts and products used in manufacturing the product or service

logistics

plans, implements, and controls the effective flows and inventory of raw material, component parts, and products in manufacturing

upstream supply chain

includes all of the organizations (e.g., suppliers) and resources that are involved in the portion of the supply chain from raw materials to the production facility

downstream supply chain

includes all of the organizations (retailers) that are involved in the portion of the supply chain from the production facility to the end customer

minimum efficient scale

the level of output at which most plant-level scale economies are exhausted

mass customization

describes the ability of companies to use flexible manufacturing tech to meet two goals; low cost and production customization