CHAPTER 5: TRADE AND FINANCE DEFINITONS

foreign direct investment

the acquisition by residents of one country of control over a new exsiting business in another country

balance of payments

a summary of all the flows of money into and out of a country. it includes three types of international transactions: the current account (including the merchandise trade balance), flows of capital, and changes in reserves 

free trade

the flow of goods and services across national boundaries unimpeded by tariffs or other restrictions; in principle (if not always in practice), free trade was a key aspect of Britain’s policy after 1846 and of U.S. policy after 1945 

devaluation 

a unilateral move to reduce the value of a currency by changing a fixed or official exchange rate

cartel 

an association of producers or consumer (or both) of a certain product, formed for the purpose of manupulating its price on the world market 

organization of the petroleum exporting countries

(OPEC) the most prominent cartel in the international economy; its members control about half the world’s total oil exports, enough to affect the world price of oil significantly

service sector

the part of an economy that concerns services (as opposed to the production of tangible goods); the key focus in international trade negotiations is on banking, insurance, and related financial services

tariff

a duty or tax levied on certain types of imports (usually as a percentage of thier value) as they enter a country

doha round 

a series of negotiations under the world trade organization that began in doha, qatar, in 2001. it followed the uruguay round and focused on agricultural subsidies, intellectual property, and other issues 

bretton woods system

a post-world war II arrangement for managing the world economy, established at a meeting in bretton woods, new hampshire, in 1944. its main institutional components are the world bank and the international monetary fund (IMF)

special drawing right 

(SDR) a world currency created by the international monetary fund (IMF) to replace gold as a world standard. valued by a of national currencies; the SDR has been called

central bank

an institution common in industrialized countries whose major tasks are to maintain the value of the state currency and to control inflation 

north america free trade agreement 

(NAFTA) a free trade zone encompassing the united states, canada, and mexico since 1994

dumping

the sale of products in foreign markets at prices below the minimum level necessary to make a profit (or below cost)

general agreement on tariffs and trade

(GATT) a world organization established in 1947 to work for freer trade on a multilateral basis; the GATT was more of a negotiating framework than an administrative institution. It became the world trade organization (WTO) in 1995 

centrally planned economy

an economy in which political authorities set prices and decide on quotas for production and consumption of each commodity according to a long-term plan

keynesian economies

the principles articulated by british economist john maynard keynes, used successfully in the great depression of the 1930s, including the view that governments should sometimes use deficit spending to stimulate economic growth 

state-owned industries

industries such as oil-production companies and airlines that are owned wholly or partly by the state because they are thought to be vital to the national economy 

transitional economies

countries in russia and eastern europe that are trying to convert from communism to capitalism with various degrees of success

hyperinflation

an extremely rapid, uncontrolled rise in prices, such as occurred in Germany in the 1920s and in some third world countries more recently

nontariff barriers 

forms of restricting imports other than tariffs, such as quotas (ceilings on how many goods of a certain kind can be imported) 

reserves

hard-currency stockpiles kept by states

mixed economies 

economies such as those in the industrialized west that contain both some government control and some private ownership 

floating exchange rates

the rates determined by global currency markets in which private investors and governments alike buy and sell currencies

monetary policy

a government decisions about printing and circulating money, and one of the two major tools of macroeconomic policy making (the other being fiscal policy) 

economic liberalism

in the context of international political economy (IPE), an approach that generally shares the assumption of anarchy (the lack of a world government) but does not see this condition as precluding extensive cooperation to realize common gains from economic exchanges. it emphasizes absolute over relative gains and in practice a commitment to free trade, free capital flows, and an world economy

multinational corporations

(MNCs) a company based in one state with affiliated branches or subsidiaries operating in other states

balance of trade

the value of a state exports relative to its imports

comparative advantage

the principle that says states should specialize in trading goods that they produce with the greatest relative efficiency and at the lowest relative cost (relative, that is, to other goods produced by the same state)

protectionism 

the protection of domestic industries against international competition, by trade tariffs and other means 

most-favored nation 

(MDN) a principle by which one state, by granting another state MFN status, promises to give it the same treatment given to the first state most favored trading partner

exchange rate

the rate at which one states currency can be exchanged for the currency of another state. Since 1973, the international monetary system has depended mainly on floating rather than fixed exchange rates.

gold standard

a system in international monetary relations, prominent for a century before the 1970s, in which the value of national currencies was pegged to the value of gold or other precious metals 

hard currency

money that can readily converted to leading world currencies

generalized system of preferences

(GSP) a mechanism by which some industrialized states began, in the 1970s to give tariff concessions to third world states on certain imports; an exception to the most-favored nation (MFN) principle

autarky

a policy of self-reliance, avoiding or minimizing trade and trying to produce everything one needs (or the most vital things) by oneself

intellectual property rights

the legal protection of the original works of investors, authors, creators, and performers under patent, copyright, and trademark law. Such rights became a contentious area of trade negotiations in the 1990s 

discount rate 

the interest rate charged by governments when they lend money to private banks. the discount rate is set by countries and central banks 

international monetary fund 

(IMF) an intergovernmental organization (IGO) that coordinates international currency exchange, the balance of international payments, and national accounts. along with the world bank, it is a pillar of the international financial system

world trade organization

(WTO) an organization begun in 1995 that replaced the GATT and expanded its traditional focus on manufactured goods. The WTO created monitoring and enforcement mechanisms

world bank

formally the international bank for reconstruction and development (IBRD), an organization that was established in 1944 as a source of loans to help reconstruct the European economies. later, the main borrowers were third world countries and, in the 1990s, eastern European ones

managed float

a system of occasional multinational government interventions in currency markets to manage otherwise free-floating currency rates

fiscal policy 

a governments decisions about spending and taxation, and one of the two major tools of macroeconomic policy making (the other being monetary policy) 

industrialization

the use of fossil-fuel energy to drive machinery and the accumulation of such machinery along with the products created by it

fixed exchange rates

the official rates of exchanges for currencies set by governments; not a dominant mechanism in the international monetary system since 1973 mr

mercantilism

an economic theory and a political ideology opposed to free trade; it shares with realism the belief that each state must protect it own interests without seeking mutual gains through international organizations