international business unit 2

international trade

the purchase, sale, or exchange of goods and services across national borders. 

absolute advantage

ability of a nation to produce goods more efficiently than other nations. (produce a greater output using the same or fewer resources).

comparative advantage

ability of a country to produce a good more efficiently than it does other goods, but not the most efficient at producing said good

international product life cycle

a company begins by exporting its product and later undertakes foreign direct investment as the product moves through its life cycle

new product stage

high purchasing power and demand for a product in domestic area

maturing product stage

the domestic market, and markets abroad become fully aware of the existence of the product and its benefits. Demand rises and near the end the product generates sales in developing nations, and may move manufacturing there

standardized product stage

competition from other companies selling similar products pressures companies to lower prices, and moving production abroad. Home country begins importing. 

free trade

pattern of imports and exports that occurs in the absence of trade barriers. 

infant industry argument

emerging industries need protection from international competition during development until they become competitive internationally.

strategic trade policy

attempts to affect the outcomes of strategic competition among companies in favor of domestic firms.

managed trade

government efforts to achieve trade objectives pertaining to market shares or quantities of specific products. 

subsidies

 financial assistance to domestic producers in the form of cash payments, low-interest loans, tax breaks, product price supports, or other form

export assistance

help companies finance export activities

foreign trade zone

increase trade by designating a region where there are low customs. 

tariffs

a government levied tax on a product as it enters or leaves a country. Designed to protect domestic producers and generate revenue

quota

restrict the amount of a good that can be imported.

local content requirement

a certain amount of a good most come from domestic market

rationalized production

production system in which each component is produced where the cost of producing the component is the lowest. 

foreign direct investment

the purchase of physical assets or a significant stock ownership of a company in another country to obtain management control.

greenfield investment

the purchase of land in another country and construction of new facilities from the ground up 

foreign exchange market

 market in which currencies are bought and sold and in which currency prices are determined. 

exchange rate risk

potential for adverse changes in exchange rates that could harm a business

transaction exposure

risk that an exchange rate change will affect the value of a business transaction. 

translation exposure

risk that an exchange rate change will affect a company’s financial statements. 

devaluation

intentional lowering of the value of a currency by the nation’s government

revaluation

intentional raising of the value of a nation’s currency. Increases the price of exports and reduces the price of imports

currency hedging

the practice of insuring against potential losses that result from adverse changes

currency arbitrage

instantaneous purchase and sale of currency in different markets for profit

convertible currency

trades freely in the foreign exchange market and whose price is determined by supply and demand

law of one price

identical product must have an identical price in all countries with a common currency

international monetary fund

regulates fixed exchange rates and enforces the rules of the international monetary system

eurobond

issued outside the country in whose currency it is denominated

foreign bond

sold outside borrower’s country and denominated in currency of country which it is