IB Exam 4

Who uses the foreign exchange market?

Banks, Hedge Funds, Investment Firms

What is SPOT rate?

The real time price of currency at the time of trade

What are the “Majors” currency pairs?

EUR / USD

ESD / JPY

GBP / USD

USD / CHF

GBP

Pound Sterling (UK)

CHF

Swiss Frank

CNY

Chinese Renminbi

Why is the USD the most widely traded currency?

The US economy is the largest in the world and it is used worldwide for international trade and investment

What is a vehicle currency?

A currency that is widely used for international transactions, even between countries that do not use the currency. (USD)

What is transaction exposure?

The impact on profits when the currency rates change after the exchange

What is translation exposure?

The impact on the value of an asset, on a financial statement

How can companies hedge against Forex risks?

Forward contracts

-Companies agree to exchange currencies on a pre-agreed price in the future (30, 90, 180 days)

Currency Swaps

-Buy and sell a given amount of currency on the same date

What is Carry Trade?

A trading strategy that involves borrowing low and investing high, it looks for high interest rate spreads between countries.

What is the Big Mac index?

A way to compare the purchasing power of money in different countries by comparing the price of a Big Mac.

For an indirect market entry strategy what do EMC and ETC mean?

EMC (Export MGMT Company)

-A firms international department, no competing products, loyal to you and you only

ETC (Export Trading Company)

-Function as a matchmaker, carries multiple products, no loyalty

What is a direct market entry strategy like?

-Goes directly to end customers

-Sell through an in-country agent

What is a deemed export?

The release of controlled technology to foreign nationals inside the US (Export is a privilege not a right)

What percentage of export shipments originate from small/medium-sized firms?

Around 97%

What is EXW?

Ex Works (Factory)

What is FAS?

Free alongside ship (Port of Loading)

What is FOB?

Free on Board (Port of Loading)

What is CFR?

Cost and Freight (Port of Destination)

What is CIF?

Cost, Insurance, and Freight (Port of Destination)

What is the US Department of Commerce (USDOC)?

The most comprehensive information firm for US firms

What is the International Trade Association (ITA)?

-Help with US export controls, compliance, and market identification

What factors might influence the need to modify products?

Preferences, Geographical considerations, labeling requirements, and certifications

What factors do firms consider when identifying export markets?

They asses the demand and how competitive the landscape is

What are the payment instruments used in international transactions?

Cash in advance

Letters of credit

Documentary collection

Open accounts

Consigments

What does it take to launch a successful export program?

Market Research

Product Strategy

Market Entry Strategy

Export Compliance

Payment Options

Production Focused Marketing

-Focus on brand, price, and quality, not consumer needs

-Very Passive

-Ex. Vegemite or Bananas

Sales Focused Marketing

-Proactive Selling

-No differentiation between markets

-Ex. Levis or Cat Litter

Customer Focused Marketing

-Considers how and what to sell to global customers using capabilities

-Focus is on customer type, specifications, or country

-B2B Sales

-Ex. Adidas or Nike

What is an intermarket segment?

Transcend national boarders

Standardization vs Localization

-Similar marketing mix applied globally

-Adapting marketing mix applied to global audience