Unit 1 - IB Exam prep

Trade Advantages

Meeting our needs, lower prices, job creation, FDI, New technology, Diversified products and services, leads to greater peace, leading to greater social progress, better quality products.

What is the Canadian trade trend

1980s - 2008: consistent surplus
2009 - current: Mostly deficits
Exceptions: 2021 (Large surplus) & 2025 (small surplus)

Foreign Portfolio Investment

Investment in businesses located outside of Canada through stocks, bonds, and financial instruments.

Importing

Bringing products or services into a country for use by another business or for resale.

Exporting

Sending goods or services to another country for use by a business or for resale.

Global Sourcing

The process of a company buying equipment, capital goods, raw materials, or services from around the world.

Licensing Agreement

Permission to use a company’s brand, product, or patent, for a fee.

Franchise

An agreement that allows individuals to operate under a company’s brand and system.

Subsidiary

A parent company that owns and controls other companies

What is the connection between Jeff Rubin, the elephant chart, globalization, and populism?

The elephant chart shows that although globalization increased incomes worldwide, the middle class in developed countries experienced little income growth. Globalization shifted jobs and wage growth to lower-cost countries, benefiting corporations and emerging economies while weakening economic security for middle-class workers in developed nations. This stagnation created frustration and distrust toward political and economic elites. As a result, many voters turned to populist movements that promise to protect domestic workers and push back against globalization.

Protectionism

Shielding a country’s domestic industries from foreign competition is common.

They exist to protect a country from trade disadvantages. To protect domestic industries, nations utilize trade barriers.

Winners of protectionism

• New and old domestic industries are protected from foreign competition

• Raises government tax revenue

• Employees of protected industries are protected; possibly more openings

Losers of protectionism

• Foreign producers will likely lose market share and thus revenue and profit

• Consumers (higher costs)

• Foreign employees (likelihood of job losses)

Trade Quota

A government-imposed limit on the amount of a product that can be imported during a certain period.

Trade Embargo

A government-imposed complete ban on trade with a specific country.

Trade sanctions

They are partial embargoes. It limits trade of specific products or with specific companies or individuals.

What is the purpose of embargoes and sanctions

They are often imposed to pressure foreign governments to change their policies or change their human rights record.

Which act was passed, acting as a trade barrier?

Investments Canada Act is a law to ensure certain foreign investments are in Canada’s interest.

• Many laws are put in place to ensure Canadian companies are protected against foreign ownership

Barrier of trade: standards

The ISO (International Organization for Standardization) is a network of standardization groups from over 170 countries, established to set quality regulations

Countries have different product or performance standards requiring products/services to fit the regulations of the importing country

What is the trade off for Canadian protectionism?

stability for producers vs higher costs and less choice for consumers

Who are the winners and losers of Canadian protectionism?

Producers win = Stability and protection

Consumers lose = higher prices and fewer selections

What are the 8 industries that follow Canadian protectionism? How is Canadian protectionism applied for each?

Maple Syrup, Dairy, Telecommunications, Bank, Broadcasting, Alcohol, and Gambling

What is the purpose of money?

1. Medium of Exchange

2. Measure of Value

3. Store of value

Exchange Rate

The amount of one country’s currency that can be traded for one unit of currency of another country.

How is foreign exchange related to international business?

When trading with another country, you must use their currency. Currency fluctuations create uncertainty in pricing goods and services accurately.

If Canadian $ is low,, meaning it requires more Canadian dollars to buy one US dollar, who are the winners and losers?

• Canadian tourism

• Raptors, Leads, and Blue Jays

• Canadian retail

• Canadian travelers

• Importers

• Exporters

Winners:

• Canadian tourism

• Canadian retail

• Exporters

Losers:

• Importers 

• Canadian travelers

• Raptors, Leads, and Blue Jays

Floating/Flexible Exchange rate

Currency fluctuates (rises and falls) over time:

• Currency appreciates and depreciates, which depends on supply and demand

Fixed (pegged) exchange rate

The rate is fixed to another currency (USD or Euro) or to another measure of value (i.e., gold)

How does a country create a fixed (pegged) exchange rate?

A country’s Central Bank buys and sells its own currency against the currency it’s pegged (fixed) to.

What are the factors affect currency value?

1. Inflation: Low inflation symbolizes, stability, increasing demand

2. Unemployment: A high unemployment rate represents instability

3. Gross domestic product (GDP): A stable or rising GDP demonstrates stability

4. Interest Rate: A Low interest rate attracts foreign investors

Balance of Trade

The difference between a country’s exports and imports.

What are the factors that affect the balance of trade?

1. Trading between countries: The more favorable the terms of trade (comparison of exports to imports), the higher the currency exchange rate

2. Political stability

3. Psychological factors: Some currencies are considered Hard currencies because they are easily converted to other currencies. On the other hand, soft currencies are not easily converted

What effect does a surplus or deficit have on currency?

Surplus = strong currency

Deficit = weaker currency

How and why do countries depreciate their currency?

How: Lower interest rate, market intervention, policies use to weaken currency

why: Boost exports, discourage imports, cut deficits, ease debt, encourage domestic production

Tariffs

A tax imposed by the local government on goods and services coming into a country.

Foreign Exchange

The process of converting the currency of one country into the currency of another country.

For trade advantages, what are the 3 reasons linked to how trade leads to greater peace

Economic interdependence, avoid financial loss (loss of market = lower exports), increase communication (humanizing others thru interaction)

Consumer Benefits

Advantages for consumers, including lower prices, better quality, and functional and innovative designs.

Joint Venture

A business arrangement where two or more parties share ownership, risks, and profits.

Subsidiary

A company that is fully or mostly owned by a parent company, operating independently.

Foreign Investment Restrictions

Laws that impose conditions on foreign investments to protect national interests.

Populism

A political approach that seeks to represent the interests of ordinary people against elites.

Cultural Protectionism

Policies that are designed to protect local culture from foreign influence or competition.

Nearshoring

The practice of relocating business operations closer to the home country.

Purpose for International trade

To attain what a country lacks

Purpose of Foreign portfolio investment

Increase wealth, diversification, greater ROI (Return on investment.

Value added

The value added to a product at each stage of production

Exclusive distribution agreement

A licensing agreement giving one company sole distribution rights in a region

Joint Venture

 A business formed by 2 or more parties sharing ownership, risks, and profits

Foreign subsidiary

A company fully or mostly owned by a partner company, operating independently but in another country

Trade disadvantages

Support of non-democratic systems, Loss of cultural identity, social welfare issues, loss security, job loss, economic loss, complex supply chain

For Trade disadvantages, what does it mean by social welfare issues?

Stand related to safety, minimum wages, health, the environment, etc, that add cost to Canadian businesses. Countries that do not maintain these standards can produce goods more cheaply.

For trade disadvantages, what does it mean by economic loss?

Certain economic sectors (manufacturing) are negatively impacted (stagnant wages)

• Developing countries typically benefit; demographic segments of developed nations may be negatively impacted

What does cultural identity issues look as a culture consumer?

Consumers are often overwhelmed and influenced by the ideals of American society.

What is done to reduce the risk of culture identity issues?

Cultural protectionism

What are the examples of Canadian protectionism?

Foreign ownership: Limiting foreign ownership, such as Canadian recording companies, book publishers

Radio: Content limits with 35% of all music played on private radio stations must be Canadian

CBC: They receive $1.1B annually from the Canadian government