Business Exam #2

bUsiness

Free Trade Area

Economic integration whereby countries seek to remove all barriers to trade among themselves but where each country determines its own barriers against nonmembers.

cultural imperialism

The act of a business of encroaching, or pushing all of their culture onto a market or place, without regard for the one they are invading.

Instrument of Trade Promotion: Subsidy

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

Instrument of Trade Promotion: Export Financing

The offering of loans by government, to help a company or charging an interest rate, that is lower than the market standard.

Instrument of Trade Promotion: Foreign Trade Zone (FTZ)

Designated geographic region through which merchandise is allowed to pass with lower cus­toms duties (taxes) and/or fewer customs procedures.

Instrument of Trade Promotion: Special Agencies

A government agency that promotes exports, in which it helps businesses with limited financial resources, to meet with and make contracts with nations in which it wishes to do business with. Making the process of selling your product internationally, an easier process.

Instruments of Trade Restriction: Tariffs

Government tax levied on a prod­uct as it enters or leaves a country.

Ad valorem tariff

Tariff levied as a percentage of the stated price of an imported product .

specific tariff

Tariff levied as a specific fee for each unit (measured by num­ber, weight, etc.) of an imported product.

Compound tariff

Tariff levied on an imported product and calculated partly as a percent­ age of its stated price and partly as a specific fee for each unit .

Instruments of Trade Restriction: Quota

Restriction on the amount (mea­sured in units or weight) of a good that can enter or leave a country during a certain period of time.

Instrument of Trade Restriction:

Complete ban on trade (imports and exports) in one or more products with a particular country.

Instrument for Trade Restriction: Local Content Requirements

Laws that say producers in the domestic market supply a specified amount of a good or service, Used to mainly encourage companies from other nations to use their local resources, particularly labor, instead of finding cheaper ways to get it done, abroad.

Instrument of Trade Restriction: Administrative Delay

Regulatory controls or bureaucratic rules designed to impair the flow of imports into a country. Includes wide range of government actions like requiring international air carriers to land at inconvenient airports, requiring product inspections that damage the product itself, pw-posely understaffing customs offices to cause unusual time delays, and requiring special licenses that take a long time to obtain.

Instrument of Trade Restriction: Currency Controls

Restrictions on the convertibility of a currency into other currencies.

Dumping

Exporting a product at a price either lower than the price that the product normally commands in its domestic market or lower than the cost of production.

Anti dumping duty

Additional tariff placed on an imported product that a nation believes is being dumped on its market.

What is free Trade?

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

Why Governments Intervene in Trade: Political Motives

To Protect Jobs (When trade with another country causes unemployment to rise), To Preserve National Security (Make sure the country has a supply of items to protect themselves), To Respond to Unfair Trade (Stopping trade, when one country is being protective of their own, as well as being unfair), as well as To Gain Influence.

Why Countries Intervene in Trade: Economic Motives

To protect infant industries (emerging industries that need protection from tough international competition during their early stages), Pursue Strategic Trade Policy, (increased national income)

Why countries intervene in trade: Cultural Motives

Protecting National Identity, and protecting against unwanted cultural influence, that can cause great distress within a nation.

International Trade

Purchase, sale, or exchange of goods and services across national borders. International trade provides a country's people with a greater choice of goods and services

Trade Patterns: Trade Interdependence/ Dependence

Trade Interdependence, being businesses relying on eachother directly, and it could be 2 or more involved. Trade dependence, When A nation that has a recession or some form of financial turmoil, harms nations that depend on their trade and assistance.

Trade Deficit:

Condition that results when the value of a country's imports is greater than the value of its exports.

Trade Surplus

Condition that results when the value of a nation's exports is greater than the value of its imports.

Absolute advantage

Ability of a nation to produce a good more efficiently than any other nation

Comparative Advantage

Inability of a nation to produce a good more efficiently than other nations but an ability to produce that good more efficiently than it does any other good.

factor proportions theory

Trade theory stating that countries produce and export goods that require resources {factors) that are abundant and import goods that require resources in short supply.

International Product Life Cycle Theory

Theory stating that a company will begin by exporting its product and later undertake foreign direct investment as the product moves through its life cycle.

new trade theory

Trade theory stating that (1) there are gains to be made from special­ization and increasing economies of scale, (2) the companies first to market can create barriers to entry, and (3) government may play a role in assisting its home companies

national competitive advantage theory

Trade theory stating that a nation's competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.

Foreign Direct Investment:

Purchase of physical assets or a significant amount of the ownership (stock) of a company in an-Othercountry to gain a measure of management control.

Portfolio Investment

Investment that does not involve obtaining a degree of control in a company.

Market Imperfections Theory

Theory stating that when an imperfection in the market makes a transaction less efficient than it could be, a company will undertake foreign direct investment to inter­ nalize the transaction and thereby remove the imperfection.

eclectic theory

Theory stating that firms undertake foreign direct investment when
the features of a particular location combine with ownership and inter­nalization advantages to make a location appealing for investment.

Greenfield investment

(Purchase of an existing subsidiary) a subsidiary abroad from the ground usually called a Greenfield investment. An acquisition generally provides the investor with an existing plant, equipment, and personnel. The acquiring firm mayalso benefit from the goodwill the existing company has built up over the years and, perhaps,the existing finn's brand recognition.

Sunset Industries

Outdated and obsolete companies using outdated and obsolete technologies, that use low-wage workers with not many skills.

Regional Economic Integration Level 1: Free Trade Area

Economic integration whereby countries seek to remove all barri­ers to trade among themselves but where each country determines its own barriers against nonmembers

Regional Economic Integration Level 2: Customs Union

Economic integration whereby countries remove all barriers to trade among themselves and set a common trade policy against nonmembers.

Regional Economic Integration Level 3: Common Market

Economic integration whereby countries remove all barriers to trade and to the movement of labor and capital among themselves and set a common trade policy against nonmembers.

Regional Economic Integration Level 4: Economic Union

Economic integration whereby countries remove barriers to trade and the movement of labor and capital among members, set a common trade policy against non­ members, and coordinate their economic policies.

Regional Economic Integration Level 5: Political Union

Economic and political integration whereby countries coordinate aspects of their economic and political systems.

stock

Shares of ownership in a compa­ ny's assets that give shareholders a claim on the company's futurecash flows.

bond

Debt instrument that specifies the timing of principal and interest payments .

Expanded Money Supply borrowers most of all, allowing them to obtain funds from lenders, whothey may not of gotten money from in their domestic country.

Impacts borrowers most of all, allowing them to obtain funds from lenders, whothey may not of gotten money from in their domestic country. As well as reduces the risk for lenders, and reduces the cost of money for borrowers, in terms of interest rates. Money supply increases, interest rates decrease.

Liquidity

Ease with which bondholders and shareholders may convert their investments into cash

Where are the worlds three most important financial centers?

London, New York, and Tokyo

Vehicle Currency

A currency used as an intermediary to convert funds between two other currencies. Like the U.S. Dollar, is used for that, as a ways to convert funds easier.

exchange rate

Rate at which one currency is exchanged for another.

currency hedging

Practice of insuring against potential losses that result from adverse changes in exchange rates.

Law of One Price.

The rule that if one product costs something, it should have an equal valued price in another.

North American Free Trade Agreement (NAFTA)

As a free trade agreement, NAFTA has eliminated all tariffs and nontariff trade barriers on goods originating within North America. The agreement also calls for liberalized rules regarding government procurement practices, the granting of subsidies, and the imposition of countervail­ ing duties.

Central American Free Trade Agreement (CAFTA-DR)

The agreement benefits the United States in several ways. CAFrA-DR aims to reduce tariff and nontariff barriers against US exports to the region. It also ensures that US companies are not disad­vantaged by Central American nations' trade agreements with Mexico, Canada, and other countries. The agreement also requires the Central American nations and the Dominican Republic to reform their legal and business environments to encourage competition and investment, protect intellectual property rights, and promote transparency and the rule of law.