Global Business Exam 4

Chapters 11-13

international monetary system

institutional arrangement countries adopt to govern exchange rates

floating exchange rate

hard currencies, conversion rates between currencies are constantly adjusted based on supply and demand

pegged exchange rate

currency value is fixed relative to a reference currency, exchange rate determined by reference currency

managed float system

currency allowed to float freely, but majority are managed by government or pegged under another currency, exchange rate determined by reference currency

dirty float system

currency nominally allowed to float freely but government can intervene with buying/selling if currency has deviated too far from its fair value

fixed exchange rate

exchange rate for converting currency is fixed, mutually agreed-on rate

EMS (European monetary system)

creates zone of monetary stability in Europe, controls inflation and coordinates exchange rate policies of EU countries

dollarization

process of aligning currency with the US dollar

gold standard

pegging currencies to gold, guarantees convertibility

gold par value

amount of currency needed to purchase 1 oz. of gold

balance of trade equilibrium

income of nation’s residents earned from exports = money paid for imports

currency board

controls country’s currency

currency crisis

Brazil 2002, attack on exchange value of currency results in sharp depreciation in value of currency or forces authorities to spend foreign reserves and sharply increase interest rates to defend prevailing exchange rates

banking crisis

Iceland 2008, loss of confidence in banking system leads to run on banks, many withdraw their deposits

foreign debt crisis

Greece, Portugal, Ireland 2010, country cannot pay its foreign debt

moral hazard

people behave recklessly because they know they will be saved if things go wrong

stability

everything for small currencies

IMF members

21% float freely, 23% limited intervention, 46% fixed currencies

strategy

actions managers take to attain the goals of their firm

profitability

ratio or rate of return

profit growth

percentage increase in net profits over time

value creation

performing activeness that increase the value of products to consumers

operations

different value creation activities a firm undertakes

primary activities

R+D, procession, marketing/sales, customer service

support activities

allow primary activities to occur

core competence

firm skills competitors cannot easily imitate, competitive advantage

location economies

cost advantages from performing a value creation activity at the optimal location for that activity

global web

when different stages of value chain are dispersed to those locations around the globe where value added in maximized or where costs of value creation are minimized

experience curve

systematic production cost reductions that occur over the life of a product

learning effects

cost savings that come from learning by doing

economies of scale

reductions in unit cost achieved by producing a large volume of a product

universal needs

needs that are the same worldwide, steel, etc.

global standardization strategy

firm focuses on increasing profits and profit growth by reaping cost reductions that come from economies of scale, learning effects, and location economies

localization strategy

increasing profits by customizing firm’s products to match preferences in different national markets

transactional strategy

attempt to achieve low cost through economies of scale, location economies, and learning effects, while also differentiating product offerings to account for local preferences

international strategy

create value by transferring core competencies to foreign markets where local competitors lack those competencies

value

we buy things when the value exceeds the price

2 items with the highest value

window air conditioners and stovetop stuffing

hershey

risky shipping, competitors filling the chocolate with cheaper things, Reese’s saved hershey

consumer surplus

value-price, what you’ll pay a little extra for

profit

price-cost

value created

value-cost

gym shoe

generic, box is shipping air

TWA airlines

airplanes never recover capitol, must buy extra parts and store them, eliminated lettuce to save costs and decrease complaints, let many employees go, even the dogs