IBT FINALS

international monetary system

refers to the institutional arrangements that govern exchange rates.

floating exchange rate regime

When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a floating exchange rate regime.

pegged exchange rate

means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

managed float system

It is a float because, in theory, the value of the currency is determined by market forces, but it is a managed (or dirty) float (as opposed to a clean float) because the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency.

fixed exchange rate

in which the values of a set of currencies are fixed against each other at some mutually agreed-on exchange rate.

the gold par value

The amount of a currency needed to purchase one ounce of gold.

balance-of-trade equilibrium

A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is equal to the money its residents pay to other countries for imports (the current account of its balance of payments is in balance).

THE EUROCURRENCY MARKET

Involves currencies banked outside their country of origin.

Foreign bonds

sold outside borrower's country, denominated in local currency.

Yankee bonds

foreign bonds sold in the United States.

Samurai bonds

foreign bonds sold in Japan.

bulldogs

foreign bonds sold in Great Britain.

Eurobonds

sold outside the country of the currency they're denominated in, via international bank syndicates.

Strategy

refers to the actions managers take to achieve company goals.

Profitability

Measures how efficiently a firm uses its resources.

Return on Invested capital (ROIC)

Net Profits ÷ total invested capital.

Profit Growth

Measures how fast profits increase over time.

VALUE CREATION

Value is created when the value perceived by customers is greater than the cost of production.

STRATEGIC POSITIONING

refers to how a firm positions itself in the marketplace relative to competitors.

value chain

a framework that breaks down the firm into a set of value-creating activities.

Primary activities

directly involved in creating and delivering the product or service.

Support activities

support and enhance primary activities.

Core Competence

refers to skills and capabilities within the firm that competitors find difficult to imitate or match.

LOCATION ECONOMIES

are cost savings and performance benefits that arise when a firm performs a value-creation activity in the most efficient location worldwide.

LEARNING EFFECTS

result from employee learning and the accumulation of organizational knowledge.

ECONOMIES OF SCALE

occur when increasing production volume leads to a reduction in average costs.

Control systems

systems used to ensure that employees and subsidiaries act according to the company’s strategy.

Personal Control

involves direct supervision by managers through meetings, visits, and face-to-face communication.

Bureaucratic Control

relies on formal rules, procedures, and standard operating policies that employees must follow.

Output Control

focuses on results rather than employee behavior.

Cultural Control

based on shared values, beliefs, and norms within the organization.

Incentive systems

designed to motivate managers and employees to perform well, support organizational goals, and think globally.

Processes

refer to how decisions are made and how work is coordinated within an organization.

Organizational culture

consists of shared values, beliefs, norms, and assumptions within a company.

Localization Strategy

focuses on adapting products and services to meet local market needs in order to increase local responsiveness.

International Strategy

involves developing core competencies in the home country and transferring products or services abroad.

Global Standardization Strategy

This strategy focuses on cost reduction through standardization.

Transnational Strategy

aims to achieve both cost efficiency and local responsiveness by combining global integration with local adaptation.

Organizational change

refers to modifications in a firm’s strategy, structure, control systems, processes, or culture.

Unfreezing the Organization

This stage prepares employees for change by communicating why change is necessary, explaining problems with existing practices, and reducing resistance and fear.

Moving to the New State

In this stage, new strategies, structures, processes, and control systems are implemented, and employees are actively involved in the change process.

Refreezing the Organization

makes change permanent by reinforcing new behaviors through culture, incentives, training, and consistent management support.

organizational architecture

the full system used to manage international operations, including structure, control and incentive systems, processes, culture, and people.

Vertical differentiation

centers on whether decision-making is centralized or decentralized.

horizontal differentiation

focuses on how a firm divides into subunits, typically based on function, business type, or geography.

worldwide area structure

typically used by less diversified firms with domestic functional structures.

worldwide product divisional structure

typically adopted by diversified firms that originally had domestic product division-based structures.

global matrix structure

organizes around both product divisions and geographic areas.

Liaison roles

assign specific individuals in each subunit to coordinate regularly with counterparts in others, which builds permanent relationships to ease coordination impediments.

exchange rate regime

defined as the system a country uses to manage its currency value relative to other currencies, impacting trade and economic stability across nations.

Financial contagion

refers to the rapid spread of a crisis across borders, affecting multiple nations simultaneously.

moral hazard

suggests that banks and countries engage in reckless behavior, anticipating that the IMF will step in to provide financial support during crises, leading to unintended consequences.

market makers

commercial banks and investment banks.

Commercial banks

link the investor and the borrower indirectly through deposit-taking and lending at higher interest rates.

investment banks

facilitate the connection between investor and borrower directly by undertaking the lead in investments and charging fees.

Equity

selling stocks, dividends are not guaranteed.

Debt

loans or bonds, fixed repayments regardless of profits.

cost of capital

is the return borrowers pay to investors.

Deregulation

refers to the lifting of national barriers against financial services and cross-border capital flows.

"hot money"

seeking quick profits, rather than long-term “patient money” that supports stable growth.