Global Business & Economics Review

Flashcards for exam review covering key concepts in global business and economics, including trade theories, FDI, exchange rates, institutions, political/economic systems, market structures, macroeconomic policies, and GDP.

What are the two core perspectives for global business?

Institution-based view (rules, laws, norms) and Resource-based view (firm-specific capabilities like brand or tech).

Define globalization and its three views.

Integration of markets. Views: Pro-globalization (positive growth), Pendulum (swings), Anti-globalization (harms jobs).

What is FDI?

Foreign Direct Investment – investment in another country’s operations.

What is the difference between horizontal and vertical FDI?

Horizontal: Same activity abroad; Vertical: Different stage of production abroad.

What is the OLI advantage?

Ownership (firm assets), Location (foreign benefits), Internalization (in-house control).

What are the three political views on FDI?

Radical (against), Free Market (pro), Pragmatic Nationalism (case-by-case).

In FDI, what are home and host countries?

Home: Origin of firm; Host: Destination country.

What is dumping?

Selling below cost abroad. Anti-dumping duties are tariffs to counteract this.

What is collusion? Why is it hard?

Firms setting prices together; difficult due to large number of firms or product differences.

How do resources impact competition?

More resources = stronger position. Ex: Amazon’s logistics = edge.

What is resource similarity?

Similar resources → high rivalry (e.g., Coke vs. Pepsi).

What are 4 strategies local firms use against MNEs?

Defender, Extender, Contender, Dodger.

Define trade deficit, surplus, and balance of trade.

Deficit: Imports > exports; Surplus: Exports > imports; Balance: Net exports.

Name three classical trade theories.

Mercantilism, Absolute Advantage, Comparative Advantage.

Name three modern trade theories.

Product Life Cycle, Strategic Trade, Porter’s National Advantage.

What is an exchange rate?

The value of one currency relative to another.

What affects FX supply and demand?

Interest/inflation rates, trade flows, stability.

What is PPP?

Purchasing Power Parity – same goods = same price globally.

What happens when currency appreciates or depreciates?

Appreciation: Stronger currency; Depreciation: Weaker currency.

Types of exchange rate systems?

Fixed, Pegged, Floating, Managed Float.

How do interest/inflation affect FX?

↑ Interest → ↑ value; ↑ Inflation → ↓ value.

What is transaction risk?

FX rate changes impact future cash flows.

Three types of FX transactions?

Spot, Forward (hedging), Swap.

Best way to hedge FX exposure?

Use forward contracts.

First vs Late Movers: Example?

Uber (first) – brand advantage; Lyft (late) – improved strategy.

Two foreign market entry modes?

Equity (JV, subsidiary), Non-equity (exporting, licensing).

How do institutions reduce uncertainty?

They provide rules and expectations.

What are the 3 pillars of institutions?

Regulatory, Normative, Cognitive.

Two propositions of the institution-based view?

Institutions matter; strategy bounded by institutions.

What is totalitarianism?

Full government control. Types: Communist, Theocratic, Right-Wing.

What is democracy?

Citizens elect leaders, laws govern society.

Compare legal systems.

Civil: Code (France); Common: Precedent (USA); Theocratic: Religious (Iran).

Compare economic systems.

Market (private, flexible), Command (gov’t), Mixed (both).

What is political risk?

Uncertainty from political changes (e.g., Venezuela).

Business implications of political/economic systems?

Must adapt strategy; risk level differs.

What are property rights?

Legal rights to own/use assets.

How is IP protected?

Patents, copyrights, trademarks, trade secrets.

Why protect IP globally?

Encourages innovation, reduces theft.

What is a budget constraint?

Shows limits based on income/prices.

What affects budget constraints?

Income ↑ = outward shift; Price ↑ = rotate inward.

What is an indifference curve?

Shows equal satisfaction from different goods combos.

4 properties of indifference curves?

Downward sloping, higher = better, never cross, convex.

What is marginal cost (MC)?

Extra cost of one more unit (ΔTC/ΔQ).

How do MC and ATC/AVC interact?

MC intersects them at their minimum.

Fixed vs Variable Costs?

Fixed: Do not change (rent); Variable: Change with output (materials).

Shutdown vs Exit?

Short run: P < AVC; Long run: P < ATC.

Difference between monopoly & monopolistic competition?

Monopoly: One firm; MC: Many differentiated.

3 barriers to entry in monopoly?

Legal (patents), Natural (utilities), Strategic (pricing).

How does a monopoly set price/quantity?

MR = MC → Price from demand curve.

What is the Prisoner’s Dilemma in firms?

Even if cooperation yields better result, firms may not trust each other.

What’s a duopoly?

An oligopoly with two firms.

Which structures are imperfect competition?

Monopoly, Monopolistic Competition, Oligopoly.

Fiscal vs Monetary Policy?

Fiscal = taxes/spending; Monetary = interest/money supply.

What is the Federal Funds Rate?

Rate banks charge each other overnight.

What are bank reserves?

Funds held at the Fed or in bank vaults.

What is the discount rate?

Fed’s loan rate to banks.

What is the reserve ratio?

% of deposits banks must hold.

What are open market operations?

Fed buying/selling bonds to control money supply.

What is aggregate demand (AD)?

Total demand for goods/services (C+I+G+NX).

How to decrease money supply?

Sell bonds, raise discount rate, raise reserve ratio.

What’s the crowding out effect?

Gov’t borrowing raises rates, reducing private investment.

What is the expenditure multiplier?

1/(1-MPC); shows total spending impact.

Effect of gov’t cutting spending?

↓ Aggregate demand.

What are automatic stabilizers?

Built-in fiscal tools (e.g., unemployment insurance, tax brackets).

What is consumer surplus?

Willingness to pay – actual price.

What is producer surplus?

Price received – cost.

What is total surplus?

CS + PS = market efficiency.

Define GDP.

Total value of final goods/services produced domestically.

4 Components of GDP?

Consumption, Investment, Gov’t Spending, Net Exports.

Why income = expenditure?

Every dollar spent becomes someone’s income.

Examples for GDP: New house? Tuition?

New house & tuition: Yes; Imported goods: No.

What is the GDP deflator?

Nominal GDP / Real GDP × 100.

Why not count transfer payments in GDP?

Not for goods/services produced.

GDP’s flaws as well-being measure?

Ignores inequality, pollution, unpaid work.

Why do countries trade?

Gains from specialization and efficiency.

Exporting good: winners/losers?

Sellers win, buyers lose (↑ price).

Importing good: winners/losers?

Buyers win, sellers lose (↓ price).

Tariff impacts?

↑ Price, helps sellers, hurts buyers & foreign producers, generates gov revenue.

What is deadweight loss in tariffs?

Loss in CS/PS from inefficiency.

5 arguments against free trade?

National security, infant industries, unfair competition, job loss, retaliation.