Chapter 2 Flashcards
Foreign portfolio investment
- investment in businesses located outside Canada through stocks, bonds and financial instruments
- allows Canadians to spread out their investments which is less risky than investing in just one area
- provides greater choice and opportunity
Importing
- to bring products/ services into a country for use by another business or for resale
- majority of Canadian imports are from the states
Global sourcing
- the process of a company buying equipment, capital goods, raw material, or services from around the world
Exporting
- to send goods or services to another country, for use by a business or for resale
- majority of Canadian exports go to the states
Measuring economic progress: GDP
Gross domestic product = measures the output of goods and services a country produces within its borders
Measuring economic progress: GNP
Gross national product: measures output of goods and services produced by all the resources of a country
Balance of trade
The difference between a countries exports and imports
Trade surplus
More exports than imports
Trade deficit
More imports than exports
- results in foreign dept
Making economic decisions
- Define the problem
- Identify alternatives
- Evaluate alternatives
- Make a choice
- Take actions
- Review the decision
Value added
The amount of worth that is added to a product that is being processed
Foreign subsidiaries
- aka wholly owned subsidiary
= a branch of a company that is run as an independent entity in a country outside of the one which the parent company is located
Licensing agreement
Gives a company permission to use a product, service, brand name or patent in exchange for a fee or royalty
Exclusive distribution rights
A form a licensing agreement that grants a company the right to the only distributor of a product in a specific geographic area or country
- used for initial entry into a foreign market
Franchise
An agreement granted to an individual or group by a company to use that company’s name, services, products and marketing
Joint venture
A common type of international business
- a new company with shared ownership is formed by two businesses, one of which is usually located in the country where the new company is established
Trade barriers
Tariffs, protectionism, trade quotas, trade embargoes, trade sanctions
Protectionism
The theory or practise of shielding domestic industries from foreign competition often through trade barriers such as tariffs
Tariffs
The most common type of trade barrier
= taxes or duties put in imported products or services to allow domestic products to be competitive
Trade quotas
A government imposed limit on the amount of product that can be imported in a certain period of time
Trade embargoes
A government imposed ban on trade of a specific product or with a specific country, often declared to pressure foreign government to change their policies
Trade sanctions
Economic action taken by a country to coerce another country to conform to an international agreement or norms of conduct
Foreign investment restrictions
- Canadian law with the greatest impact is the Investments Canada Act
- ensures that all foreign investments are revised to determine they will benefit Canada
- foreign investments in uranium, financial, transportation, and cultural industries = automatically reviewed
Standards
- countries have different standards for products in areas such as environmental protection, voltage and health and safety
ISO
International organization for standardization
= network of standardization groups from over 170 countries established to set quality regulation
Exchange rate
The amount of one country’s currency in relation to the currency of another country
CAD and the USD
The Canadian dollar is most often quoted against the US dollar because the two countries are the largest trading partners in the world
Winners of a high Canadian dollar
- importers
- Canadian travellers
- major league sports teams in Canada
Losers of a high Canadian dollar
- exports
- Canadian Tourism
- Canadian retailers
Floating rate
An exchange rate that is not fixed in relation to other currencies
- the price at which currency with a floating rate is bought and sold fluctuates according to supply and demand
Currency revaluation
The increase in value of a currency because the demand for that particular currency is greater than the supply
Currency devaluation
The decrease in value of a currency because the supply of that particular currency is greater than the demand for it
Factors affecting the exchange rate
- Economic conditions
- Trading between countries
- Politics
- Psychological factors
Economic conditions that affect exchange rate
- economic conditions in Canada
Ex. Inflation rate, unemployment rate, GDP, interest rates
Taking between countries and exchange rate
- the more favourable the terms of trade (comparison of exports to imports) the higher and currency exchange
Politics and exchange rate
Political tension and instability or the threat of terrorism decreases the demand for a currency
Psychological factors and exchange rate
Historical significance and stability change the way currencies are viewed
Hard currencies
- Stable currencies
- easily converted to other currencies on the world exchange market
- eg the euro, USD and CAD
Soft currencies
A currency belonging to a country with an economy that is small, weak or that fluctuates often and is difficult to convert into other currencies
- eg. Russian ruble or Chinese yuan
Currency speculating
Buying, holding, or seeking foreign currency in anticipation of its value changing in order to profit from fluctuation in the price of currency
Fixed exchange rate
- aka pegged exchange rate
- a currency’s value is fixed against either the the value of another single currency
Eg. Venezuela Bolivar
Time zones
- communication technology allows the world of international business to operate 24 hours a day
- email used anytime
- telephone needs knowledge of time zones
- some methods = immediate feedback and interaction
Tariff winners
- Domestic governments - collect additional taxes
- Local producers - good are more competitively priced
- Local employees - keep their jobs
Losers of tariffs
- Foreign producers - good are more expensive
- Consumers - pay higher prices
- Foreign employees - lose out on opportunities
Why does Canada favour eradication of tariffs
Because when one country implements a tariff it’s trading partner will retaliate with a tariff of its own
Pros cons of protectionism
Pro: retains domestic jobs
Con: cause other countries to limit their imports of Canadian goods
Riskiest types of international businesses and why
Joint ventures and foreign subsidies
- bc the parent company shares ownership or allows the subsidiary to be run by foreign nationals with little interference from the home country
How can companies enter international markets
Importing, exporting, licensing agreements, franchising, joint venture, foreign subsidiaries
Canada’s top imports
Machinery and equipment, motor vehicles and parts, oil, chemicals, electricity, and consumer goods
Canada’s top exports
Motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment, chemicals, plastics, fertilizer, wood pulp, timber, crude petroleum, natural gas, electricity, and aluminum
