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International Business > Chapter 2: International Trade and Investment > Flashcards

Chapter 2: International Trade and Investment Flashcards

1
Q

T or F: The proportion of world trade coming from North America, Latin America, Africa, and the Middle East has decreased since 1983.

A

True

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2
Q

T or F: Thanks in part to communication advancements, international trade has stabilized and become evenly distributed across all countries of the world.

A

False

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3
Q

T or F: The vast proportion of outward FDI, about two-thirds, originates from the developed countries.

A

True

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4
Q

T or F: Internalization theory suggests that when an organization has superior knowledge, it may obtain a better price by selling it to the open market.

A

False

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5
Q

T or F: The dynamic capability theory states that for a firm to invest overseas, it must have three kinds of advantages: ownership specific, internalization, and location specific.

A

False

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6
Q

Since 1983, the proportion of world trade coming from the United States has:
a. increased by 20%.
b. tripled
c. decreased overall
d. not changed

A

c. decreased overall

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7
Q

Since 1980, the United States proportion of world trade in commercial services has:
a. not changed
b. increased one-third
c. decreased overall
d. increased more than fivefold

A

b. increased one-third

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8
Q

Which country ranked the highest in 2016 in terms of merchandise exports?
a. United Kingdom
b. India
c. China
d. United States

A

c. China

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9
Q

A major portion of the exports from developing countries go to ______ countries, and this proportion has been (increasing/decreasing)

A

developed; decreasing

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10
Q

When considering where to export, advantages to managers of focusing on a nation that is already a sizable purchaser of goods coming from the home country include all of the following EXCEPT:
a. the business climate in these importing nations is already relatively favorable.
b. import channel members (merchants, banks, and customs brokers) are experienced in handling import shipments from the exporter’s area.
c. satisfactory transportation facilities have already been established
d. the cultures of the two countries should be relatively similar and compatible.

A

d. the cultures of the two countries should be relatively similar and compatible

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11
Q

Foreign direct investment (FDI) from the US to the rest of the world was nearly $_____ trillion from 2013-2017. What were 3 reasons for this?

A

1.5
1. global competition
2. liberalized trade policies of foreign governments
3. advances in technology

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12
Q

Because FDI is used to set up or acquire assets for producing goods and services abroad, as FDI ______, U.S. exports should decline. Have they?

A

increases; no, they have increased

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13
Q

T or F: When it comes to merchandise, the U.S. does has a trade deficit. But when it comes to services, we are doing better.

A

True

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14
Q

T or F: International trade is with us to stay, it’s not going anywhere regardless of political and geopolitical stuff going on around the world.

A

True

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15
Q

Trade in (services/merchandise) has been growing faster than trade in (services/merchandise) for the last 20 years.

A

services; merchandise

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16
Q

The U.S. has a competitive advantage in (merchandise/services).

A

services

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17
Q

What are the 2 reasons why the U.S. has a competitive advantage in services?

A
  1. Cost of labor (cheaper cost of labor when producing merchandise overseas)
  2. We have the technology, the people, and we can afford to pay them alot
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18
Q

The expansion of trade is (even/uneven) around the world.

A

uneven

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19
Q

The proportion of world trade from the Americas, Europe, Africa, and the Middle East has (increased/decreased) since 1983.

A

decreased

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20
Q

An increase in the proportion of exports from ______ since 1980 has transformed many nations that were once impoverished in the 1950s into developed countries. (like China and South Korea)

A

Asia

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21
Q

T or F: Merchandise and service exports have decreased in absolute dollar value in almost all primary-world regions.

A

False; increased

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22
Q

Rapid growth in world exports since 1980 presents positive and negative consequences.
What are two pros?

A
  1. Demonstrates that increasing sales through exporting is a viable growth strategy
  2. Creates jobs in exporting nations
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23
Q

Rapid growth in world exports since 1980 presents positive and negative consequences.
What is a con?

A

Increased competition from exports in their own domestic markets

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24
Q

What country is #1 in merchandise exporting?

A

China

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25
Q

What country is #1 in merchandise importing?

A

United States

26
Q

What country is #1 in service exporting AND importing?

A

United States (China catching up tho in service exporting)

27
Q

countries deciding to form some kind of trade group.

A

regionalization

28
Q

What is the relevance of having major trade partners for managers? (7 reasons)

A
  1. The business climate in these importing nations are already relatively favorable.
  2. Export and import regulations are reasonable.
  3. There should be no strong cultural objections at home to buying that nation’s goods.
  4. Satisfactory transportation facilities have already been established.
  5. The channels have to be sophisticated. Import channel members (merchants, banks, and custom brokers) are experienced in handling import shipments from the exporter’s area.
  6. Currency must be stable. Currency from the foreign country is available to pay for the exports.
  7. The government of a trading partner may be applying pressure on its importers to buy from countries that, like the U.S., are good customers for that nation’s exports.
29
Q

T or F: Trade won’t take place unless the business climate is favorable.

A

True. (ex: very little trade occurs in communist countries because the business climate is not favorable)

30
Q

T or F: Developed nations and members of regional trade agreements tend to trade with one another.

A

True

31
Q

For countries to trade with one another, they must be at the same _________ and _________ sophistication as one another.

A

economic; cultural

32
Q

the amount by which the value of imports into a nation exceeds the value of exports. (when you import more than you export)

A

trade deficit

33
Q

the amount by which the value of a nation’s exports exceeds the value of its imports. (when you export more than you import)

A

trade surplus

34
Q

What are the 3 international trade theories?

A
  1. Mercantilism
  2. Theory of Absolute Advantage
  3. Theory of Comparative Advantage
35
Q

What international trade theory does this describe?
- Views precious metals like gold/silver as the only source of wealth.

A

Mercantilism

36
Q

In the theory of Mercantilism, to increase wealth, government policies should promote (exports/imports) and discourage (exports/imports).

Which country still has this mindset?

A

exports; imports; Japan

37
Q

What theory of international trade does this describe:
- Exists when a nation can produce more of a good or service than another country for the same or lower price.
- Nations specialize in producing the product at which it is most efficient.
- Nations trade its surplus for goods it cannot produce as efficiently.
- _______ ______ results in a marketplace that is efficient in production and allocation of products.

A

Theory of Absolute Advantage; perfect competition

38
Q

What international trade theory does this describe?
- When one nation is less efficient than another nation in the production of each of two goods, the less efficient nation has a ________ advantage in the production of that good for which its ________ disadvantage is less.

A

Theory of Comparative Advantage; comparative; absolute

39
Q

the price of one currency stated in terms of the other.

A

exchange rate

40
Q

France exports wine to the U.S. How do they get paid?

A

In their currency.

41
Q

Countries can attempt to gain competitive advantage through _____ _______ (weakening of the currency). Some countries do this with the purpose of (increasing/decreasing) their exports.

A

currency devaluation; increasing

42
Q

What are 6 newer explanations for the direction of trade?

A
  1. Difference in resource endowments
  2. Overlapping demand
  3. International Product Life Cycle
  4. Economies of Scale
  5. Experience Curve
  6. National Competitiveness
43
Q

the land, labor, capital, and related production factors a nation possesses.

A

resource endowments

44
Q

the existence of similar preferences and demand for products and services among nations with similar levels of per capita income. (like how we trade a lot with the Europeans because we have the same preferences and economic sophistication)

A

overlapping demand

45
Q

Intra-industry trade sparked by overlapping demand due to _______ ________.

A

product differentiation

46
Q

theory explaining why a product that begins as a nation’s export eventually becomes its import.

A

International Product Life Cycle (IPLC)

47
Q

What are the 4 stages of the International Product Life Cycle?

A
  1. Export
  2. Foreign Production
  3. Foreign Competition
  4. Import Competition
48
Q

predictable decline in the average cost of producing each unit of output as a production facility gets larger and output increases. (the more you sale, the lower your cost per item)

A

Economies of Scale

49
Q

rising scale on which efficiency improves as a result of cumulative experience and learning.

A

Experience Curve

50
Q

nation’s relative ability to design, produce, distribute, or service products within an international trading context while earning increasing returns on its resources.

A

National Competitiveness

51
Q

The difference between portfolio investments and direct investments is _______.

A

control

52
Q

T or F: Historically, FDI followed foreign trade.

A

True (You start trading with a country, and if trade increases/relationship is good, then trade evolves into FDI → An example of FDI would be you deciding to operate a business in that country).

53
Q

T or F: Significant changes in today’s global business environment make FDI a possible first step into international trade.

A

True

54
Q

What are the two main forms of Foreign Direct Investment?

A
  1. Greenfield investment
  2. Cross-border acquisition
55
Q

What form of FDI is this: the establishment of new facilities from the ground up.

A

Greenfield investment

56
Q

What form of FDI is this: the purchase of an existing business in another faction.

A

Cross-border acquisition

57
Q

What are the 4 theories of international investment?

A
  1. Monopolistic Advantage Theory
  2. Strategic Behavior Theory
  3. Internalization Theory
  4. Eclectic Theory of International Production
58
Q

What international investment theory is this?
- When a country has a technological advantage that’s unique that others don’t.
- FDI is made by firms in industries with few competitors due to technical and other advantages over indigenous firms. (ex: Apple)

A

Monopolistic advantage theory

59
Q

What international investment theory is this?
- Oligopolistic industries have a limited number of competing firms.
- Strategic rivalry between firms in an oligopolistic industry results in firms closely following and imitating each other’s international investments in order to keep a competitor from gaining an advantage.

A

strategic behavior theory

60
Q

What international investment theory is this?
- To obtain a higher return on its investment, a firm will transfer its superior knowledge to a foreign subsidiary that it controls, rather than sell it in the open market.
- The risk of this is that the technology will get stolen, but you are better off transferring the technology to a company in a developing country that you own rather than selling that technology.

A

Internalization Theory

61
Q

What is currently the most widely accepted theory of FDI?

A

Eclectic Theory of International Production

62
Q

Under the Eclectic Theory of International Production, what are the 3 advantages needed for a firm to invest in facilities overseas?

A
  1. Ownership-specific advantage
  2. Location-specific advantage (ex: are you based in a country that has a low tariff/ good infrastructure?)
  3. Internalization advantage (has to do with the methods that you choose to enter the market/ start your business)

International Business (10 decks)

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