chapter 3

Question 1

absolute advantage

Answer 1

The situation when a country can produce and sell a product at a lower cost than any other country or when it is the only country that can provide the product.

Question 2

balance of payments

Answer 2

A summary of a country’s international financial transactions showing the difference between the country’s total payments to and its total receipts from other countries.

Question 3

balance of trade

Answer 3

The difference between the value of a country’s exports and the value of its imports during a specific time.

Question 4

buy-national regulations

Answer 4

Government rules that give special privileges to domestic manufacturers and retailers.

Question 5

contract manufacturing

Answer 5

The practice in which a foreign firm manufactures private-label goods under a domestic firm’s brand name.

Question 6

countertrade

Answer 6

A form of international trade in which part or all of the payment for goods or services is in the form of other goods and services.

Question 7

devaluation

Answer 7

A lowering of the value of a nation’s currency relative to other currencies.

Question 8

dumping

Answer 8

The practice of charging a lower price for a product in foreign markets than in the firm’s home market.

Question 9

direct foreign investment

Answer 9

Active ownership of a foreign company or of manufacturing or marketing facilities in a foreign country.

Question 10

embargo

Answer 10

A total ban on imports or exports of a product.

Question 11

European integration

Answer 11

The delegation of limited sovereignty by European Union member states to the EU so that common laws and policies can be created at the European level.

Question 12

European Union

Answer 12

Trade agreement among 28 European nations.

Question 13

exchange controls

Answer 13

Laws that require a company earning foreign exchange (foreign currency) from its exports to sell the foreign exchange to a control agency, such as a central bank.

Question 14

exporting

Answer 14

The practice of selling domestically produced goods to buyers in another country.

Question 15

exports

Answer 15

Goods and services produced in one country and sold to other countries.

Question 16

floating exchange rates

Answer 16

A system in which prices of currencies move up and down based upon the demand for and supply of the various currencies.

Question 17

free trade

Answer 17

The policy of permitting the people and businesses of a country to buy and sell where they please without restrictions.

Question 18

free-trade zone

Answer 18

An area where the nations allow free, or almost free, trade among each other while imposing tariffs on goods of nations outside the zone.

Question 19

G20

Answer 19

Informal group that brings together 19 countries and the European Union—the 20 leading economies in the world.

Question 20

global vision

Answer 20

The ability to recognize and react to international business opportunities, be aware of threats from foreign competition, and effectively use international distribution networks to obtain raw materials and move finished products to customers.

Question 21

import quota

Answer 21

A limit on the quantity of a certain good that can be imported.

Question 22

imports

Answer 22

Goods and services that are bought from other countries.

Question 23

International Monetary Fund (IMF)

Answer 23

An international organization, founded in 1945, that promotes trade, makes short-term loans to member nations, and acts as a lender of last resort for troubled nations.

Question 24

joint venture

Answer 24

An agreement in which a domestic firm buys part of a foreign firm or joins with a foreign firm to create a new entity.

Question 25

licensing

Answer 25

The legal process whereby a firm agrees to allow another firm to use a manufacturing process, trademark, patent, trade secret, or other proprietary knowledge in exchange for the payment of a royalty.

Question 26

Mercosur

Answer 26

Trade agreement between Peru, Brazil, Argentina, Uruguay, and Paraguay.

Question 27

multinational corporations

Answer 27

Corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located.

Question 28

nationalism

Answer 28

A sense of national consciousness that boosts the culture and interests of one country over those of all other countries.

Question 29

North American Free Trade Agreement (NAFTA)

Answer 29

A 1993 agreement creating a free-trade zone including Canada, Mexico, and the United States.

Question 30

outsourcing

Answer 30

Sending work functions to another country, resulting in domestic workers losing their jobs.

Question 31

principle of comparative advantage

Answer 31

The concept that each country should specialize in the products that it can produce most readily and cheaply and trade those products for those that other countries can produce more readily and cheaply.

Question 32

preferential tariff

Answer 32

A tariff that is lower for some nations than for others.

Question 33

protectionism

Answer 33

The policy of protecting home industries from outside competition by establishing artificial barriers such as tariffs and quotas.

Question 34

protective tariffs

Answer 34

Tariffs that are imposed in order to make imports less attractive to buyers than domestic products are.

Question 35

tariff

Answer 35

A tax imposed on imported goods.

Question 36

trade deficit

Answer 36

An unfavorable balance of trade that occurs when a country imports more than it exports.

Question 37

trade surplus

Answer 37

A favorable balance of trade that occurs when a country exports more than it imports.

Question 38

Uruguay Round

Answer 38

A 1994 agreement originally signed by 117 nations to lower trade barriers worldwide.

Question 39

World Bank

Answer 39

An international bank that offers low-interest loans, as well as advice and information, to developing nations.

Question 40

World Trade Organization (WTO)

Answer 40

An organization established by the Uruguay Round in 1994 to oversee international trade, reduce trade barriers, and resolve disputes among member nations.