Chapter 3

Question 1

International business

Answer 1

The buying, selling, and trading of goods and services across national boundaries.

Question 2

Absolute advantage

Answer 2

A monopoly that exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item.

Question 3

Comparative advantage

Answer 3

The basis of most international trade, when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items.

Question 4

Outsourcing

Answer 4

The transferring of manufacturing or other tasks–such as data processing–to countries where labor and supplies are less expensive.

Question 5

Exporting

Answer 5

The sale of goods and services to foreign markets

Question 6

Importing

Answer 6

The purchase of goods and services from foreign sources.

Question 7

Balance of trade

Answer 7

The difference in value between a nation’s exports and its imports

Question 8

Trade deficit

Answer 8

A nation’s negative balance of trade, which exists when that country imports more products than it exports.

Question 9

Balance of payments

Answer 9

The difference between the flow of money into and out of a country.

Question 10

Infrastructure

Answer 10

The physical facilities that support a country’s economic activites, such as railroads, highways, ports, airfields, utilities and power plants, schools, hospitals, communication systems, and commercial distribution systems.

Question 11

Exchange rate

Answer 11

The ratio at which one nation’s currency can be exchanged for another nation’s currency.

Question 12

Import tariff

Answer 12

A tax levied by a nation on goods imported into a country.

Question 13

Exchange controls

Answer 13

Regulations that restrict the amount of currency that can be bought or sold.

Question 14

Quota

Answer 14

A restriction on the number of units of a particular product that can be imported into a country.

Question 15

Embargo

Answer 15

A prohibition on trade in a particular product.

Question 16

Dumping

Answer 16

The act of a country or business selling products at less than what it costs to produce them.

Question 17

Cartel

Answer 17

A group of firms or nations that agrees to act as a monopoly and not compete with each other, in order to generate a competitive advantage in world markets.

Question 18

General Agreement on Tariffs and Trade (GATT)

Answer 18

A trade agreement, originally signed by 23 nations in 1947, that provided a forum for tariff negotiations and a place where international trade problems could be discussed and resolved.

Question 19

World Trade Organization (WTO)

Answer 19

International organization dealing with the rules of trade between nations.

Question 20

North American Free Trade Agreement (NAFTA)

Answer 20

Agreement that eliminates most tariffs and trade restriction on agricultural and manufactured products to encourage trade among Canad, the United States, and Mexico.

Question 21

European Union (EU)

Answer 21

A union of European nations established in 1958 to promote trade among its members; one of the largest single markets today.

Question 22

Asia-Pacific Economic Cooperation (AFEC)

Answer 22

An international trade alliance that promotes open trade and economic and technical cooperation among member nations.

Question 23

Association of Southeast Asian Nations (ASEAN)

Answer 23

A trade alliance that promotes trade and economic integration among member nations in Southeast Asia.

Question 24

World Bank

Answer 24

an organization established by the industrialized nations in 1946 to loan money to underdeveloped and developing countries; formally know as the International Bank for Reconstruction and Development.

Question 25

International Monetary Fund (IMF)`

Answer 25

Organization established in 1947 to promote trade among member nations by eliminating trade barriers and fostering financial cooperation.

Question 26

Countertrade agreements

Answer 26

Foreign trade agreements that involve bartering products for other products instead of for currency.

Question 27

Trading company

Answer 27

A firm that buys goods in one country and sells them to buyers in another country.

Question 28

Licensing

Answer 28

A trade agreement in which on company–the licensor–allows another company–the licensee–the use its company name, products, patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee or royalty.

Question 29

Franchising

Answer 29

A form of licensing in which a company–the franchiser–agrees to provide a frachisee a name, logo, methods of operation, advertising, products, and other elements associated with a franchiser’s business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser’s standard of operations.

Question 30

Contract manufacturing

Answer 30

The hiring of a foreign company to produce a specified volume of the initiating company’s product to specification; the final product carries the domestic firm’s name.

Question 31

Offshoring

Answer 31

the relocation of business processes by a company or subsidiary to another country. Offshoring is different than outsourcing because the company retains control of the offshored processes.

Question 32

Joint Venture

Answer 32

The sharing of the costs and operation of a business between a foreign company and a local partner.

Question 33

Strategic Alliance

Answer 33

A partnership formed to create competitive advantage on a worldwide basis.

Question 34

Direct investment

Answer 34

The ownership of overseas facilities.

Question 35

Multinational corporation (MNC)

Answer 35

A corporation that operates on a worldwide scale, without significant ties to any one nation or region.

Question 36

Multinational Strategy

Answer 36

A plan, used by international companies, that involves customizing products, promotion, and distribution according to cultural, technological, regional, and national differences.

Question 37

Global strategy (globalization)

Answer 37

A strategy that involves standardizing products (and, as much as possible, their promotion and distribution) for the whole world, as if it were a single entity.