Chapter 3 Definitions

Question 1

International Business

Answer 1

All business activities that involve exchanges across national boundaries.

Question 2

Absolute Advantage

Answer 2

The ability to produce a specific product more efficiently than any other nation.

Question 3

Comparative advantage

Answer 3

The ability to produce a specific product more efficiently than any other product.

Question 4

Importing

Answer 4

Purchasing raw materials or products in other nations and bringing them into one’s own country.

Question 5

Balance of trade

Answer 5

The total value of a nation’s exports minus the total value of its imports over some period of time.

Question 6

Trade deficit

Answer 6

A negative balance of trade

Question 7

Balance of payments

Answer 7

The total flow of money into a country minus the total flow of money out of that country over some period of time.

Question 8

Import duty (tariff)

Answer 8

A tax levied on a particular foreign product entering a country.

Question 9

Dumping

Answer 9

Exportation of large quantities of a product at a price lower than that of the same product in the home market.

Question 10

Nontariff Barrier

Answer 10

A nontax measure imposed by a government to favor domestic over foreign suppliers.

Question 11

Import quota

Answer 11

A limit on the amount of a particular good that may be imported into a country during a given period of time.

Question 12

Embargo

Answer 12

A complete halt to trading with a particular nation or in a particular product.

Question 13

Foreign-exchange control

Answer 13

A restriction on the amount of a particular foreign currency that can be purchased or sold.

Question 14

Currency devaluation

Answer 14

The reduction of the value of a nation’s currency relative to the currencies of other countries.

Question 15

General Agreement on Tariffs and Trade (GATT)

Answer 15

A international organization of 153 nations dedicated to reducing or eliminating tariffs and other barriers to world trade.

Question 16

World Trade Organization (WTO)

Answer 16

Powerful successor to GATT that incorporates trade in goods, services and ideas.

Question 17

Economic community

Answer 17

An organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies.

Question 18

Licensing

Answer 18

A contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensations.

Question 19

Letter of credit

Answer 19

Issued by a bank on request of an importing stating that the bank will pay an amount of money to a stated beneficiary

Question 20

Bill of lading

Answer 20

Document issued by a transport carrier to an exporter to prove that merchandise has been shipped

Question 21

Draft

Answer 21

Issued by the exporter’s bank, ordering the importer’s bank to pay for the merchandise thus guaranteeing payment once accepted by the importer’s bank

Question 22

Strategic Alliance

Answer 22

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

Question 23

Trading company

Answer 23

Provides a link between buyers and sellers in different countries.

Question 24

Countertrade

Answer 24

An international barter transaction

Question 25

Multinational enterprise

Answer 25

A firm that operates on a worldwide scale without ties to any specific nation or region.

Question 26

Export-Import Bank of the United States

Answer 26

An independent agency of the U.S. government whose function is to assist in financing the exports of American firms.

Question 27

Multilateral development bank (MDB)

Answer 27

An internationally supported bank that provides loans to developing countries to help them grow.

Question 28

International Monetary Fund (IMF)

Answer 28

An international bank with 186 member nations that makes short-term loans to developing countries experiencing balance-of-payment deficits.