Chapter 3 Global Markets

Question 1

Absolute Advantage

Answer 1

The advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more effectively than all other countries.

Question 1

Balance of Trade

Answer 1

The total of a nation’s exports compared to it’s imports measured over a paticular period.

Question 1

Balance of Payments

Answer 1

The difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

Question 2

Comparative Advantage Theory

Answer 2

Theory that states that a country should sell to other countries those products that it produces most effectively and effciently, and buy from other countries those products that it cannot produce as effectively or effciently.

Question 2

Common Market

Answer 2

A regional group of countries that have a common external tariff, no interal tariffs, and a coordination of laws to facilitate exchange; also called BLOC. An example is the European Union.

Question 3

Contract Manufacturing

Answer 3

A foreign country’s production of private-label goods to which a domestic company then attaches its company name or trademark; part of the broad catagory of outsourcing.

Question 4

Countertrading

Answer 4

A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services.

Question 5

Devaluation

Answer 5

Lowering the value of a nation’s currency relative to other countries.

Question 6

Dumping

Answer 6

Selling products in a foreign country at lower prices than those charged in the producing country.

Question 7

Exchange Rate

Answer 7

the value of one nation’s currency relative to the currencies of other countries.

Question 7

Embargo

Answer 7

A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.

Question 9

Exporting

Answer 9

Selling products to another country.

Question 10

Foreign Direct Investment (FDI)

Answer 10

The buying of perminent property and businesses in foreign nations.

Question 11

Foreign Subsidiary

Answer 11

A company owned in a foreign country by another company, called the parent company.

Question 13

Free Trade

Answer 13

The movement of goods and services among nations withoout political or economic barriers.

Question 14

General Agreement on Tariffs and Trade (GATT)

Answer 14

A 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.

Question 15

Import Quota

Answer 15

A limit on the number of products in certain catagories that a nation can import.

Question 16

Importing

Answer 16

Buying products from another country.

Question 17

Joint Venture

Answer 17

A partnership in which two or more companies (often from different countries) join to undertake a major project.

Question 18

Licensing

Answer 18

A global stratagy in which a firm (the licensor) allows a foreign company (the Licensee) to produce its product in exchange for a fee (a royalty).

Question 20

Multinational Corporation

Answer 20

An Organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management.

Question 21

North American Free Trade Agreement (NAFTA)

Answer 21

Agreement that created a free-trade area among the United States, Canada, and Mexico.

Question 22

Stategic Alliance

Answer 22

A long-term partnership between two or more companies established to help each company build competetive market advantages.

Question 22

Sovereign Wealth Funds (SWFs)

Answer 22

Investment funds controlled by governments holding large sakes in foreign companies.

Question 24

Tariff

Answer 24

A tax imposed on imports

Question 25

Trade Deficit

Answer 25

An unfavorable balance of tade; occurs when the value of a country’s imports exceeds that of it’s exports.

Question 26

Trade Protectionism

Answer 26

The use of government regulations to limit the import of goods and services.

• saves jobs
• saves domestic industries

Question 28

Trade Surplus

Answer 28

A favorable balance of trade; occurs when the value of a country’s exports exceeds that of it’s imports.

Question 29

World Trade Organization (WTO)

Answer 29

The international organization that replaced the General Agreement on Tariffs and Trade, and was assigned the duty to mediate trade disputes among nations.

Question 30

Export Trading Companies

Answer 30

Assist in negotiating & establishing trading relationships

• matches buyers & sellers
• deals w/foreign customs offices
• documentation
• part-time for students
• indirect importing

Question 31

Export Assistance Centers (EAC’s)

Answer 31

Provides hands-on exporting assistance & trade finance support for small & medium-sized businesses