Chapter 5

Question 1

Global Vision

Answer 1

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 2

Multinational corperations

Answer 2

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

Question 3

Exports

Answer 3

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

Question 4

Imports

Answer 4

Goods and services bought from other countries

Question 5

Balance of trade

Answer 5

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

Question 6

Trade surplus

Answer 6

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

Question 7

Trade defecit

Answer 7

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

Question 8

Balance of payments

Answer 8

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

Question 9

Floating exchange rates

Answer 9

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

Question 10

Devaluation

Answer 10

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

Question 11

Absolute advantage

Answer 11

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 12

Principle of comparative advantage

Answer 12

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 13

Free trade

Answer 13

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

Question 14

Protectionism

Answer 14

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

Question 15

Preferential tariff

Answer 15

A tariff that is lower for some nations than others

Question 16

Free trade zone

Answer 16

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

Question 17

NAFTA

Answer 17

North American Free Trade Agreement:

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

Question 18

Mercosur

Answer 18

Trade agreement between Brazil, Argentina, Uruguay, Paraguay, and Venezuela

Question 19

EU

Answer 19

European Union:

Trade agreement among 27 European nations

Question 20

ASEAN

Answer 20

Association of Southeast Asian Nations:

The ASEAN as of 2012 included 10 member states

Question 21

Exporting

Answer 21

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

Question 22

Licensing

Answer 22

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

Question 23

Contract manufacturing

Answer 23

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

Question 24

Joint venture

Answer 24

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

Question 25

Foreign direct investment

Answer 25

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

Question 26

Countertrade

Answer 26

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 27

Dumping

Answer 27

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

Question 28

WTO

Answer 28

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

Question 29

World Bank

Answer 29

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

Question 30

IMF

Answer 30

International Monetary Fund:
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 31

Nationalism

Answer 31

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

Question 32

Infrastructure

Answer 32

The basic institutions and public facilities on which an economy’s development depends

Question 33

Tariff

Answer 33

A tax imposed on imported goods

Question 34

Protective tariffs

Answer 34

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

Question 35

Import quota

Answer 35

A limit on the quantity of a certain good that can be imported; also known as a quantitative restraint

Question 36

Embargo

Answer 36

A total ban on imports or exports of a product

Question 37

Exchange controls

Answer 37

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