Chapter 5

Question 1

trade surplus

Answer 1

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

Question 2

trade deficit

Answer 2

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

Question 3

floating exchange rates

Answer 3

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

Question 4

principle of comparative advantage

Answer 4

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 5

free trade

Answer 5

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

Question 6

Mercosur

Answer 6

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

Question 7

Association of Southeast Asian Nations (ASEAN)

Answer 7

The Association of Southeast Asian Nations, which, as of 2012, included 10 member states.

Question 8

licensing

Answer 8

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 9

contract manufacturing

Answer 9

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

Question 10

countertrade

Answer 10

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 11

dumping

Answer 11

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

Question 12

World Trade Organization (WTO)

Answer 12

An organization established by the Uruguay Round in 1994 to oversee international trade, reduce trade barriers, and resolve disputes among member nations. A trade agreement covering services, intellectual property rights, and exchange controls.

Question 13

World Bank

Answer 13

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

Question 14

International Monetary Fund (IMF)

Answer 14

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

Question 15

infrastructure

Answer 15

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

Question 16

embargo

Answer 16

A total ban on imports or exports of a product

Question 17

exchange controls

Answer 17

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 18

The best known economic communities

Answer 18

Are NAFTA, European Union, ASEAN, and Mercosur.

Question 19

Non-tariff barriers to trade are

Answer 19

import quotas, embargoes, customs regulations, and exchange controls.

Question 20

BRIC economic power

Answer 20

Brazil, Russia, India and China are the fastest growing and largest emerging market economies. Potentially, China will lead in manufacturing, India in services and Brazil and Russia in natural resources.