Exam 1 Flashcards
Multinational Enterprise
Economic function with operations and/or assets in at least one other country than its home country
Benefits to Multiunationalization
- Access to new markets
- Access to cheaper or more skilled labor
- Lower taxes or other operational costs
- Technological development
- Increase export production
- Diversification
Costs to Multinationalization
o Legal framework of host countries. o Political Risks. o Mobility of Capital. o Resource exploitation. o Threat to domestic competitors. o Profit repatriation.
Multinational Enterprise Modes of Operation
o Licensing o Franchising o Joint venture o New foreign subsidiary o Management contracts
Multinational Enterprise Modes of Operation - Licensing
occurs when the home country firm authorizes the host country firm to use some or all its intellectual property (patents, trademarks, copyrights, brand names) in exchange for fees or some royalty payment. However, the licensee retains control over its operations.
Multinational Enterprise Modes of Operation - Franchising
occurs when the home country firm authorizes the host country firm to utilize its full set of operations including its brand names, logos etc. in return for royalty payments and has more control over the latter’s operations.
Multinational Enterprise Modes of Operation - Joint venture
occurs when both home and host country firms form a corporate entity or partnership that is jointly owned and operated.
Multinational Enterprise Modes of Operation - New foreign subsidiary
occurs when the home country firm penetrates the host market by establishing a new operation in the host country.
Multinational Enterprise Modes of Operation - Management contracts
occurs when the home country firm agrees to operate facilities or provide other management services to a host country firm for a fee
International monetary system
a set of procedures, mechanisms, processes, and which are established to determine the rate at which one currency is exchanged in respect of another currency.
Evolution of the IMS
1876-1913 - Gold Standard
1914-1945 - Wolrd Wars 1 and 2
1944-1971 - Bretten Wood System
Gold Standard
Underlying value of a country’s currency was based on the weight of gold
o Exchange rate was based on the weight of gold between 2 countries.
o The value of each country’s currency was backed by its gold reserves
How to settle a transaction in gold
- Step 1 – determine the amount gold (in ounces) something is worth in home country
- Step 2 – determine the amount of gold (in ounces) something is worth in foreign country
- Step 3 – determine exchange rate of the gold between the 2 countries
Bretton Woods System
- Established USD based international monetary system
- Countries agreed to keep currencies fixed +/- 1%
- International transactions settled in USD
- US responsible for converting US dollars to gold
- Created IMF and World Bank
IMF – International Monetary Fund
o Created to monitor exchange rates and lend reserve currencies to nations with balance of payments deficits.
o Three main objectives
- Monitors the global economy and the economies of member countries:
- Lends to countries with balance of payments difficulties:
- Provides Capacity Development:
International Bank for Reconstruction and Development/World Bank
o Created to “financial assistance for the reconstruction after World War II and the economic development of less developed countries.”
o Three main objectives
- Helping create sustainable economic growth.
- Target development areas such as providing access to health care, education, water and sanitation, and energy.
- Building a country’s resilience to shocks and threats.
Cryptoasset
A financial asset created by cryptography and recorded in digital form on a distributed ledger (blockchain) but does not represent any financial claim, or a liability of, any identifiable entity or individual
Blockchain
Digital Ledgers of economics transactions that are measured in cryptocurrencies
2 Major issues with Cryptoassets
- Price risk
- Money laundering/terrorist fudding – due to anonymity
Blockchain in the MNF
o Instant Payments o Foreign Currency trading o Asset Management/Trading o Cross-border/Securities settlements o Remittances
Foreign Exchange Market
financial market in which foreign currencies and foreign assets are traded or exchanged
Foreign exchange Market Structures Operated by Central Banks
- Foreign Exchange Standing Facility
- Allocation
- Auction
- Fixing
Foreign Exchange Standing Facility
market participants can trade foreign currencies with the central bank at a predetermined rate.