Exam 1 Flashcards
1
Q
What is International Business?
A
Foreign Trade
Portfolio Investment
Direct Investment
2
Q
Merchandise that leaves a country.
A
Export
3
Q
Items brought across national borders into a country.
A
Imports
4
Q
Financial investments make in foreign countries.
A
Portfolio Investment
5
Q
Differentiated by much greater levels of control over the project or enterprise by the investor.
A
Direct Investment
6
Q
When a firm owns a foreign subsidiary entirely.
A
Full Control Direct Investment
7
Q
Arrangements such as joint ventures with other domestic or foreign firms or a foreign government.
A
Partial Control Direct Investment
8
Q
Organizational Types
A
Ethnocentric
Polycentric
Geocentric
9
Q
Structured so that business is conducted or ownership is held across a number of countries or one that is organized into global product divisions.
A certain percentage of its earnings, assets, sales, or personnel come from or are deployed in foreign locations.
A
Multinational Corporation (MNC)
10
Q
Organizations that are focused in a home or domestic environment and therefore excludes MNCs.
A
Ethnocentric
11
Q
Organizations that have investments, operations, or markets in several countries, but do not integrate the management of these international functions.
A
Polycentric
12
Q
Organizations that are integrated and have a world perspective regarding the breadth and reach of possible organizational operations.
A
Geocentric
13
Q
Superior technical know-how Large size and economies of scale Lower input costs due to large size Ability to access raw materials overseas Ability to shift production overseas Scale economies in shipment, distribution, and promotion Brand image and goodwill advantage Access to low-cost financing Financial flexibility Information advantages Managerial experience and expertise Diversification of risk
A
Advantages Gained by MNCs
14
Q
Disadvantages faced by MNCs
A
Business Risk Host-Country Regulations Different Legal Systems Political Risks Operational Difficulties Cultural Differences
15
Q
Recent trends in world trade
A
Expanding Volume
Increased Competition
Increasing Complexity
Trade Services
16
Q
Methods of going international
A
Exporting Licensing Franchising Management Contracts Contract Manufacturing Direct Investment Strategic Alliances Wholly Owned Subsidiaries Globalize Operations Portfolio Investment
17
Q
Requires the least amount of involvement by a firm in terms of resources required and allocated to serving an overseas market.
Easiest way to enter an international market.
A
Exporting
18
Q
Sees to all phases of the sale and transmittal of the merchandise.
A
Direct Exporter
19
Q
The exporter hires the expertise of someone else to facilitate the exchange.
A
Indirect Exporter
20
Q
A firm grants a foreign entity some type of intangible rights, such as the rights to a process, a patent, a program, a trademark, a copyright, or expertise.
A
Licensing
21
Q
The firm
A
Licensor
Franchiser
22
Q
The foreign entity.
A
Licensee
Franchisee
23
Q
In addition to granting a foreign entity permission to use a name, process, method, or trademark, the firm assist the foreign entity with the operations of the franchise and/or supplies raw materials.
A
Franchising
24
Q
Contracts in which the firm basically rents its expertise or know-how to a government or company in the form of personnel who go into the foreign environment and the run the concern.
A
Management Contracts
25
Another method for firms to enter the foreign arena.
| Here the multinational enterprise contracts with a local firm to provide manufacturing services.
Contract Manufacturing
26
Company invests directly within foreign shores, it is making a very real commitment of its capital, personnel, and assets beyond domestic borders.
Direct Investment
27
Business arrangements in which two or more firms or entities join together to establish some sort of operation.
Strategic Alliances or Joint Ventures
28
Formations of strategic alliances.
Two MNEs
MNE and Government
MNE and Local Businesspersons
29
Do not require the physical presence of a firm's personnel or products on foreign shores.
These investments can be made in the form of marketable securities in foreign markets, such as notes, bonds, commercial paper, certificates of deposit, and non-controlling shares of stock.
Portfolio Investments
30
Government involvement in trade restrictions and incentives
Protectionism
Tariffs
World Trade Organization
Regional Trade Groups and Cartels
31
Non-tariff barriers to merchandise trade
Quotas
Non-Tariff Price Barriers
Government Restriction of Exporters
32
Currencies of certain countries have a fairly wide acceptance for the settlement of international obligations and are used as a medium in international transactions.
Can be used by two countries in settling their transactions even if that particular currency is not the home currency of either country.
EX: US dollar, British pound, Japanese yen
Hard Currencies
33
Not widely accepted as a medium for settling international financial transactions.
Usually there is no free market or foreign exchange for them.
They are not easy to acquire, and disposal is even more difficult.
Many are subject to restrictions by monetary or governmental authorities on their transfer in and out of their countries.
EX: Zimbabwe dollar, North Korean won, and Cuban peso.
Soft Currencies
34
When the value of a currency is revised or changes upward.
| Implies that a currency has become more expensive in terms of other currencies.
Appreciation
35
When the price of a currency is changed downward.
| A currency becomes less expensive in terms of another currency.
Depreciation
36
The exchange rate of a country's currency is determined entirely by such market considerations as demand and supply.
The government or the monetary authorities make no efforts to either fix or manipulate the exchange rate.
Free-Floating Exchange Rate
37
A country announces a specific exchange rate for its currency and maintains this rate by agreeing to buy or sell foreign exchange in unlimited quantities at this rate.
Fixed Exchange Rate
38
Consists of transactions in foreign exchange ordinarily completed on the second working day of the deal being made.
Spot
39
Consists of transactions that require delivery of currency at an agreed-upon future date.
Popular with customers who are not certain of the dates on which they will have to pay or receive foreign currency amounts and would therefore like some leeway in executing their contractual obligations.
Forward
40
The number of units of home currency that are required to buy the foreign currency.
On New York market = $1.30/euro
Direct Quote
41
The home currency is expressed as a unit, and the price is shown by the number of units of foreign currency that are required to purchase one unit of the home currency.
New York market = euro0.77/$
Indirect Quote
42
Downward movement of of an exchange rate in the exchange market.
Devaluation
43
Upward movement of an exchange rate in the exchange market.
Revaluation
44
Standard value-forward contracts that obligate the parties to exchange a particular currency on a specific date at a predetermined exchange rate.
Can change your mind on a day to day basis.
Live up to the value of your contract every day.
Future
45
Differences between futures and forward markets.
Futures are a specific size, Forwards can be of any size.
Futures can standardized maturity dates, Forwards have a wide range of maturities.
Futures are highly speculative in nature and rate movements are more volatile than Forwards.
46
Contracts that give the buyer the right, but not the obligation, to buy or sell a specified amount of foreign exchange at a set price for an agreed-upon period.
Options
47
The risk that a company's future cash flows will be distributed by fluctuations in exchange rates.
Transaction Exposure
48
The degree to which the consolidated financial statements and balance sheets of a company can be affected by exchange-rate fluctuations.
Translation Exposure
49
B = m + x + C - (m1 + x1 + c1)
```
B = Balance of Payment Effect
m = import displacement
m1 = import stimulus
x = export stimulus
x1 = export reduction
c = capital inflow for other than import and export payment
c1 = capital outflow for other than import and export payment
```
50
Commodity that consists of currencies issued by countries other than your own.
Foreign Exchange
51
Facilitates international investment and capital flows, and facilitates conversions of currency for trade (supply and demand for currency affects its price on the market).
Foreign Exchange Market
52
Issued by bank; is a promise to pay exporter once he has fulfilled this part of the bargain.
Less risk for exporter than documentary collections.
Details conditions where importer shall pay the exporter for goods.
Even if importer refuses shipment, the bank will pay the exporter as lang as they meet their requirements.
Letters of Credit
53
Types of letters of credit
```
Revocable and Irrevocable LC
Unconfirmed and Confirmed LC
Transferable LC
Back to Back LC
Restricted Negotiable LC
Stand-By LC
```
54
A credit that can be modified or revoked by the issuer without notice to or consent from the beneficiary.
Revocable LC
55
A credit that once established, cen be modified or revoked ONLY with the concept of the beneficiary, the confirming and the issuing bank.
Irrevocable LC
56
A credit guaranteed for payment by the issuing bank.
Unconfirmed LC
57
A credit where a bank, other than the issuing bank, commits to irrevocably honor the payment of the credit, provided that the beneficiary meets the terms and conditions of the credit.
Confirmed LC
58
A credit under which the beneficiary may request the advising bank or the nominated bank to transfer the credit in whole or in part to a second beneficiary for execution.
Transferable LC
59
A credit established exactly as per terms and conditions of the original LC received but with shorter periods of shipment and negotiation to allow time for document substitution and negotiation of second set of documents for the original LC.
Back to Back LC
60
A credit where the authorization from the issued bank to pay the beneficiary is restricted to a specific nominated bank.
Restricted Negotiable LC
61
Increase holdings of currencies expected to rise in value.
| Slowing A/R collection on strong currencies.
Lagging
62
Decrease holdings of currencies expected to fall in value.
| Demand quicker A/R collection on weak currencies.
Leading
63
An accounting system for the financial transaction of a country with the rest of the world.
Shows trade inflows and outflows for a country and draws a picture of how the nation has financed its international economic and commercial activities.
Balance of Payments
64
Forms of regional integration
```
Free Trade Area
Customs Union
Common Market
Economic Union
Political Union
```
65
No internal tariffs between the countries involved.
| Each individual country has their own tariffs for external resources.
Free Trade Area
66
No internal tariffs.
| One tariff for all external tariffs.
Common Market and Economic Union
67
Measures the size of the economy.
| The sum total of goods and services produced in an economy.
Gross National Income (GNI)
68
Indicates the gross amount of goods and services produced within the country.
Does not take into account the contribution of the external sector to the economy.
Gross Domestic Product (GDP)
69
Occur when a country is not able to match the outflows of foreign exchange because of imports, debt services, or other payments with its export or other inflows.
Balance of Payment Deficit
70
When exports are greater than imports.
Balance of Payment Surplus
71
Four major types of risks or exposure that a corporation faces in the course of its international business activity.
Transaction Exposure
Economic Exposure
Translation Exposure
Tax Exposure
72
When the forward rate of a currency is greater than the spot rate.
Forward Premium
73
When the forward rate of a currency is lower than the spot rate.
Forward Discount
74
Allows the option purchaser to buy the underlying foreign currency.
Call Option
75
Allows the option buyer to sell the underlying currency.
Put Option
76
Calculating the cost for a futures contract.
Price x Number of Contracts x Units per Contract
77
Calculating the affect of a futures contract on the accounts of the buyer and seller.
Today's Cost - Previous Day's Cost
Positive = Good for Buyer
Negative = Good for Seller
78
When the spot price is greater than the strike price for an options contract.
Exercise the Option
79
When the spot price is less than the strike price.
Unexercised the Option
| Take the Premium Cost and Transact in the Spot Market
80
Settlement cost when exercising an option.
Strike Price x Units per Option x Number of Options
81
Option cost when exercising an option.
Call Premium x Units per Option x Number of Options
82
Total cost when exercising an option.
Settlement Cost + Option Cost
83
Unit cost when excising an option.
Total Cost / (Units per Option x Number of Options)
84
Spot cost when unexercised option.
Spot x Units per Option x Number of Options
85
Option cost when unexercised option.
Call Premium x Units per Option x Number of Options
86
Total Cost when unexercised option.
Spot Cost + Option Cost
87
Unit cost when unexercised option.
Total Cost / (Units per Option x Number of Options)
88
Methods of payment.
```
Payment in Advance
Open Account
Documentary Collection
Letters of Credit
Credit Cards
Counter-Trade
```
89
Safest for exporters, funds wired and noncompliance risk moves to importers.
Payment in Advance
90
Safest for importers, goods are shipped and exporter bills importer for payment.
Noncompliance Risk moves to exporter.
Open Account
91
Parties involved in a letter of credit.
Buyer
Seller
Issuing Bank
Advising Bank (Confirming Bank, Paying Accepting, or Negotiating Bank, and Reimbursing Bank)
92
Risk of future cash flows being disturbed by movements in operational variables (costs, prices, sales, etc.).
Economic Exposure
93
Increase in tax liability from currency movements.
Tax Exposure
