Exam 3 Flashcards
International trade
purchase,sale, or exchange of goods and services across national borders
benefits of international trade
greater choice of goods and services
important engine for job creation in many countries
mercantilism
trade theory that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports
three pillars of mercantilism for successful implementation
- maintain trade surplus
- government intervention
- colonialism
absolute advantage
ability of a nation to produce a good more efficiently than any other nation
comparative advantage
inability of a nation to produce a good more efficiently than other nations but an ability to produce that good more efficiently than it does any other good
Porters’s Diamond Theory
- Factor Conditions
- Basic Factors
- Advanced Factors - Demand Conditions
- sophisticated buyers - Related and Supporting Industries
- clusters - firm strategy, structure and rivalry government and chance
- role of government
- chance events
regional economic integration (regionalism)
process whereby countries in a geographic region cooperate to reduce or eliminate barriers to the international flow of products, people or capital
free trade area
removes all barriers to trade among members with each determining its own barriers against nonmembers
customs union
adds the requirement that all members set a common trade policy against nonmembers
common market
add the free movement of labor and capital and sets a common trade policy against nonmembers
economic union
requires members to harmonize their tax, monetary, and fiscal policies, create a common currency, and concede some sovereignty to the larger organization
political union
requires members to coordinate their economic and political policies against nonmembers, with a few exceptions
case for regional integration
- trade creation
- greater consensus
- political cooperation
- employment opportunities
- corporate savings
case against regional intergration
- trade diversion
- shifts in employment
- loss of national sovereignty
trade creation
is the increase in the level of trade among nations that results from regional economic integration
trade diversion
is the diverting of trade away from nations not belonging to a trading bloc and toward member nations.
European Union
Management Implications of the Euro:
- the euro removes financial obstacles created by the use of multiple currencies
- the euro makes prices among markets more transport
copenhagen criteria
- stable institutions
- functioning market economy
- assume membership obligations
- adopt rules of the community, court of justice and treaties
european free trade association
- feared a loss of national sovereignty
- feared destructive rivlary
- desired free-trade gains
- cooperates with eu
a country may receive membership in the european union once it meets certain criteria called what?
copenhagen criteria
North American Free Trade Agreement (NAFTA)
- effective in january 1994
- comprises a makrket with 450 million consumers
effects of nafta
- growing trade among the 3 participation nations
- effect on employment and wages is not as easy to determine
- claims of environment protection efforts
- delays in NAFTA expansion
3 nations that belong to NAFTA
Canada, Mexico and US
Devaluation
intentionally lowering the value of a nation’s currency
lowers the prices of country’s export and increases the prices of imports
revaluation
intentionally raising the value of a nation’s currency
stable exchange rates
improve accuracy of forecasts and financial planning
predictable exchange
reduce surprises of unexpected rate changes
efficient market view
view that prices of financial instruments reflect all publicly available info at any given time
inefficient market view
view that prices of financial instruments do not reflect all publicly available info
Forecasting techniques
fundamental analysis
technical analysis
fundamental analysis
technique that uses statistical models based on fundamental economic indicators to forecast exchange rates
technical analysis
technique that uses charts of pasts trends in currency prices and other factors to forecast exchanges rates
forecasting difficulties
- unexpected events
- human error
- regulatory changes
Law of one price
principle that an identical item must have an identical price in all countries when the price is expressed in a common currency
Purchasing Power Parity (PPP)
PPP can be interpreted as the exchange rate between two nations currencies that is equal to the ration of their price levels
arbitrage opportunity
an opportunity to buy a product at a specific price in one country and sell it at a higher price in another country
Multinational corporation
a business that has direct investment abroad in multiple countries is a multinational corporation
two factors of born global firm
- adopts a global perspective
2. engages in international business from at or near its inception
globalization
trend toward greater economic, cultural,political and technological interdependence among national institutions and economies
globalization of markets
convergence in buyer preferences in markets around the world
globalization of production
dispersal of production activities worldwide to minimize costs or maximize quality
benefits of globalization of markets
- can reduce marketing costs (global strategy)
- creates new market opportunities
- levels uneven income streams
- local buyer’s needs
- global sustainability- meet current needs w/o compromising future generations
benefits of globalization of productions
- access lower-cost workers
- access technical expertise
- access production inputs
what global organizations have helped expand globalization
GATT 1947 to WTO
International Monetary Fund
The world bank
regional trade alliances like NAFTA and EU
People opposed to globalization say that is does what to national cultures?
homogenizes national cultures
