Globalization Flashcards
1- Collusion
2 - Dual Pricing
3 - Predatory Pricing
4 - Transfer Pricing
1 - competitors agree to restrict production so as to increase the price they receive for their product
2 - practice of setting different prices for a product dependent on the currency used to buy it. It often is used to set lower-than-normal prices to gain access to a particular foreign market
3 - owering prices to such an extent as to drive competitors out of business
4 - A transfer price is the price charged by one unit within a larger business to another unit in that business.
Using short term loans in useful is refinancing long term debt under what situation
What is risker, long or short-term debt
When interest rates have declined
Long-term due to a longer maturation period
Call Option
Advantageous
Used
Buy shares at a set price
Good in a period of rising prices
Used when purchasing goods in a foreign currency
Put Option
Advantageous
Used
PROVIDE shares at a stated price
Good in a period of declining prices
Used when selling goods in a foreign currency
Dampen the economy
Reduce the money supply
Discount Rate
the minimum acceptable rate of return on an investment
LOWERING the discount rate is a good thing because you expect less of a return
LOWERING “interest earned”
Foreign Direct Investment
Traditional pattern
Current Pattern
Investment in which a resident of one country obtains a lasting interest in, and a degree of control over, management of a business enterprise in another country.
Rich to emerging
Emerging to Rich
Sovereign Wealth Funds
Pools of money accumulated from a country’s reserves that are provided for investment purposes that will benefit the country’s economy and citizens.
Business Cycle Items (expansion, recession, trough) are categorized by
employment of resources
comparison of potential output to actual output
Inflation
Deflation
decrease in money supply/purchasing power of money increase in prices;currency value rises
increase in the money supply decrease in prices; currency value decreases
Black Swan Event
Rare event
Marginal Costs
Always one higher than the average cost
Emerging Markets Characteristics
1 - low debt-to-GDP ratios 2 - significant increase in trade among and between 3 - emerging market economies 4 - low-cost labor, high savings rates 5 - large currency reserves 6 - high investment in infrastructure.
Increased Imports effect on money depreciation
As more currency is released it is not a rare and therefore deflation or depreciation of the currency occurs
nation’s economic growth is measured
by the output of a nation
Hedge is used for
FOREIGN
Receivable in foreign currency
Sell currency in the amount of the receivable
Multiplier Effect / Accelerator Principle
magnifies small changes in Consumption, Net Investment, or Government Expenditures into larger overall changes to national income.
INVESTMENT AND CHANGES IN INCOME DIRECT EFFECT
When using supply or demand curves
Y - always price
X - supply or demand
Shift = factor other then price
Movement on curve - price level change
Quantity and Price in a period of declining prices
Quantity increases proportionally more than the price declines
1 - Option risk
2 - Re-pricing risk
3 - basis risk
4 - Yield curve risk
1 - firm gives the customer the right (but not the obligation) to change the stream from assets, liabilities, or off-balance sheet items.
2 - when a firm deliberately mismatches in an upsloping yield curve environment by holding assets with a longer duration than that of the liabilities used to fund them
3 - situation where a bank’s interest margins are generally spontaneously enhanced in a period of rising interest rates as loan rates tend to adjust upward more rapidly than the rates on deposits
4 - underlying shape of the yield curve changes (e.g., steepens, flattens, becomes inverted). These changes tend to accentuate any asset-liability mismatches the firm has
1 - structural unemployment rate
2 - frictional unemployment rate
3 - cyclical unemployment rate
4 - full employment unemployment rate
1 - Changes over time in consumer demand, and technology that alters the structure or composition of the demand for labor, both in terms of occupation and geographic opportunities
2 - due to imperfections in the labor market and relates to workers searching for jobs or waiting to take jobs in the near future
3 - caused by the recession phase of the business cycle, that is, by a decline in aggregate spending
4 - unemployment rate is the sum of frictional and structural unemployment
Economic Profit
Accounting Profit
Sales - Expenses - Opportunity/Implicit Costs (Opportunities lost)
Sales - Expenses
Accounting profit is always higher than implicit profit
1 - fiscal policy
2 - monetary policy
1 - Government spending/reduction in taxes
2 - interest rates
Firms with few barriers to entry
Pure/Monopolistic
MR
Economic exposure
impact of exchange rate fluctuations on a firm’s future cash flow; unable to afford goods due to a currency increase in value
liquidity preference (LP)
relates money demand to the rate of interest
Capital Account
Current Account
deals w/ capital asset purchases
imports/exports/NI/other exchanges NO ASSETS
Real GDP
nominal GDP/price index
Forward Rate %
Forward - Spot * 360/# of days
Currency Against FOREIGN CURRENCY
Appreciation
Depreciation
1 - current is worth less causing more EXPORTS
2 - current is worth more causing less EXPORTS
GDP
personal consumption expense + gross private domestic investment + gov. purchases + net exports
Repatriation
converting a foreign currency into local currency
Bank reserves are decreased by
SALE OF SECURITIES
CALL
PUT
prices rise
prices decrease
marginal costs
always one higher then variable costs
rise in interest rates and countries currency valuation
higher because more interest is earned on investment
HOW DOES INFLATION DISORT NI
DEPRECIATION IS NOT CHANGED
inflation worth
amount/ 1 + inflation rate
demand pull
cost push
demand is increasing quicker then supply can - rising prices
supply of goods decreases
multiplier
1 / reserve rate
money supply and interest
inverse proportion
primary means of control by the FED gov
open mrkt operations, buy/sell securities
systemic
unsystemic
market
diversifiable
