Globalization

Question 1

Globalization

Answer 1

Movement to more integrated and interdependent world economy

Question 2

Bretton Woods Agreement (1944)

Answer 2

Following WWII established to institutions:

World Bank - Promote General economic development

IMF - To maintain order in international monetary system by providing funds to economies in financial crisis ;
Currency crisis, banking crisis, financial debt crisis

Question 3

Reductions in Trade Barriers GATT - General Agreement on Tariffs and Trade

Answer 3

Agreements to liberalize and encourage trade by eliminating tariffs, subsidies, import quotas, and other barriers

Harmonize laws (IP) between nations

Question 4

WTO (World Trade Organization)

Answer 4

Overseen the implementation and administration covered in trade agreements and providing a forum for negotiating

Question 5

FDI - Foreign Direct Investment

Answer 5

1. Foreign direct investment (FDI) is direct investment by an entity in facilities to manufacture and/or market goods and services in a foreign country i.e.,—a country other than the investor’s home country.
2. As a consequence of reduced restrictions on FDI, over the past 30 years both the annual flow and the stock (accumulated amount) of FDI has increased dramatically. In fact, the flow of FDI has grown faster than the growth in either worldwide output or worldwide trade.

Question 6

Factors affecting costs of international trade

Answer 6

A.
Transaction costs – The cost associated with any transaction, but which will have additional elements in international transactions, including the additional costs of negotiating with suppliers and customers, using letters of credit, currency exchange, and hedging;
B.
Transportation costs – The cost of shipping goods from the point of production to the point of consumption, whether for goods sold (exports) or goods purchased (imports);
C.
Tariff or other restrictive costs – The direct cost of tariffs and the indirect cost of meeting standards or other requirements that may be unique to a country;
D.
Time costs – The cost of delays due to distance and inspection and other import/export functions.

Question 7

Capital Markets

Answer 7

Bring together investors (capital) and borrowers

Historically only domestic have served as capital; limited by size and wealth of domestic residents, limited supply = increase cost of domestic

Globalization permits interact “worldwide” - Global Capital Market; made up of many institutions

Question 8

Eurodollar market/ Eurobond market

Answer 8

Euromarket - short and intermediate loans denominated in US dollars worldwide

Eurobonds - long-term loans outside borrower’s home country

Question 9

Cross-border economic activity

Answer 9

1. Importing/exporting
2. Foreign licensing
3. Foreign franchising
4. Forming a foreign joint venture
5. Creating or acquiring a foreign subsidiary