The Global Market Place

Question 1

Why nations trade

Answer 1

1. Focus on areas in which they produce more efficiently than other countries (i.e.
   oil and aircraft) and import what’s not available or efficiently produced in the
   country (i.e. vehicles and medical equipment).
2. Pursuing economies of scale that enable a company to produce goods/
   services at a lower cost by manufacturing higher quantities, hence
   specialization.
3. Keeping up with customers’ requests.
4. Keeping up with competitors.

Question 2

Economic Globalization

Answer 2

the increasing integration and interdependence of national economies around the world.

Question 3

Trade Surplus

Answer 3

when the value of goods and services exported by a country exceeds the value of goods and services it imports, the country has a positive balance of trade

Question 4

Trade Deficit

Answer 4

when a country imports more than it exports.
The US trade deficit has been increasing through the years

Question 5

Exchange Rate

Answer 5

the rate at which the money of one country is traded for the money
of another.
Because the supply and demand for a currency are always changing, the exchange rate may change every day.

Question 6

Free Trade

Answer 6

when, in theory, international trade happens without interferences. In reality, sometime the government interferes to subsidise the export
of a certain good

Question 7

Negatives of Free Trade

Answer 7

as it favorites richer countries and, sometimes, exploits workers around the world to obtain lower prices, with
no regard to safety and environmental regulations. Others claim that free trade motivates less developed countries to improve their economic and social policies (China)

Question 8

Protectionism

Answer 8

the government intervenes to protect the national security or a specific industry

Question 9

Tariffs

Answer 9

Taxes or surcharges on imported goods

Question 10

Quotas

Answer 10

Limit the amount of quantites imported

Question 11

Embargo

Answer 11

the complete ban of an import/export on a certain product

Question 12

Export

Answer 12

when the government subsidize the export of a product

Question 13

Antidumping measures

Answer 13

to avoid that companies sell large quantities of one product and a lower price than its production cost

Question 14

Sanctions

Answer 14

politically motivated embargoes to revoke normal trade relations

Question 15

International Trade

Answer 15

In an effort to ensure equitable trading practices and to iron out the inevitable disagreements over what is fair and what isn’t, governments around the world have established a number of important agreements and organizations that address trading issues

Question 16

Types of International Trade Organizations

Answer 16

1. The World Trade Organize (wto)
2. The International Monetary Fund (imf)
3. The World Bank
4. Trading Blocks

Question 17

The World Trade Organization (WTO)

Answer 17

a permanent forum that negotiates and monitors international trade procedure and mediates
int’l trade disputes among its members (160 countries)

Question 18

The International Monetary Fund (IMF)

Answer 18

foster financial cooperation and stability among its members (188 countries). Ex. provides loans
to a country that deals with a natural disaster.

Question 19

The World Bank

Answer 19

a group of five financial institutions whose goal is to eradicate the extreme levels of poverty around the world.

Question 20

Trading Blocks

Answer 20

organizations of nations that remove barriers to trade among their members

Question 21

Types of Trading Blocks

Answer 21

• North American Free Trade Agreement (NAFTA 1994)- among the US, Canada and Mexico
• European Union (EU)- one step further in the alliance by creating its own currency, the euro.
• Asia-Pacific Economic Cooperation (APEC)- 21 countries liberalizing trade among regions around the Pacific Ocean

Question 22

Culture

Answer 22

a shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior.

Question 23

Legal Differences among Countries

Answer 23

• Contracts
• Copyrights

Question 24

Tax Haven

Answer 24

• a country whose favorable banking laws and low tax rates give companies the opportunity to shield some of their income from higher tax rates in their home countries or other countries where they do business.
• Some criticize the fact that these large corporations (i.e. Microsoft, Google and Amazon) avoid paying internal taxes and there are proposed changes to international tax law that will make it difficult for companies to avoid taxes.

Question 25

Bribery

Answer 25

• making payments to government officials in some countries in order to secure contracts or otherwise gain a business advantage.
• These practices discourage much-needed investment in developing countries, undermine democratic processes and weaken trust in government, raise prices for consumers by inflating business costs, potentially create environmental degradation by letting companies skirt regulations, and can even present security risks by essentially putting officials’ actions up for the highest bid

Question 26

Forms of International Business Activity

Answer 26

1. Importing and Exporting
2. International Licensing
3. International Franchising
4. International strategic Alliances and Joint ventures
5. Foreign direct investments

Question 27

Importing

Answer 27

involves buying goods or services from a supplier in another country

Question 28

International Licensing

Answer 28

License agreements entitle one company to use some or all of another firm’s intellectual property (patents, trademarks, brand names, copyrights, or trade secrets) in return for a royalty payment.

Question 29

Exporting

Answer 29

the selling of products outside the country in which they are produced.

Question 30

International Franchising

Answer 30

franchising involves selling the right to use a entire business system, including brand names, business processes, trade secrets, and other assets

Question 31

International Strategic Alliances and Joint Ventures

Answer 31

Forming a long term businesspartnership with a local company in a new market or creating a new company with a local partner

Question 32

Foreign Direct Investments

Answer 32

Buying an established company or launching in another country

Question 33

Organizational Strategies for International Expansion

Answer 33

1. Multidomestic- highly decentralized approach
2. Global- highly centralized approach
3. Transnational- a hybrid approach