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Definition
| company formed by a merger of two firms of approximately the same size that are from two different countries |
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Term
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| is a business whose activities are carried out across national borders |
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| International business includes: |
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Definition
| Includes international trade, foreign manufacturing, transportation, tourism, advertising, construction, retailing, wholesaling, and mass communication |
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| denotes domestic operations within a foreign country |
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has multicountry affiliates,
each of which formulates its own business strategy based on perceived market differences |
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| attempts to standardize and integrate operations worldwide in all functional areas |
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| refers to both global and multidomestic companies |
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| International Business Activities |
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Definition
| International Trade and Foreign Direct Investment |
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| includes exports and imports |
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| Foreign Direct Investment- Definition |
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Definition
| Direct Investments in equipment, structures, and organizations in a foreign country at a level that is sufficient to obtain significant management control; does not include mere foreign investment in stock markets |
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| Why are they the major trade partners to the U.S.? |
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Definition
Geographic reasons
Size of the market
Comparative competitiveness
Cultural similarity
Political and regulatory environment |
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| Direction of Trade exceptions- Why Japan exports more to developing nations |
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Definition
Japan established extensive distribution in developing nations since early 1900s
Uses “sogo shosha” to import raw materials and components necessary for the Japanese industry since there is a lack of local sources for raw materials |
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| Reasons the United States exports more to developing nations |
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Definition
The U.S. has significantly more subsidiaries in developing countries than Japanese companies
Some buyers in Southeast Asian countries prefer to buy from American firms |
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| Two components of foreign investment |
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Definition
Portfolio investment
Direct Investment |
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Term
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Definition
| Purchase of stocks and bonds solely for the purpose of obtaining a return on the funds invested |
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Definition
Investors participate in the management of the firm in addition to receiving a return on their money
When investors equity participation ratio is above 10% or although equity is less than 10%, the investor is important enough to affect the management and operation. |
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| Why enter foreign markets? |
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Definition
Increase profit and sales
Protect present customers: Banks
Attack competitor’s home market: Automobile industry
Guarantee supply of raw materials: McDonalds in India
Acquire technology and management know-how: Developing countries
Geographic diversification: Citigroup |
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Term
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Definition
An economic philosophy based on the belief that
a nation’s wealth depends on accumulated treasure, usually gold, and
to increase wealth, government policies should promote exports and discourage imports. |
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| In balance-of-payment accounting |
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Definition
an export that brings dollars into a country is called “positive,” but
imports that cause dollar outflow are labeled “negative.” |
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Definition
| The capability of one nation to produce more of a good with the same amount of input than another country |
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| Absolute Advantage Assumptions |
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Definition
Perfect competition and no transportation costs in a world of two countries and two products.
Each nation has two input units it can use to produce either rice or autos.
Each country uses one unit of input to produce each product. |
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Definition
A nation has a comparative advantage in producing the good in which its absolute disadvantage is less.
Theory of comparative advantage was demonstrated by Ricardo in 1817. |
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| Arguments for and Against Trade Restrictions |
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Definition
National Defense
Protect Infant Industries
Scientific Tariff or Fair Competition
Retaliation on dumping |
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Term
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Definition
selling a product abroad for less than
the cost of production, the price in the home market, or the price to third countries. |
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Definition
Sell excess production without disrupting prices in the domestic market.
Force all domestic producers in the importing nation out of business. |
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Definition
Social Dumping
Environmental Dumping
Financial Services Dumping
Cultural Dumping
Tax dumping |
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Term
| Tariffs, or import duties are |
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Definition
| taxes levied on imported goods for the purpose of raising their prices to reduce competition for local producers. |
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Definition
| Duty stated as a percentage of the invoice value |
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Definition
| Fixed sum of money charged for a physical unit |
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Definition
| A combination of specific and ad valorem duties |
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Term
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Definition
| Prices included in the customs tariff of some nations and used as the basis for ad valorem duty calculations whenever the actual involved price is lower. |
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Definition
| Guarantees that the market price of the import will be the same as that of domestically produced goods. |
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Definition
an international organization of 193 member nations dedicated to promoting peace
The purpose is to maintain world peace |
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Term
| Six official languages of the UN |
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Definition
| Arabic, Chinese, English, French, Russian, and Spanish |
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Term
| All UN member-nations are members of the General Assembly |
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Definition
Each nation has one vote regardless of its size, wealth, or power
General assembly decisions have no legally binding force for governments or citizens
UN charter was signed in San Francisco, California in 1945 |
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Term
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Definition
is the main policy-setting body of the UN composed of 15 members including 5 permanent members
The 5 permanent members include the People’s Republic of China, France, Russia, the United Kingdom, and the United States.
Each permanent member has the power to veto any measure. |
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Term
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Definition
carries out day-to-day administrative functions of the UN and
is headquartered in New York City
services the other principle UN organs
administers the UN’s programs and policies |
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Term
| Economic and Social Council |
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Definition
is concerned with economic issues such as trade, transport, industrialization, economic development, and social issues
makes recommendations on how to improve education and health conditions
promotes respect for and observation of human rights and freedoms of people everywhere |
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Term
| The International Court of Justice is also called the “World Court” |
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Definition
Only nations may be parties to litigation before the “World Court”
The International Court of Justice has 15 judges who must come from 15 different countries
Judges serve nine-year terms |
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Term
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Definition
| is the world’s largest source of development assistance |
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Term
| The World Bank makes hard loans |
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Definition
are made and repayable in hard, convertible currencies at a market interest rate with normal market maturities
are granted only to sound borrowers |
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Term
| International Finance Corporation (IFC) is World Bank Group’s investment banker |
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Definition
is exclusively private risk ventures in the developing countries
purpose is to further economic development by encouraging growth of productive enterprise in member-countries |
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Term
| International Development Association (IDA) is the soft loan section of the World Bank |
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Definition
have up to 40-year maturities
Borrowers
are the poorest of the poor developing countries |
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Term
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Definition
Subscriptions donated by the developed and some developing countries
Resources renewed periodically by “replenishment |
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Term
| The Multilateral Investment Guarantee Agency (MIGA) |
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Definition
Provides guarantees to foreign investors against losses caused by noncommercial risks in developing countries
Provides capacity-building and advisory services to help countries attract foreign direct investment |
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Term
| International Center for Settlement of Investment Disputes (ICSID) |
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Definition
provides facilities for settlement
by conciliation or arbitration of investment disputes between foreign investors and their host countries |
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Term
| General Agreement of Tariffs and Trade (GATT) |
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Definition
| Established in 1947, negotiations are conducted in “rounds” |
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Term
| World Trade Organization (WTO) |
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Definition
A multinational organization designed to deal with rules of trade between nations
had 153 members
headquartered in Geneva, Switzerland
Goal is to help producers, exporters, and importers conduct their business by reducing or eliminating trade barriers and restrictions worldwide |
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Term
| International Monetary Fund (IMF) |
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Definition
deals solely with governments
objectives are to foster
orderly foreign exchange arrangements
convertible currencies
a shorter duration and lesser degree of balance-of-payments disequilibrium |
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Term
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Definition
policy coordination among the major industrial countries
Major industrial countries are also referred to as the Group of Eight
Includes Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and Russia |
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| Major Forms of Economic and Political Integration |
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Definition
Free Trade Area
Customs Union
Common Market
Complete Economic Integration |
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Term
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Definition
Tariffs are abolished among members-countries
Each member-country maintains its own external tariffs on imports from nonmember countries |
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Term
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Definition
| A Free Trade Area where member-countries add a common external tariff |
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Term
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Definition
| A Customs Union plus the abolition of restrictions on the mobility of capital and labor among member-countries |
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| Complete Economic Integration |
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Definition
| Involves a high degree of political integration as member-countries surrender important elements of their sovereignty |
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Term
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Definition
A supernational entity, meaning that it is a regional government
member-nations sought to achieve four fundamental freedoms
Freedom of movement of goods, capital, services, and people |
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Term
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Definition
is the executive institution in charge of administering the daily operations of the EU
is called the “Guardian of the Treaty”
Charged with ensuring proper implementation of the provisions of the Treaty of Rome
Consists of 27 commissioners who come from member-nations |
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Term
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Definition
| the primary policy-setting institution of the EU |
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Term
| The Parliament of the European Union |
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Definition
First elected in 1979 and now elected by vote throughout Europe every five years
Currently has 736 members from member nations, representing over 100 European political parties
Has been given power to reject the EU budget |
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Term
| The European Court of Justice |
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Definition
Decides all cases arising under the Treaty of Rome
Authority supersedes that of the member-countries’ courts |
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Term
| The European Monetary Union |
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Definition
Officially launched in January 1999
The 17 participating member-nations make up an area often called the “euro zone”
The three original members that insist not participate are Denmark, Sweden and the United Kingdom |
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Term
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Definition
| accounting book to present a country’s trade relationship with other countries |
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Term
| Statement of a country’s BOP is divided into several accounts |
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Definition
Current Account
Capital Account
Official Reserves Account |
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Term
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Definition
| Deals with “visibles,” such as autos, grain, machinery, and equipment. |
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Term
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Definition
| The net balance on merchandise transactions is referred to as the country’s |
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Term
| Current Account- Services |
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Definition
Deals with “invisibles” that are exchanged or bought internationally.
Examples include dividends or interest on foreign investments, royalties on patents or trademarks held abroad, travel, insurance, banking, and transportation. |
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Term
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Definition
Transfers with no quid pro quo.
Some of these transfers are made by private persons or institutions, and some by governments.
Some private transfers are for charitable, educational, or missionary purposes.
The largest government aid |
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Term
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Definition
| Records the net changes in a nation’s international financial assets and liabilities over the BOP period. |
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Term
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Definition
Direct investment
Portfolio investment
International movements of short-term capital |
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Term
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Definition
International movements of short-term capital
Involve changes in international assets and liabilities with an original maturity of one year or less.
Some of the fastest-growing types of short-term flows are for currency exchange rate and interest rate hedging in the forward, futures, option, and swap markets. |
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Term
| Official Reserves Account |
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Definition
| Total credits and debits must be equal because of the double-entry accounting system used to report the BOP. |
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Term
| Official Reserves Account Deals with |
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Definition
Gold imports and exports.
Changes in foreign exchange held by the government.
Changes in liabilities to foreign central banks. |
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Term
| Foreign Direct Investment- Fact |
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Definition
| International companies must make FDI to establish and expand their overseas operations |
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