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EGC1

International Business

QuestionAnswer
list the various names given to firms that have substantial operations in more than one country global company, multidomestic company, and international company
explain how the Internet has impacted international business firms It enables small companies to compete globally because they make possible the rapid flow of information regardless of location of the buyer and seller. Ex. Teleconferencing to demonstrate products and hold overseas meetings without the expense.
identify the five drivers/changes leading international firms toward globalization political-preferential trading agreements, technological-adv. in communications, market-global firms become global customers, cost-globalization of production reduce costs by achieving economies of scale, competitive-firms are defending their home markets
know the three environments in which an international company operates. domestic environment, foreign environment, and international environment
Multidomestic Company (MDC) An organization with multicountry affiliates, each of which formulates its own business strategy based on perceived market differences
Global Company (GC) An organization that attempts to standardize and integrate operations worldwide in all functional areas
International Company (IC) Either a global or a multidomestic company
Economic Globalization The tendency toward an international integration of goods, technology, information, labor and capital, or the process of making this integration happen
Foreign Direct Investment (FDI) 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
Exporting The transportation of any domestic good or service to a destination outside a country or region; the opposite of importing, which is the transportation of any good or service into a country or region, from a foreign origination point
Environment All the forces surrounding and influencing the life and development of the firm
Uncontrollable Forces External forces over which management has no direct control, although it can exert an influence
Controllable Forces Internal forces that management administers to adapt to changes in the uncontrollable forces
Domestic Environment All the uncontrollable forces originating in the home country that surround and influence the firm’s life and development
Foreign Environment All the uncontrollable forces originating outside the home country that surround and influence the firm
International Environment Interaction between domestic and foreign environmental forces or between sets of foreign environmental forces
Self-reference Criterion Unconscious reference to one’s own cultural values when judging behaviors of others in a new and different environment
explain how international trade has grown Measured in current $ exceeded $17 tril. in 2007. Merchandise exports, at $13.9 tril., were nearly 7x what they were in 1980. Services exports were $3.3 tril. in 2007, but their rate of growth since 1980 has been faster than that of merchandise exports.
know what direction international trade is heading and who trades with whom Devep.coun. tend to trade with each other accounting for more than 70% of their trade. The ^ of regional trade agreements (RTA)is transforming the volume and direction of world trade (wt). More than 70% of (wt) now occurs between members of (RTA).
know what direction foreign direct investment is heading and how fast it is growing Devel.nations invest in each other like trade. bc of the new business enviro., many internat.firms are dispersing the activities of their manufa.systems to locations closer to avail.resources. Deciding where to locate is a FDI or a trade decision.
show what the reasons are for entering foreign markets Companies enter foreign markets(exporting and manuf.in) to ^ and protect sales and profits and markets. Foreign firms often buy US firms to acquire technology and marketing know-how. Foreign investment also enables a company to diversify geographically.
Recognize that globalization of an international firm occurs over at least seven dimensions and that a company can be partially global in some dimensions and completely global in others. A firm can have, and usually does have, an international strategy that is partially multidomestic in some dimensions and partially global in others. Management must decide the extent to which the firm should globalize along each dimension.
Foreign Sourcing The overseas procurement of raw materials, components, and products
Portfolio Investment The purchase of stocks and bonds to obtain a return on the funds invested
Direct Investment The purchase of sufficient stock in a firm to obtain significant management control
Preferential Trading Arrangement An agreement by a small group of nations to establish free trade among themselves while maintaining trade restrictions with all other nations
Export Processing Zone A government-designated zone in which workers are permitted to import parts and materials without paying import duties, as long as these imported items are then exported once they have been processed or assembled.
In-bond Plants (manquiladoras) Production facilities in Mexico that temporarily import raw materials, components, or parts duty-free to be manufactured, processed, or assembled with less expensive local labor, after which the finished or semi-finished product is
understand and appreciate how international institutions and agreements affect international businesses, The role of institus.is to limit the choices open to the firm.by simplifying the external enviro.It sets rules, ways of acting&thinking that achieve compliance through force, social norms,&shared assump.that have the effect of reducing options to the firm
identify the activities of the United Nations (UN) in economic and social fields, The UN works to promote peace & stability & to facilitation trade & economic activity.The UN has influence on international business by providing a forum for government to talk to each other & collaborate.
tell why the World Trade Organization (WTO) is important to world business and trade, The WTO attempts to remove trade barriers worldwide.Its membership is composed of major trading countries in the world, so it has the potential to significantly influence world trade.The WTO routinely issues decisions on trade disputes between countries.
know about the European Union (EU) and how it affects business The EU has 27 European membernations.Its purpose is to integrate the economies of its member nations,creating a trading region where goods, services,people,&capital move freely.The EU is a reg.gov.&has regulatory power over social&envir. matters in Europe
list the major purposes of the Organization for Economic Cooperation and Development (OECD), The OECD supports gov.in their efforts to increase economic growth,fight poverty, maintain finan.stability,&help nonmember nations’ economic develo.It provides info.on economic&activ.within its members&gives a setting to discuss economic&society issues.
new institutional theory Understanding of institutions that sees them as social constructs, a collection of norms that structure the relations of individuals to one another
formal institutions Institutions that influence behavior through laws and regulations.
informal institutions Institutions that influence behavior through customs and idealogies.
United Nations (UN) 1 92-member organization dedicated to the promotion of peace and stability of the world
General Assembly Deliberative body of the UN made up of all member-nations, each with one vote regardless of size, wealth, or power
Security Council Main peacekeeping body of the UN, composed of 15 members including 5 permanent members
Economic and Social Council (ECOSOC) UN body concerned with economic and social issues such as trade, development, education, and human rights
International Court of Justice (ICJ) UN body that renders legal decisions involving disputes between national governments
Secretariat The staff of the UN, headed by the secretary-general
Bretton Woods Meetings at which allied nations’ treasury and central bank representatives met near the end of World War II to establish the International Monetary Fund and the World Bank
International Monetary Fund (IMF) Institution that coordinates multilateral monetary rules and their enforcement
par value Stated value
World Bank (WBRD) Institution that focuses on funding of development projects
World Trade Organization (WTO) An international organization that deals with rules of trade between nations
General Agreement on Tariffs and Trade (GATT) International agreement to encourage trade liberalization from 1947 to 1995
most-favored nation (MFN) clause Agreement that GATT member-nations would treat all members equally in trade matters
Uruguay Round Final GATT round that established the World Trade Organization
Doha Development Agenda WTO extended conference on trade
trade-related intellectual property rights (TRIPS) Refers to the WTO agreement that protects copyrights, trademarks, trade secrets, and other intellectual property matters
North Atlantic Treaty Organization (NATO) Security alliance of 26 North American and European nations
Association of Southeast Asian Nations (ASEAN) Ten-member body formed to promote peace and cooperation in the Southeast Asian region
Organisation for Economic Cooperation and Development (OECD) Group of developed countries dedicated to promoting economic expansion in its member-nations
Organization of Petroleum Exporting Countries (OPEC) Cartel of 1 2 petroleum-exporting countries
Group of 8 (G8) Group of government leaders from industrialized nations that meets regularly to discuss issues of concern
free trade area (FTA) Area in which tariffs among members have been eliminated, but members keep their external tariffs
customs union Collaboration that adds common external tariffs to an FTA
common market Customs union that includes mobility of services, people, and capital within the union
complete economic integration Integration on economic and political levels
North American Free Trade Agreement (NAFTA) Agreement creating a free trade area among Canada, Mexico, and the United States
European Free Trade Agreement (EFTA) Four-nation non-EU FTA in Europe
Mercosur (Mercosul) Economic free trade area in South America
Centeral American Free Trade Agreement (CAFTA-DR) FTA among the United States, four Central American nations, the Dominican Republic and Puerto Rico
Andean Community (CAN) South American four-nation trading bloc
European Union (EU) A body of 27 European countries committed to economic and political integration
European Monetary Union (EMU) Group that established use of the euro in the 15-country euro zone
European Parliament EU legislative body whose members are popularly elected from member-nations
Council of the European Union The EU’s primary policy-setting institution
European Commission Institution that runs the EU’s day-to-day operations
European Court of Justice (ECJ) Court that rules on issues related to EU policies
European Central Bank (ECB) Institution that sets and implements EU monetary policy
define foreign exchange (FX) markets; the price of one currency expressed in terms of another
define currency exchange controls Govts.can restrict the exchange of their curr.for others.These controls limit the amount of foreign curr.purchases/exchanges made inside the country. &differ for citizens &noncitizens &may limit the firm’s ability to pay for imports&to repatriate profit.
explain how financial forces such as balance of payments, tariffs, taxes, inflation, fiscal and monetary policies, and differing accounting practices affect business Finan.forces are beyond a firms control,so their monitoring & predictions are importa.Taxes increase the firm’s costs.Inflat.is a trend toward higher prices&is accompanied by higher interest rates. The firm wantto limit exposure in inflat.prone economies.
understand the balance of payments (BOP) The BOP reveals demand for the country’s curr.If a country is exports more than it imports,there is high demand for the currency in other countries in order to pay for the exported goods.This demand will create pressure on the exporter curr.to strengthen.
gold standard The use of gold at an established number of units per currency
Bretton Woods system The international monetary system in place from 1945 to 1971 , with par value based on gold and the U.S. dollar
fixed currency exchange rates Specific currency exchange equivalence upheld by goverment
par value Stated value
Triffin paradox The concept that a national currency that is also a reserve currency will eventually run a deficit, which eventually inspires a lack of confidence in the reserve currency and leads to a financial crisis
special drawing rights (SDR) (p. 306) An international reserve asset established by the IMF; the unit of account for the IMF and other international organizations
floating currency exchange rates Rates that are allowed to float against other currencies and are determined by market forces
Jamaica Agreement The 1 976 IMF agreement that allows flexible exchange rates among members
Bank for International Settlements (BIS) Institution for central bankers; operates as their bank
central reserve asset Asset, usually currency, held by a government’s central bank
vehicle currency A currency used as a vehicle for international trade or investment
intervention currency A currency used by a country to intervene in the foreign currency exchange markets, often to buy (strengthen) its own currency
spot rate The exchange rates between two currencies for delivery within two business days
forward currency market Trading market for currency contracts deliverable 30, 60, 90, or 180 days in the future
forward rate The exchange rate between two currencies for delivery in the future, usually 30, 60, 90, or 180 days
bid price Price offered to buy
ask price Sales price
monetary policy Government policies that control the amount of money in circulation and its growth rate
fiscal policy Policies that address the collecting and spending of money by the government
law of one price Concept that in an efficient market, like products will have like prices
arbitrage The process of buying and selling instantaneously to make profit with no risk
Fisher effect The relationship between real and nominal interest rates: The real interest rate will be the nominal interest rate minus the expected rate of inflation
international Fisher effect Concept that the interest rate differentials for any two currencies will reflect the expected change in their exchange rates
purchasing power parity (PPP) the number of units of a currency required to buy the same amounts of goods and services in the domestic market that one dollar would buy in the United States
efficient market approach Assumption that current market prices fully reflect all available relevant information
random walk hypothesis Assumption that the unpredictability of factors suggests that the best predictor of tomorrow’s prices is today’s prices
fundamental approach Exchange rate prediction based on econometric models that attempt to capture the variables and their correct relationships
technical analysis An approach that analyzes data for trends and then projects these trends forward
balance of payments (BOP) Record of a country’s transactions with the rest of the world
Created by: mmoreno12 on 2012-06-24



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