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BUAD384
Global Business Environment Ch 6-11
| Term | Definition |
|---|---|
| Absolute Advantage | produce what you specialize in & then trade for goods that other countries specialize in |
| Comparative Advantage | do what your most efficient at & let other countries do what they do best & then trade -even if you can produce both goods more efficient |
| History development of Trade Theory | Mercantilism->Smith->Ricardo->Heckscher-Ohlin |
| Mercantilism | -export more than you consume -encourage exports & discourage imports |
| Smith | said you want the absolute advantage |
| Ricardo | said you want the comparative advantage |
| Heckscher-Ohlin | -export what you specialize in & import what you don't then trade -factor endowment: the extent to which a country is endowed with resources |
| Zero-sum game | A gain in one country results in lose by another |
| Win-Win game | Both countries produce what do best and then trade. Both countries win as apposed one country producing all the goods they need. |
| Porter - National Systems | How do you get an advantage in a factory were the goods are produced? |
| Krugmen - New Trade Theory | be the first to produce a good |
| Vernon - Product Life Cycle | -about where a produce is produced -industrial nations have an incentive to develop new products |
| First-Mover Advantage | the economic & strategic advantage that accrue to early entrants into an industry |
| Undered Unemployment | Your level of education does not match the job you are in |
| Antidumping | selling goods in another country for less than the cost to make it |
| Free Trade | The absence of barriers to the free flow of goods & services between countries |
| Tariff | A tax levied on imports or exports |
| Specific Tariff | levied as a fixed charge for each unit of good imported |
| Ad Valorem Tariff | Levied as a portion of the value of an imported good |
| Who gains from tariffs? | Government and domestic producers |
| Who loses from tariffs? | Consumers |
| Subsidy | -a government payment to domestic producers -the payment is intended to lower their cost |
| Import Quota | A direct restriction on the quantity of a good that can be imported into a country |
| Tariff Rat Quota | Lower tariff rates applied to imports within the quota than those over the quota |
| Voluntary Export Restraint (VER) | A quota on trade imports from the exporting country |
| Quota Rent | Extra profit producers make when supply is artificially limited by an import quota |
| Local Content Requirement | A requirement that a specific fraction of goods be produced domestically |
| Foreign Direct Investment (FDI) | FDI occurs when a firm invests directly in production or other facilities over which it has effective control |
| Sovereign-wealth Funds | extra capital the gov. has that they want to invest in other companies |
| Greenfield Investment | Start a new business unit in another country that was not previously existing |
| Acquisition | purchase of an existing business in another country |
| Free Trade Area | No barriers with in -ex: NAFTA |
| Common Union | Some external trade policy |
| Common Market | Factors move freely |
| Economic Union | Some currency, tax rates, monetary policy, and fiscal policy -ex: EU |
| Political Union | Centralized economic, social, & foreign policy -ex: US states |
| Spot rate | what you will get at a specific point in time for a currency |
| 3 main factors that impact future exchange rates | 1. A country's price inflation 2. A country's interest rate 3. Market psychology |
| law of one price | same good much sell for the same price in each currency after factoring exchange rate |
| Purchasing power parity | given relative effective markets the price of a "basket of goods" should be roughly equivalent in each country |
| International Fisher Effect | any two countries, the spot exchange rate should change in an equal amount |
| Band Wagon Effect | expectations on the part of traders turns into self-fulfilling prophecies, & traders join the band wagon & move the exchange rate |
| Degrees of Convertibility: 1. Freely convertible 2. Externally convertible 3. Nonconvertible | 1. available to convert 2. only foreigners can convert 3. can't convert currency, which keeps the capital in |
| Floating exchange rate | When the foreign exchange market determines the relative value of the currency |
| Pegged | currency value is fixed relative to a reference currency |
| Dirty Float | A country's currency is allowed to free float against other currencies, but the gov. may intervene by buying and selling the currency to keep it at a fair value |
| Managed Float | system where some currencies are allowed to float freely but the majority are either managed by gov. in intervention or pegged another currency |
| Forward Exchange | when two parties agree to exchange currency & execute a deal at some specific date in the future |
| Moral Hazard | Aries when people believe recklessly because they know they will be saved if things go wrong |
Created by:
NickUD
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