International Finance Ch.1

shareholder wealth maximization

a fundamental goal of sound financial management. Means that the firm makes all business decisions and investments with an eye toward making the owners of the firm --the shareholders-- better off financially, or more wealthy, than they were before.

General Agreement on Tariffs and Trade (GAAT)

a multilateral agreement among member countries. Aims to: reduce import tariffs worldwide by an average of 38%, increase the proportion of duty-free products from 20% to 44% for industrialized countries, and extend the rules of world trade to cover agriculture, services such as banking and insurance, and intellectual property rights.

European Central Bank (ECB)

common monetary policy for the euro zone is now formulated by this, that is located in Frankfurt.

outsource

companies are increasing this as a way of saving costs and boosting productivity and to enhance their competitive positions in the marketplace.

foreign exchange risk

describes the risk that an investment's value may change due to changes in the value of two different currencies. It is also known as currency risk, FX risk and exchange-rate risk

European Union

established to foster economic integration among the countries of Western Europe. Hope to strengthen its economic position relative to the U.S., China, and Japan. Adopted single currency of Euro, in 28 member states.

multinational corporation (MNC)

is a business firm incorporated in one country that has production and sales operations in many other countries

systemic risk

is the possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy. This type of risk was a major contributor to the financial crisis of 2008.

political risk

is the risk an investment's returns could suffer as a result of political changes or instability in a country. Arises from the fact that a sovereign country can change the "rules of the game"

World Trade Organization (WTO)

made to replace the GAAT. Has more power to enforce the rules of international trade. Objective is to lower trade barriers around the world, promoting free trade between developed and developing countries

market imperfections

represent various frictions and impediments preventing markets from functioning perfectly. Tend to restart the extent to which investors can diversify their portfolios.

corporate governance

the financial and legal framework for regulating the relationship between a company's management and its shareholders. Important so no scandal, and everyone is happy = leads to being successful if have this

theory of comparative advantage

theory advanced by David Ricardo. Meaning it is mutually beneficial for countries if they specialize in the production of those goods they can produce most efficiently and trade those goods among them.

transactions domain

this may happen to the euro, may become larger than that of the U.S. dollar in the future.

North American Free Trade Agreement (NAFTA)

what Canada, the U.S., and Mexico entered into.

globalized and integrated world economy

what we are living in today. Since it's now difficult to clearly associate a product with a single country of origin.

privatization

when a country diverts itself of the ownership and operation of a business venture by turning it over to the free market system. Considered the business of America is business. Business is the business of the world. Describes the process by which a property or business goes from being owned by the government to being privately owned.

expanded opportunity set

when firms venture into the arena of global markets, they get this. A firm can locate production in any country or region of the world to maximize their performance