Intro to business chapter 3

Devaluation

lowering the value of a nation's currency relative to other currencies

Internal Monetary Fund

organization formed to stabilize international exchange rates and facilitate development, founded in 1945

Embargo

A ban on trade

Trade surplus

A favorable balance of trade; occurs when the value of a country's exports exceeds that of its imports.

Preferential tariff

A tariff that is lower for some nations than for others

Tariff

A tax on imported goods

Lost of global trade

A) Millions of Americans have lost jobs due to imports or production shifting abroad. B) Millions of others fear losing their jobs especially at those companies operating. under competitive pressure. C)Employers often threaten to export jobs if workers do not accept pay cuts D) Service and white collar jobs are increasingly vulnerable to operations moving offshore.

Benefits of global trade

A) Productivity grows more quickly when countries produce goods and services in which they have a comparative advantage. Living standards can increase faster. B) Global competition and cheap imports keep prices down, so inflation is less likely to stop economic growth. C) An open economy spurs innovation with fresh ideas from abroad. D) Through infusion of foreign capital and technology, global trade provides poor countries with the chance to develop economically by spreading prosperity.

Importance of global business to the United States

A) Trade dependent jobs have grown at a rate three times the growth of U.S. dependent jobs B) Every U.S. state has realized a growth of jobs attributable to trade. C) trade has an effect o both service and manufacturing jobs.

World Trade Organization (WTO)

An organization established by the Uruguay Round in 1994 to oversee international trade, reduce trade barriers, and resolve disputes among member nations.

Trade deficit

An unfavorable balance of trade; occurs when the value of a country's imports exceeds that of its exports.

What threats and opportunities exist in the global marketplace?

Domestic firms entering the intentional arena need to consider the politics, economies, and culture of the countries where they plan to do business. In the area of culture, many products fail because companies don't understand the culture of the country where they are trying to sell their products. Some developing countries also lack an economic infrastructure, which often makes it very difficult to conduct business.

What are the trends in the global marketplace?

Global business activity will continue to escalate due to several factors, firms that desire a larger customer base or need additional resources will continue to seek opportunities outside their country's boarders/ China and India are emerging as global economic powerhouses.

G20

Informal group that brings together 19 countries and the European Union- the 20 leading economies in the world.

What are international economic communities?

International economic communities reduce trade barriers among themselves while often establishing common tariffs and other trade barriers toward nonmember countries. The best known economic communities are the European Union, NAFTA, CAFTA, and Mercosur.

Why is global trade important to the United States, and how is it measured?

International trade improves relations with friends and allies, eases tensions among nations, helps bolster economies, raises people's standard of living, and improves the quality of life. The United States is still the largest importer and exporter in the world. We export a fifth of our industrial production and about a third of our farm crops. Two concepts important to global trade are the balance of trade and the balance of payments. The United States now has both negative balance oof trade and a negative balance of payments. Another important concept is the exchange rate, which is the price of ones country currency in terms of another country's currency. Currencies float up and down based upon the supply of and demand for each currency. Sometimes a government steps in and devalues its currency relative to the currencies of other countries.

Exchange controls

Laws that require a company earning foreign exchange from its exports to sell the foreign exchange to a control agency, such as a central bank.

What are the advantages of multinational corporations?

Multinational corporations have several advantages, They can sidestep restrictive trade and licensing restrictions because they frequently have headquarters in more than one country. They can also move their operations from one country to another to the next depending on which location offers more favorable economic conditions.

Why do nations trade?

Nations trade because they gain by doing so. The principle of comparative advantage states that each country should specialize in the goods it can produce most readily and cheaply and trade them for those that other countries can produce most readily and cheaply. The result is more goods at lower prices than if each country produces by itself everything it needed. Free trade allows trade among nations without government restrictions.

How do governments and institutions foster world trade?

The World Trade Organization, established by the Uruguay Round of trade negotiations, has dramatically lowered trade barriers worldwide. For the first time a trade agreement covers services, intellectual property rights, and exchange controls. The World Bank makes loans to developing nations to help build infrastructures. The International Monetary Fund makes loans to member nations that cannot meet their budgetary expenses. Despite efforts to expand trade, terrorism can have a negative impact on trade growth.

principle of comparative advantage

The concept that each country should specialize in the products that it can produce most readily and cheaply and trade those products for those that other countries can produce more readily and cheaply.

How do companies enter the global marketplace?

The major ways to enter the global marketplace are exporting, licensing, contract manufacturing, joint ventures, and direct investment.

What are the barriers to international trade?

The three major barriers to international trade are natural barriers, such as distance and language; tariff barriers, or taxes on imported goods; and non tariff barriers. The non tariff barriers to trade include import quotas, embargoes, buy national regulations, and exchange controls. The main argument against tariffs is that they discourage free trade and keep the principle of comparative advantage from working efficiently. The main argument for using tariffs is that they help protect domestic companies, industries and workers.

Floating exchange rates

a system in which prices of different currencies move up and down based on the demand for and the supply of each currency

Joint venture

an agreement between two or more companies to share a business project