Chapter 3 Global Business

What are the economic consequences of trade restrictions?

1. Higher prices for consumers 2. Restriction of consumers choices 3. Misallocation of international resources 4. Loss of jobs

What are the reasons for trade restrictions?

1. To equalize a nation's balance of payments 2. To protect new or weak industries 3. To protect national security 4. To protect the health of citizens 5. To retaliate for another nation's trade restrictions 6. To protect domestic jobs

A bill of lading is defined as:

A document issued by a transport carrier to an exporter to prove that merchandise has been shipped

What US government export assistance program facilitates advocacy to assist US firms competing for major projects and procurements worldwide?

Advocacy Center

International monetary fund

An international organization of 183 countries, established in 1947 with the goal of promoting cooperation and exchange between nations, and to aid the growth of international trade.

The European Union

An international organization of European countries formed after World War II to reduce trade barriers and increase cooperation among its members.

How have international firms seized the opportunity to compete in foreign markets?

By exporting and importing products and increasing foreign production

Continual deficit can cause what?

Can cause other nations to lose confidence in that nation's economy

Which countries are the United States' best trading partners for US exports?

Canada and Mexico

The United States is efficient at producing software and engineering services but cannot produce clothes and electronics as efficiently as other nations. As such the United States sells software and engineering services to other countries and buys clothes and electronics. This is an example of:

Comparative advantage

What does devaluation do to the price of goods?

Decreases the cost of foreign goods, decreases the cost of domestic goods to foreign firms

The selling of products in a foreign country at lower prices than those charged in the producing country is called:

Dumping

What are principal activities in international trade?

Importing and exporting

Currency devaluation __________ the cost of foreign goods and ___________ the cost of domestic goods to foreign firms

Increases, decreases

Who supports multilateral development banks?

Industrialized nations

What bank specifically makes short term loans to developing countries experiencing balance of payment deficits?

International Monetary Fund

What US government export assistance program offers assistance and information to exporters through its domestic and overseas commercial officers?

International Trade Administration

World Trade Organization

International organization that regulates international trade.

Letter of credit

Issued by a bank for the amount of money needed to pay for the merchandise

What does dumping do to the prices?

It drives down the price of a domestic item

What is the world's third largest economy

Japan's

How may a joint venture be used?

May be used to produce and market an existing product in a foreign nation or to develop an entirely new product

What is the famous principle of the GATT, which means that each member is to be treated equally by all contracting nations?

Most-favored-nation status

A firm that operates on a worldwide scale without ties to any specific nation or region is known as a

Multinational enterprise

What agreement, when ratified, created free trade area among the United States, Mexico, and Canada?

NAFTA

How much investment does licensing require

None

NAFTA

North American Free Trade Agreement; allows open trade with US, Mexico, and Canada.

What is a reason for trade restrictions?

Protection for new or weak industries

What is an important and practical issue for domestic firms dealing with foreign customers?

Securing payment

Sub-Saharan Africa is home to _________ of the top ten fastest growing economies of the world.

Seven

What organization or US government export program publishes guides that offer assistance and exporting information to small and medium-sized companies?

Small Business Administration

A country may attempt to protect its own domestic industries by imposing a _________, a type of tax, on imported products

Tariff

According the the IMF, the world economic growth projections are?

The IMF predicts gradual global growth in both advanced and developing countries

The draft, bill of lading, and letter of credit are sent from who to who?

The exporter to the importers bank

What are the two types of tariffs?

The revenue and protective tariffs

What does it mean when a country imports more than its exports?

There is a negative balance of trade which is unfavorable

What is the main function of the Export-Import Bank of the United States?

To assist in financing the exports of American firms

What is the engine of economic growth?

Trade

Cultural barriers can impede acceptance of products in foreign countries T/F

True

What is the most integrated and dynamic economic relationship in the world?

US, Canada relationship

International trade has increased since what war?

WWII

When are goods and services produced more efficiently?

When each country specializes in the products for which it has comparative advantage

The organization established by the Uruguay Round of GATT, whose purpose is to mediate trade disputes among nations is called:

World Trade Organization

Embargo

a complete halt to trading with a particular nation or of a particular product

Licensing

a contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation

Multinational enterprise

a firm that operates on a worldwide scale without ties to any specific nation or region

Import quota

a limit on the number of products in certain categories that a nation can import

Trade deficit

a negative balance of trade

Nontariff barrier

a non tax measure imposed by a government to favor domestic over foreign suppliers

Joint ventures

a partnership formed to achieve a specific goal or to operate for a specific period of time

Foreign exchange control

a restriction on the amount of a particular foreign currency that can be purchased or sold

Import duty

a tax levied on a particular foreign product entering a country

The Kennedy Round

aimed at reducing tariffs, succeeded in reducing tariffs on products

Export-Import Bank of the United States

an independent agency of the U.S. government whose function is to assist in financing the exports of American firms

The General Agreement on Tariffs and Trade (GATT)

an international organization of 164 nations dedicated to reducing or eliminating tariffs and other barriers to world trade

Multilateral development bank

an internationally supported bank that provides loans to developing countries to help them grow

Economic community

an organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies

Brexit

citizens of the UK voted to exit the EU

Brazil has excellent resources and expertise to farm and produce coffee beans whereas the United States is ill-suited for the production of coffee. Brazil should:

continue to produce coffee and trade it for US products Brazil needs and cannot produce

What affect the international operations and flow of cash

currency exchange rates, tariffs and foreign exchange controls, and tax structures

International business

encompasses all business activities that involve exchanges across national boundaries

Countertrade

essentially an international barter transaction in which goods and services are exchanged for different goods and services

Dumping

exportation of large quantities of a product at a price lower than that of the same product in the home market

What does it mean when a country exports more than it imports

favorable balance of trade

What are the two forms of direct investment

firm builds or purchases manufacturing and other facilities in the foreign country or the purchase of an existing firm in foreign country

Revenue tariffs

imposed solely to generate income for the government

Protective tariffs

imposed to protect a domestic industry from competition by keeping the price of competing imports level with or higher than the price of similar domestic products

Totally owned facilities

its own production and marketing facilities in one or more foreign nations

Uruguay Round

launched to extend trade liberalization and widen the GATT treaty to include textiles, agricultural products, business services, and intellectual property rights

A contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation is known as:

licensing

Draft

orders the importer's bank to pay for the merchandise

Trading companies

provides a link between buyers and sellers in different countries

Direct investment

provides complete control over operations, but carries a greater risk

Importing

purchasing raw materials or products in other nations and bringing them into one's own country

Exporting

selling and shipping raw materials or products to other nations

Exporting

selling products to another country

Absolute advantage

the ability to produce a specific product more efficiently than any other nation

Comparative advantage

the ability to produce a specific product more efficiently than any other product

Bill of lading

the carrier transporting the merchandise provides the exporter with evidence of the shipment

A country with a trade surplus generally has a favorable balance of payment which means:

the country is receiving more money from trade with foreign countries than it is paying out

Who is the go between in importer and exporter deals

the local domestic banks involved in international business

Strategic alliance

the newest form of international business structure, a partnership formed to create competitive advantage on a worldwide basis

Currency devaluation

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

Tokyo Round

the seventh round of trade talks, in which tariffs were reduced further across the board and developing countries were granted tariff preferences

Balance of payments

the total flow of money into a country minus the total flow of money out of that country over some period of time

Balance of trade

the total value of its exports minus the total value of its imports over some period of time