INTB 2

Ghana encourages FDI

-"Buzzfeed of Africa" OMG Digital attracts international investors with $1.1M seed fundraise -Launches national entrepreneurship program -tax breaks for up to 10 years

Benfits of FDI

-Bring in capital, technology, & other resources -Job creation -Improve trade deficit -Increases competition -Decreased prices -Innovation & growth

US/Huawei

-Chip makers still await clearance to sell to Huawei -"Trump promised to gran exemptions to a blacklist against the Chinese telecom giant, but that pledge remains unfulfilled"(WSJ, 2019)

Costs of FDI

-Drive out domestic competition -Worsen trade deficit -Limit national sovereignty and autonomy -Loss of economic independence

Political Arguments for Gov intervention

-Protecting jobs and industries -Protecting national security -Retaliating - use intervention as a bargaining tool and force trading partners to "play by the rules" -Protecting consumers (ban unsafe products) -Further foreign policy objectives -Protect human rights

Aquisition/Merger

-Quicker to execute -Less risk to acquire assets than build them from the ground up -Increase the efficiency of an acquired unit by transferring capital, technology, or management skills

Why are sugar prices in US higher than the rest of the world

-US government limits imports -sets floor price

FDI preferred over licensing

-When the firm has valuable know-how that cannot be adequately protected by a licensing contract -When the firm needs tight control over a foreign entity -When a firm's skills and know-how are not amenable to licensing

FDI preferred over Exporting

-high transportation costs -trade barriers are high

Economic Arguements for Gov intervention

-infant industry argument -strategic trade policy (first-mover)

Absolute Advantage

-more efficient at producing a product than any other country -gov role: free trade/unrestricted, market mechanism

Levels of economic Integration

1. Free Trade Area 2. Customs Union 3. Common Market 4. Economic Union 5. Political Union

Economic Union members

28

EU did not adopt euro

9

political union

A country that wants to create the highest level of economic integration would enter into a(n)

positive-sum game

A situation in which all countries can benefit even if some benefit more than others

zero-sum game

A situation in which an economic gain by one country results in an economic loss by another is called a

inefficient

A(n) _____ market is one in which prices do not reflect all available information.

currency swap

A(n) _____ refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

dirty-float

A(n) _____ system refers to one in which a country's currency is nominally allowed to float freely against other currencies but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value.

common market

A(n) ________ has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members, but does not have a common currency.

communication infrastructure

According to Porter, which factor endowment would be classified as an advanced factor?

Floating rates help adjust trade imbalances

Advocates of the floating rate system argue that

free trade area definition

All barriers to trade among member countries are removed, but members determine their own trade policies with regard to non-members

NAFTA (North American Free Trade Agreement)

Allows open trade between the US, Mexico, and Canada. -the Worst trade deals in trade deal history

trade deficit

An excess of imports over exports

Andean community members

Bolivia, Colombia, Ecuador, Peru

Mercosur

Brazil, Argentina, Paraguay, and Uruguay

US/China Trade War not bringing jobs back

Capability: no viable supply chain in US Wages: other countries remain cheaper Policy: other countries have preferential treatment by US, can get goods back duty-free Near China, for China

lag strategy

Carlos is the manager of an American company. He expects the value of the British pound to appreciate in the near future and so delays the collection of payments from British customers until the next month. Which tactic is Carlos using to minimize the foreign exchange exposure?

Comparative Advantage (Heckscher-ohlin)

Export goods that make intensive use of factors locally abundant (factor endowments -land, labor, capital) -gove role: free trade- unrestricted

free trade area, customs union, common market, economic union, and political union

Identify the correct sequence of economic integration starting from the least integrated to the most integrated.

A depreciation in its exchange rate

In a floating exchange rate system, a current account deficit is likely to be corrected by

fixed

In countries that adopt a _____ exchange rate system, the values of currencies are set against each other at some mutually agreed-on exchange rate.

the market mechanism

In his theory of absolute advantage, Adam Smith advocated that ________ should determine what a country imports and what it exports.

hedging

Jacob is the chief financial officer for RinseAll Detergent products. His company is interested in investing in a facility in Indonesia, but he is worried about unpredictable fluctuations in future exchange rates, which could cost his company millions of dollars. One way to ensure against this exchange risk is for Jacob to use

Softbank

Japan investment co that invests in starts ups -invested in Uber, ALibaba and sprint

factor endowments

Karvel lives in northern California where there is sufficient land and labor to successfully grow grapes for wine. Heckscher-Ohlin would consider the land and labor to be

NAFTA countries

Mexica, US, Canada

Product Life Cycle Theory

Most new products are initially produced in America, then in developed nations, then in developing countries

Example of Free Trade Area

NAFTA

customs union

No trade barriers & common external trade policy -bolivia, columbia, ecuador, peru

Common Market

No trade barriers & common external trade policy & free movement of the factors of production

Economic Union

No trade barriers & common external trade policy & free movement of the factors of production & common currency & harmonization of tax rates & common monetary and fiscal policy

the home country's balance of payments benefits from the inward flow of foreign earnings.

One of the main benefits that FDI provides to the home country is

immigration

One reason the British electorate voted to exit the European Union is because of an increase in ________ within Europe.

a lead strategy

Rae feels it is best for her company Rae feels it is best for her company to pay their foreign supplier in Panama this month even though they will receive product for another six months. She recently learned that the currency in Panama is expected to appreciate and, by paying the supplier now, her company will save money. This is an example of

licensing

Royal Chocolatier, a British manufacturer of chocolates, granted U.S. company American Candy Inc. the right to produce and sell Royal Chocolatier's products in the United States In return, American Candy Inc. has to pay a royalty fee on every unit sold. According to this information, what is being done by Royal Chocolatier?

comparative advantage (Ricardo)

Specialize in what a country produces most efficiently, and buy goods that are produced less efficiently -gov role: free trade (unrestricted)

China encouraging FDI

Tesla

international monetary fund and world bank

The Bretton Woods agreement created which two multinational institutions?

theory of absolute advantage

The Republic of Monaslu has the world's most efficient car manufacturing industry, while the country of Ingora has the world's most efficient electronics industry. The Republic of Monaslu trades cars with Ingora in exchange for consumer electronics. This form of trade between the two countries illustrates

help finance the building of Europe's economy by providing low-interest loans.

The World Bank's initial mission was to

theory of comparative advantage

The basic message of ________ is that potential world production is greater with unrestricted free trade than it is with restricted trade.

pegged

The currency of Panama, the balboa, is fixed relative to the U.S. dollar. As a result, the U.S. dollar exchange rate determines the exchange rate between the Panama balboa and other currencies. This is an example of a _____ exchange rate.

first-mover advantages

The economic and strategic advantages that accrue to early entrants into an industry are called

floating

The exchange rate for converting the U.S. dollar into other currencies is continuously adjusted depending on the laws of supply and demand. This illustrates a _____ exchange rate.

mercantilism

The government of the Republic of Senna enforces tariffs and quotas to limit imported goods, while exports are subsidized. By using these instruments, the government seeks to achieve a surplus in the balance of trade. Based on this information, which approach most influences the Republic of Senna's approach to international trade?

A combination of government intervention and speculative activity

The investment manager at AllRight Time Inc. reminds the board that the foreign exchange market is a mixed system. The investment manager wants the board to realize that rates are driven by

the bandwagon effect

The movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions, is called

spot exchange rate

The rate at which a foreign exchange dealer converts one currency into another currency on a particular day is the

total accumulated value of foreign-owned assets at a given time.

The stock of FDI refers to the

New Trade Theory: Basic Tenets

Through economies of scale, trade can increase variety of goods available and decrease costs. -only able to support only a small number of enterprises-112 first movers

impact of currency exchange rate changes on the reported financial statements of a company.

Translation exposure refers to the

the US Dollar

Under the fixed exchange rate regime established at Bretton Woods, _____ served as the reference point for all other currencies

free trade area

When Norway, Iceland, Liechtenstein, and Switzerland were joined by the EFTA, all barriers to the free flow of goods and services between the countries was removed. Member nations are allowed to determine the level of trade protection for goods coming from all other nations. What level of economic integration does this represent?

new trade theory

Which approach suggests that nations may benefit from trade even when they do not differ in resource endowments or technology?

greenfield investment

______ involves the establishment of a new operation in a foreign country.

mercosur

_______ is a pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area.

the new trade theory

________ justifies some limited government intervention to support the development of certain export-oriented industries.

a forward exchange

________ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

Advanced Factor Endowments

a countries endowment with resources such as land, labor, and capital

the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

a currency is considered freely convertible when

subsidies

a gov payment to a domestic producer

zero sum game

a situation in which an economic gain by one country results in an economic loss by another

tariffs

a tax levied on imports that raises the cost of imported products (specific & ad valorem)

first mover advantage

advantages accuring to the first to enter a market

Free Trade Agreement

an agreement between member countries to remove duties and trade barriers on products traded among them.

ASEAN competitive edge

attract more FDI as production base

EU headquarters

brussels

Key changes to NAFTA

decrease trade deficit

free trade

designed to reduce/eliminate tariffs, quotas, and other trade restrictions -when a government does not attempt to influence, through quotas or duties, what its citizens can buy from anbother country or what they can product and sell to another country

Greenfield investments

establishing new operations in a foreign country

Mercantilism

export more than import (leep trade surplus) gove role: -subsidize (export) -tariffs and quotas (import)

local content requirements

fraction of a good must be produced domestically

antidumping policies

protection against unfair foreign competition

voluntary export restraints

quota on exports at the request of the importing country's government

Porter's Diamond Model

recognizes that international trade occurs between firms in one country and firms of another country -integrates the theory of the firm with trade theory; four areas + chance + government; firm strategy, structure & rivalry; factor conditions; demand conditions; related & supporting industries

import quotas

restriction on the quantity of goods imported

administrative policies

rules making it difficult for imports to enter a country

Political Union

single union -US and EU on its way

Inflows of FDI

the flows of FDI inot a country

outflow of FDI

the flows of FDI out of a country

USMCA

the new NAFTA

WTO (World Trade Organization)

the only global international organization dealing with the rules of trade between nations -threatened to pull the United States out -is sabotaging the US trade

Stock of FDI

the total accumulated value of foreign-owned assets at a given time

US-China bilateral agreement

trade war- keep upping the amount of taxation

Trade War and Farmers

two separate rescue programs for the farm economy to mkae up for lost sales to china

economies of scale

unit cost reduction associated witha large scale of output

Mercosur/Venezuela

joined in 2012-suspended in 2016 following election and human rights violation

Andean Community/Venezuela

the US signed free trade agreement that finished killing it

TPP (Trans-Pacific Partnership)

the United States withdrew its signature the agreement could not enter into force. The remaining nations negotiated a new trade agreement