intl business final

The Bretton Woods System

1945 (WWII) to 1971

purchasing power parity

a means of adjusting the exchange rates for two currencies so the currencies have equivalent purchasing power.

international strategy

a plan that guides the way firms make choices about developing and deploying scarce resources to achieve their international objectives

purchasing power parity

amount of adjustment that must be made in the exchange rates for two currencies for the to have equivalent purchasing power

private consumption: discretionary income

amount of income left after paying taxes and making essential purchases

strategic planning step 1

analyze the company's external environments- Not controllable

Reserves

assets held by a nation's central bank, used to back up government liabilities

bottom-up

begins at the lowest level and continues upward, con- complexity, time consuming

Why Foreign Currency Exchange Occurs

buyers and sellers want to do business in their own currency to avoid the risk that accompanies currency exchange.

mission statement

defines the organization's purpose and scope

Floating exchange rate

determined by supply and demand that allow currency values to float against one another.

explicit knowledge

easy to communicate to others via words, pictures, formulas or other means

emerging market economies

economies with per-capita incomes in the. low to middle range are in a transition toward developed status.

taxation

effective tax management can yield a competitive advantage

current currency arrangements

exchange arrangement with no separate legal tender

Arbitrage functions to

exploit price differences between markets, so as to profit with no risk

in a currency board arrangement, a country's govt. commits to adopt the currency of another

false

the Bretton woods system led to minimal growth in international trade but helped to reduce inflation levels

false

the controlling mechanism for a gold based exchange system and a floating rate system are the same

false

the international monetary fund uses the US dollar as its unit of account

false

currency exchange controls

govt's can control currency exchange of their currency and other currencies within their borders.

bid price

highest priced buy order currently in the market

Taxation is a financial force in that

if the firm can achieve a lower tax burden than its competitors, it can generate higher revenues, and then lower its prices or pay higher wages and dividends.

foreign environment

includes all the uncontrollable forces originating outside the home country that surrounds and influences the firm.

tacit knowledge

is difficult for an individual to express clearly in words, pictures or formulas and is therefore difficult to transmit to others

What is appealing about the gold standard is

its simplicity.

a broad statement that defines the purpose for a company's existence including its business, objectives, and approach for reaching those objectives is known as a * * statemenet

mission

With increasing inflation, borrowing becomes

more attractive because repayment can be made with cheaper money.

tacit knowledge is also known as

organizational

arbitrage

process of buying and selling instantaneously to make a profit with no risk

Historically, gold has been used as a way for people to store value because of its

purity and scarcity

fisher effect

shows a relationship between real and nominal interest rates

tacit knowledge is more detailed

than implicit

fluctuating currency values

the major currencies are allowed by their central banks to fluctuate freely against each other.

Purchasing Power Parity is a way to compare

the purchasing power of several currencies.

The inflation rate determines

the real cost of borrowing in capital markets.

The price of gold since about 1200 AD has been

trending upward.

The Fisher effect describes interest rate parity; it's the law of one price applied to interest rates. interest rates vary to take into account anticipated didferences in inflation levels

true

The spot rate is the rate for exchange within two days in the currency market.

true

international monetary fund is a source of economic data that analysts can access to assess economic conditions

true

strategic plans promote consistency of action among the firm's managers worldwide and encourage them to consider the ramifications of their actions in the firm's other geographic and functional areas

true

real interest rate

will be the nominal interest rate minus the expected rate of inflation