BAS160 - Introduction to Business 2021 - Chapter 3

Define 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

Define International Monetary Fund (IMF)

an international bank that makes short-term loans to developing countries experiencing balance-of-payment deficits

Define countertrade

an international barter transaction

Define General Agreement on Tariffs and Trade (GATT)

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

Define multilateral development bank (MDB)

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

Define 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

Define dumping

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

Define comparative advantage

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

Define currency devaluation

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

Define 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

Define balance of trade

the total value of a nation's exports minus the total value of its imports over some period of time

3-6: Describe the various sources of export assistance

Many government and international agencies provide export assistance to U.S. and foreign firms. Sources of export assistance include U.S. Export Assistance Centers, the International Trade Administration, U.S. and Foreign Commercial Services, Export Legal Assistance Network, Advocacy Center, National Trade Data Bank, and other government and international agencies.

3-4: Outline the extent of international business and the economic outlook for trade

World trade is generally increasing. Trade between the United States and other nations is increasing in dollar value but decreasing in terms of our share of the world market. Exports as a percentage of U.S. GDP have increased steadily since 1985, except in the 2001 and 2008 recessions

Define international business

all business activities that involve exchanges across national boundaries

3-2: Explore the methods by which a firm can organize for and enter into international markets

A firm can enter international markets in several ways. It may license a foreign firm to produce and market its products. It may export its products and sell them through foreign intermediaries or its own sales organization abroad, or it may sell its exports outright to an export-import merchant. It may enter into a joint venture with a foreign firm. It may establish its own foreign subsidiaries, or it may develop into a multinational enterprise. Generally, each of these methods represents an increasingly deeper level of involvement in international business, with licensing being the simplest and the development of a multinational corporation the most involved.

3-3: Discuss the restrictions nations place on international trade, the objectives of these restrictions, and their results

Despite the benefits of world trade, nations tend to use tariffs and nontariff barriers (import quotas, embargoes, and other restrictions) to limit trade. These restrictions typically are justified as being needed to protect a nation's economy, industries, citizens, or security. They can result in the loss of jobs, higher prices, fewer choices in the marketplace, and the misallocation of resources

3-1: Explain the economic basis for international business

International business encompasses all business activities that involve exchanges across national boundaries. International trade is based on specialization, whereby each country produces the goods and services that it can produce more efficiently than any other goods and services. A nation is said to have a comparative advantage relative to these goods. International trade develops when each nation trades its surplus products for those in short supply. A nation's balance of trade is the difference between the value of its exports and the value of its imports. Its balance of payments is the difference between the flow of money into and out of the nation. Generally, a negative balance of trade is considered unfavorable.

3-5: Discuss international trade agreements and international economic organizations working to foster trade

The General Agreement on Tariffs and Trade (GATT) was formed to dismantle trade barriers and provide an environment in which international business can grow. Today, the World Trade Organization (WTO) and various economic communities carry on this mission. These world economic communities include the European Union, the NAFTA, the CAFTA, the Association of Southeast Asian Nations, the Pacific Rim, the Commonwealth of Independent States, the Caribbean Basin Initiative, the Common Market of the Southern Cone, the Organization of Petroleum Exporting Countries, and the Organization for Economic Cooperation and Development.

3-7: Identify the institutions that help firms and nations finance international business

The financing of international trade is more complex than that of domestic trade. Institutions such as the Ex-Im Bank and the International Monetary Fund have been established to provide financing and ultimately to increase world trade for American and international firms.

Define embargo

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

Define 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

Define multinational enterprise

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

Define letter of credit

a legal document issued by a bank or other financial institution guaranteeing to pay a seller a stated amount for a specified period of time

Define import quota

a limit on the amount of a particular good that may be imported into a country during a given period of time

Define trade deficit

a negative balance of trade

Define nontariff barrier

a nontax measure imposed by a government to favor domestic over foreign suppliers

Define strategic alliance

a partnership formed to create competitive advantage on a worldwide basis

Define foreign-exchange control

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

Define import duty

a tax levied on a particular foreign product entering a country

Define bill of lading

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

Define draft

issued by the exporter's bank, ordering the importer's bank to pay for the merchandise, thus guaranteeing payment once accepted by the importer's bank

Define World Trade Organization (WTO)

powerful successor to GATT that incorporates trade in goods, services, and ideas

Define trading company

provides a link between buyers and sellers in different countries

Define importing

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

Define exporting

selling and shipping raw materials or products to other nations

Define absolute advantage

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