Global Business Exam 2

UN and private sector

-Businesses sell to UN -Each arm of UN has procurement office -Increase sources of supply from developing countries

Regional economic integration

-Enable countries to focus on issues relevant to their stage of development -Encourage trade 1. Free trade area 2. Customs union 3. Common market 4. Economic union 5. Political union

Advantages of regional integration

-Increase FDI -Create economies of scale -Increase competition -Increase trade -Improve market efficiency -Increase security

Disadvantages of integration

-Regionalism still favored -Loss of sovereignty -Concessions to member countries -Interdependence

Factors that effect currency demand

-Tourism -Trade -M&A -Speculation -Geo-political

Economic Arguments for Intervention

-infant industry argument -strategic trade policy

Political Arguments for Intervention

-protecting jobs and industries -national security -retaliation -protecting consumers -furthering foreign policy objectives -protecting human rights

What are the 2 political factors leading to the development of the EU?

1. 2 WWs 2. European desire to hold a place in politics and economics before EU was European Coal and Steal Community or Treaty of Rome

How many currencies in the world?

180

Forward exchange

2 parties agree to exchange currency and execute deal at specific date in the future

How much currency is traded everyday?

5.1 trilion

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.

What types of RTAs are customs unions?

Mercosur (South America), Andean Community (Bolivia, Columbia, Ecuador, Peru)

Does Porter's model of competitive advantage predict the pattern of international trade that we observe in the real world?

No. Porter's model has not been subjected to detailed empirical testing.

According to Krugman, which of the following best indicates the dangers of a strategic trade policy?

Occurrence of a trade war

Which of the following statements is most likely to be true regarding the adverse effects of FDI on the host country?

When a foreign subsidiary imports a substantial number of its inputs from abroad, it results in a debit on the current account of the host country's balance of payments.

It more realistic to assume diminishing returns to specialization when applying the theory of comparative advantage to a simplified model with two nations because:

all resources are not of the same quality.

Hedging

Protect against foreign exchange rate risk using spot exchange rates, forward rates, currency swaps

Forward exchange rate

Quoted for 30, 90, 180 days out and can hurt company

According to Adam Smith, countries should specialize in the production of goods for which they have an absolute advantage and then:

trade these goods for goods produced by other countries.

new trade theory

world trade in certain products may be dominated by countries whose firms were first movers in their production.

Why do some companies use "dumping"?

(selling goods in foreign market below production cost) - get rid of excess - predatory behavior: producer uses profits from home market to subsidize prive of foreign market

Treaty of Lisbon

A European Union-sanctioned treaty that will allow the European Parliament to become the co-equal legislator for almost all European laws

Antidumping Policies

Countervailing- policies designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition

Which of the following is true of factor endowments according to Porter?

Disadvantage in basic factors can create pressures to invest in advanced factors.

The most enduring/long lasting free trade area in the world

EFTA (European Free Trade Association) Norway, Iceland, Liechtenstein, Switzerland

What types of RTAs are economic unions?

EU

Masstricht Treaty

EU committed to adopt single currency (euro) EU is not an optimal currency area because the each economy is very different so using a single currency isn't great

Single Euroean Act

EU nations commited to establishing single market "mutual recognition" standard

According to the new trade theory, which of the following is most likely to be a result of market expansion due to trade?

Each nation may specialize in producing a narrower range of products, importing goods that it does not make.

strategic trade policy

Government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market

What does international trade theory tell us about offshore production?

It is unlikely and not a reason for economic concern

Which of the following is a major reason why many economists remain critical of the infant industry argument?

It makes the domestic industry inefficient.

CAFTA

The Central American Free Trade Agreement agreement that has been negotiated between the United States, 6 Central American countries to lower trade barriers

Which of the following is true of the four attributes that make Porter's diamond?

The effect of one attribute is contingent on the state of others.

CSME (Caribbean Single Market & Economy)

The six CARICOM members that agreed to lower trade barriers and harmonize macroeconomic and monetary policies

balance of payment account vs current account

balance of payment: record of country's payments to and receipts from other countries current account: record of a country's export and import of goods and services (look for surplus)

Knowledge spillover

companies in the same industry are located in the same area as Externalities

The _____ states that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI and it also requires the firm to establish production facilities where those foreign assets or resource endowments are located.

eclectic paradigm

Reason for Brexit

economic decision to not let other countries mess it up and cultural frustration "take back control" of immigration

The Smoot-Hawley Act had a damaging effect on _____.

employment abroad

Nations have varying factor endowments, and different factor endowments explain differences in _____.

factor costs

The _____ of foreign direct investment refers to the amount of FDI undertaken over a given period (normally a year).

flow

By lowering production costs, subsidies help domestic producers in:

gaining export markets

trade diversion

higher cost suppliers within the free trade area replace lower cost external suppliers

FDI trends in past 35 years

increase in both flow and stock of FDI; greater worldwise emphasis on free market recent increase in south, east, and southeast Asia (China) and Latin America

infant industry argument

industry should be protected until it can develop and be viable and competitive internationally

According to _____, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries.

infant industry argument

According to internalization theory, one of the drawbacks of licensing is that:

it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.

Eclectic Paradigm (Dunning)

location-specific advantages and externalities (knowledge spillover when companies locate in same area) explain the direction of FDI

The viability of an exporting strategy is often constrained by transportation costs, particularly of products that have a _____ and that can be produced in almost any location.

low value-to-weight ratio

A regional trade agreement tries to make ____________ (more or less) trade creation and _______________ (more or less) trade diversion

more trade and less diversion

trade creation

occurs when low cost producers within the free trade area replace high cost domestic producers

The two US agencies that deal with antidumping complaints are:

the Commerce Department and the International Trade Commission

What RTA is a political union?

the United States

Mergers and acquisitions differ from greenfield investments in that:

the percentage of mergers and acquisitions is lower than greenfield investments in developing nations.