Chapter 3 - Business in the Global Economy

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Economic community

A group of nations organized to work toward common goals in the regulation of international trade.

quota

A limit on the quantity of a product that may be imported and exported within a given period.

infrastructure

A nation's transportation, communication, and utility systems.

free-trade zone

A selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing.

tariff

A tax that a government places on certain imported products.

joint venture

An agreement between two or more companies from different countries to share a business project.

multinational company (MNC)

An organization that conducts business in several countries.

World Trade Organization (WTO)

Created in 1995 to promote trade around the world. With over 150 member countries, this organization settles disputes and enforces free-trade agreements between its members.

multinational strategy

Customizing products, promotion, and distribution according to cultural technological, regional, and national differences

imports

Goods and services bought from another country.

exports

Goods and services sold to another country.

International Monetary Fund (IMF)

Helps promote economic cooperation among its 150 nations and maintains an orderly system of world trade and exchange rates. It was established in 1946 when the economic interdependence among nations was growing at a greater pace than ever before in history.

International Development Association (IDA)

Makes loans to help developing countries.

free-trade agreement

Member countries agree to remove duties and trade barriers on products traded among them. This results in increased trade between the members.

unfavorable balance of trade

More imports than exports

formal trade barriers

Political actions such as quotas, tariffs and embargoes

foreign debt

Refers to external debt, meaning the total amount of debt (private and public) incurred by borrowing from foreign creditors. The global problem of debt involves large volumes of public debt.

informal trade barriers

Restrictions to trade based on culture, traditions, and religion

franchise

Right to use a company name of business process in a specific way.

licensing

Selling the right to use some intangible property (production process, trademark, or brand name) for a fee or royalty. Example: The Gerber Company started selling its baby food products in Japan by this means.

global strategy

Selling the same standardized product and using the same basic marketing approach in each national market

embargo

Stopping the importing or exporting of a certain product or service.

foreign exchange market

a market in which currencies of different countries are bought and sold

favorable balance of trade

an economic situation in which a country sells more goods abroad than it buys from abroad

international business

refers to business activities needed for creating, shipping, and selling goods and services across national borders

Absolute advantage

Exists when a country can produce a good or service at a lower cost than other countries. This may exist as a result from an abundance of natural resources or raw materials in a country. Example: South American countries have an absolute advantage in coffee production, and Saudi Arabia has an absolute advantage in oil production.

Comparative advantage

Exists when a country specializes in the production of a good or service at which it is relatively more efficient.

World Bank

The International Bank for Reconstruction and Development and is commonly called ____ _____. It was created in 1944 to provide loans for rebuilding after World War II. Today, its key function is to give economic aid to less developed countries.

interest rates

The cost of borrowing money

balance of trade

The difference between a country's total exports and total imports of goods.

balance of payments

The difference between a country's total payments to other countries and its total receipts from other countries.

foreign exchange rate

The value of money of one country expressed in terms of the money of another country.

Domestic business

the making, buying, and selling of goods and services within a country.

trade surplus

when a country exports more than it imports

trade deficit

when a nation imports more than it exports


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