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51 Cards in this Set

  • Front
  • Back
Gross Fixed Capital Formation
Summary of total invested in factories, stores, office buildings, etc.
Eclectic Paradigm of FDI
Location specific advantages
Radical View of FDI
Tool of Foreign imperialist domination Very common opinion of russia, china, cuba
Free market View of FDI
countries should specialize in what they have advantages in
FDI Host Country Benefits
Resource transfers effects
Employments effects
balance of payment effects
effect on competition and growth
FDI - Host Country costs
Adverse effect on competition
adverse effect on balance of payment
national sovereignty & autonomy
FDI - Home country benefits
Balance of payments
employment effects
learn skills form foreign market
FDI - Home country cost
Balance of payments - outflow of setup capital
BOP - if foreign operation is to be low cost country,
BOP - if FDI is substitute for export.
Substitute for domestic production
offshore production
stimulates home country to specialize in what they do better
home country encourage outward fdi
insurance programs- nationalization, war.
funds and cheap loans
persuade foreign countries to lower fdi barriers
home country discourage outward fdi
desire to limit bop
limit amount of capital you can take out of home country.
formal or informal prohibition- Cuba, apartheid
host country encourage inward fdi
lower taxes, loans, grants, subsidies - to lure fdi away from other host countries
host country discourage inward fdi
ownership restraints-excluded form certain sectors and performance requirements
Levels of regional economic integration
free trade area
customs union
common market
economic union
political union
Free trade area
all barriers to trade of goods and service removed, no tariffs quotas. Members free to determine their own trade policies with non members
customs union
fta plus common external trade policy
common market
cu plus allows factors of production to move freely between members. immigration, emigration, capital flow across borders.
economic union
cm plus common currency, harmonization of tax rate and common monetary and fiscal policy
political union
eu plus central political apparatus coordinates economic, social, and foreign policy of all member states
Argentina, Brazil, Paraguay, Uruguay & Venezuela.
trade creation
high cost domestic producers replaced by low cost external producers
benefits of euro
savings with one currency
easier to compare prices
encourage efficiency
boost pan europe markey
increasde investmoent opprotunities
costs of euro
countries lose control of monetary policy
forward exchange
two parties agree to exchange currency at a future date at a set exchange rate
currency swap
simulataneous purchase and sale of currency for 2 dates
law of one price
things being equal, identical products must cost the same
ppp theory
print more money means greater inflation. inflation means depreciation in exchange rate
fischer effect
nominal interest =real interest plus inflation
interational fischer effect
exchange rates btw 2 countries inversely proportional to changes in relative interest rates
fundamental analysis
uses economic theory to create fx rate predictions
technical analysis
uses price and volume data to show trends whaich are expected to continue
when one or more companies is dealing with non covnertable currency, they trade, barter-like
case for floating exchange rates
country expands or contracts money supply as it sees fit
removes obligation of exchange rate parity
floatingexchange rate handles big bop deficit better
case for fixed exchange rates
prevents govt's from spending too frivolously
predictable, removes risk from import, export
protect bop gains by preventing inflation
currency board
country commits on exchanign its currency with others at fixed rates. must hold reserves - can only issue money backed by foreign reserves. limits inflation
imf criticisms
inapproriate policies - tight macro policies
moral hazard
lack of accountability
basic entry decision
whcih markets, when to enter, on what scale
timing of entry
first mover advantages, pioneering costs, strategic commitments
entry modes
turnkey projects
joint ventures
wholly owned subsidiaries
exporting adv
location and experience economies
exporting disadvantage
high transport costs
trade barriers
problems with local marketing agents
turnkey advantages
ability to earn returns from technology skills where fdi is restricted
turnkey disadvantage
create your own efficient competitor
lack of long term presence
licensing advantage
low development costs and risks
licensing disadvantages
lack of control over technology
lack of location and experience economies
hinders global strategic coordination
franchising advantages
low development costs and risks
franchising disadvantages
lack of control of quality
hinders global strategic coordination
joint venture advantages
access to local partner knowledge
sharing costs and risks
polically acceptable
joint venture disadvantages
lack of control over technology
hinders global strategic coordination
inability to realize location an experience economies
wholly owned advantages
protection of technology
ability to do global strategy
ability ot relaize location and experience economies
wholly owned disadvantages
high costs and risks