International Business Ch 7&13

Front 1

Exchange Risk

Back 1

Risk of financial loss due to an unexpected change in a currency's value

Front 2

Two major FX mkts in US & UK

Back 2

1) Interbank (Including brokers)

2) Futures/Options

Hint 2

2

Front 3

Most important participants in FX mkts

Back 3

1) Banks
2) Traders
3) Speculators
4) Hedgers
5) Arbitragers

Hint 3

5

Front 4

Exchange Rates are influenced by

Back 4

1) PPP

2) Interest Reates

3) Technical factros such as nat'l econ statistics and seasonal demand

Hint 4

3

Front 5

Exchange rate

Back 5

Value of one currency in terms of another.

Front 6

Spot Rate

Back 6

The exchange rate offered on the same day as the request to buy or sell foreign currency

Front 7

Fwd Rate

Back 7

An exchange rate contracted today for some future date of actual currency exchange.

Front 8

PPP

Back 8

The theory of exchange rate determination that states that the difference in prices of the same goods btwn countries will be eliminated by exchange rate changes.

Front 9

Alternatives to minimize the exchange rate risk:

Back 9

1)Risk avoidance
2) Risk adaptation (hedging)
3) Risk Transfer
4) Currency diversification

Hint 9

4

Front 10

LIBOR

Back 10

London Interbank offering rate

Front 11

International Monetary System

Back 11

A mkt among ctrl banks of the countries that belong to the IMF (founded 1944).

Front 12

IMF objectives include:

Back 12

1) Facilitation of balanced growth in int'l trade.

2) Promotion of exchange stability.

3) Making of financial resources available to members of the fund.

Hint 12

3

Front 13

Country Risk

Back 13

Chances of non-mkt events (political, social and economic) causing financial, strategic or personnel losses to a firm following FDI in a specific country mkt.

Front 14

PEST analysis

Back 14

Examining:
Political, Econ, Sociocultural & Technological conditions in countries that present investment opportunities.

Front 15

Political Risk

Back 15

Probability that political forces will negatively affect an MNE's profit or impede the attainment of otehr critical business objectives. Can examine in terms of micro and macro factors.

Front 16

Macro Political Risk

Back 16

Affects foreign enterprise in the same general way.

Front 17

Micro Political Risk

Back 17

Affects selected sectors of the economy or specific foreign businesses

Front 18

Sources of political risk

Back 18

1) Political philosophy of the gov't in pwr.
2) changing econ conditions
3) rising nat'lism
4) social unrest
5) terrorism
6) vested interests of local business groups.
7) newly created int'l alliances.

Front 19

What type of financial forecast takes into account country risk?

Back 19

APV

Front 20

Power resources

Back 20

The bargaining chips used by companies and gov'ts in investment negotiations.

Front 21

Corruption

Back 21

Defined by transparency int'l as 'the misuse of public pwr for private benefit'

Front 22

Three steps in developing effective nego strategies.

Back 22

1) MNE will evaluate its own position and that of the other parties to the negotiation.

2) The firm will examine the behavioural characteristics of the other parties iot better understand their style of negotiation.

3) The MNE will use this info to hammer out an agreement that is acceptable to both sides.

Front 23

In nego, id of the other party's ________ is critical

Back 23

acceptance zone

Front 24

What categories of techniques do MNEs use to minimize political risk?

Back 24

1) Integrative techniques

2) Protective / Defensive techniques

Front 25

Integrative tehniques

Back 25

Designed to help the company blend into the environment and become less visible. (attract less attn) by:

1) Using a name that is not id w/ and overseas company.

2) Developing good relations with the host gov't and otehr political groups.

3) Produce as much of the product as possible locally.

4) Hire and promote local personnel.

Front 26

Protective / Defensive techniques

Back 26

Designed to discourage a host country from interfering in multinational operations.

1) Conducting R&D disarda & importing bilgi as needed.

2) Limit the role of the local personnel to those operations that are not vital to the running of the facility.

3) Raise as much capital as possible from the host country and local banks.

4) Diversify production among a number of countries.