International Business Final

Front 1

4 types of risk in international business

Back 1

cross cultural, country, currency, commercial

Front 2

cross-cultural

Back 2

a situation or event where a cultural miscommunication puts some human value at stake

Front 3

country

Back 3

potentiallyadverseeffectson company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country

Front 4

commercial

Back 4

firms potential loss or failure from poorly developed or executed business strategies, tactics, or procedures

Front 5

currency

Back 5

risk of adverse unexpected fluctuations in exchange rates

Front 6

comparative advantage

Back 6

Superior features of a country that provide it with unique benefits in global competition – derived from either national endowments or deliberate national policies

Front 7

competitive advantage

Back 7

Distinctive assets or competencies of a firm – derived from cost, size, or innovation strengths that are difficult for competitors to replicate or imitate

Front 8

mercantilism

Back 8

the belief that national prosperity is the result of a positive balance of trade – maximize exports and minimize imports

Front 9

absolute advantage principle

Back 9

a country should produce only those products in which it has an absolute advantage or can produce using fewer resources than another country

Front 10

comparative advantage principle

Back 10

it is beneficial for two countries to trade even if one has absolute advantage in the production of all products; what matters is not the absolute cost of production but the relative efficiency with which it can produce the product

Front 11

porters diamond model

Back 11

Firm strategy, structure, and rivalry
Factor conditions
Demand conditions at home
Related and supporting industries

Front 12

Firm strategy, structure, and rivalry

Back 12

the presence of strong competitors at home serves as a national competitive advantage

Front 13

factor conditions

Back 13

labor, natural resources, capital, technology, entrepreneurship, and know how

Front 14

Demand conditions at home

Back 14

the strengths and sophistication of customer demand

Front 15

Related and supporting industries

Back 15

availability of clusters of suppliers and complementary firms with distinctive competences

Front 16

IMF

Back 16

maintains international monetary cooperation among its members

Front 17

world bank

Back 17

aidsinthedevelopmentand reconstruction of its members

Front 18

Heckscher–Ohlin model (H–O model)

Back 18

countries will export products that use their abundant and cheap factor(s) of production and import products that use the countries' scarce factor

Front 19

Ricardians theory

Back 19

Ricardo considered a single factor of production (labour) and would not have been able to produce comparative advantage without technological differences between countries

Front 20

It is argued that small countries tend to have more open economies than large ones. Is this empirically verified? What are the logical underpinnings of this argument?

Back 20

It is argued that small countries tend to have more open economies than large ones. Is this empirically verified? What are the logical underpinnings of this Yes. They do not have sufficient resources to satisfy consumption needs; and also do not have a sufficiently large market to enable their industries to avail themselves of scale economy possibilities.

Front 21

The Services sector has been steadily rising in relative importance in the GDP of the United States, as well as elsewhere around the world. Since “services” have been identified as “non-tradables” (e.g. it is difficult to export haircuts), it may be argued that this trend will likely slow the rapid growth in International trade. Discuss.

Back 21

many “services” are in fact quite tradable. Examples would be financial services, long-distance teaching, “helpdesk” outsourcing, consulting and management services and others. In fact, when a tourist gets a haircut, we see that even haircuts become a “tradable” service.

Front 22

benefits and costs of joining a fixed-exchange area.

Back 22

Benefits: in general, gains from the stability of the area and reduced uncertainty. A major economic benefit of fixed exchange rates (“FER”) is that FER simplify economic calculations and provide a more predictable basis for decisions that involve international transactions than do floating rates. The monetary efficiency gain from pegging, say the Norwegian krone to the euro, will be higher if factors of production can migrate freely between Norway and the euro area. The more extensive are cross-border trade and factor movements, the greater is the gain from a fixed cross- border exchange rate.
• Costs: A country that joins an exchange rate area gives up its ability to use the exchange rate and monetary policy for the purpose of stabilizing output and employment. When the economy is disturbed by a change in the output market, a floating exchange rate has an advantage over a fixed rate. A flexible exchange rate automatically cushions the economy’s output and employment by allowing an immediate change in the relative price of domestic and foreign goods. When the exchange rate is fixed, purposeful stabilization is more difficult because monetary policy has no power at all to affect domestic output and employment.

Front 23

Bretton Woods agreement

Back 23

established the rules for commercial and financial relations
Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Monetary Fund (IMF) and theInternational Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group.
The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary imbalances of payments.

Front 24

Different forms of regional integration were presented and discussed in class. Compare and contrast NAFTA and the EU, in order to highlight various levels or types of integration. Try to be precise in terms of the specific characteristics of each type of integration. Finally, indicate why you think countries choose to form such regional integration groupings.

Back 24

NAFTA is a free trade agreement with some labor and environmental agreements as well. It is not a customs union, because the different countries have different tariffs on outside nations and they have different free trade agreements with other countries. All three countries have their own currencies. There is no free mobility of people. The long term goal is to create a free trade area and help Mexico's development. There is little support to create a single political entity.

The EU is a political and economic entity. The EU is a common market, with all countries having the same external tariffs, and 15 of the members use the euro. Policies such as agricultural and environmental policy are decided at the EU level. The EU contains a parliament, an executive branch, the European Commission, and the European Court of Justice. The presidency rotates among the heads of state of the member nations. The EU has open borders and free movement of people. Externally, the EU often negotiates as a single unit. The long term goals of the EU are expansion and integration. There is a (so far unsuccessful) effort to draft a constitution.

Front 25

How and why did Europe set up its single currency?

Back 25

savings from having to handle one currency, rather than many
– it is easier to compare prices across Europe, so firms are forced to be more competitive
– gives a strong boost to the development of highly liquid pan- European capital market
– increases the range of investment options open both to individuals and institutions

Front 26

EU optimal currency?

Back 26

loss of control over national monetary policy – EU is not an optimal currency area
– A single currency should follow, not precede, political union:
The Euro will unleash enormous pressures for tax harmonization and fiscal transfers. Both policies cannot be pursued without the appropriate political structure
– Strong Euro makes it harder for Euro zone exporters to sell their goods