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Flashcards in International Deck (35):

What is a country's balance-of-payments account?

A summary accounting of all of a country's transactions with other countries


What is the current account?

Net dollar amounts earned from export of goods and services, amounts spent on import of goods and services, and government grants to foreign entities


Capital account

Net dollar amount of inflows from investments and loans by foreign entities, amount of outflows from investments and loans U.S. entities made abroad, and the resulting net balance


Financial account

Net dollar amount of U.S.-owned assets abroad and foreign-owned assets in the U.S.


Free Floating currency

exchange rate is determined by market forces of supply and demand for a currency


Pegged or movable currency

exchange rate is fixed by the gov, with frequent revisions


Define "direct (currency) exchange rate."

Currency exchange rate expressed as the domestic price of one unit of a foreign currency (e.g., U.S. dollar cost of one euro)


Define "indirect (currency) exchange rate."

Currency exchange rate expressed as the foreign currency price of one unit of the domestic currency (e.g., euro cost of one U.S. dollar)


If the central bank of a country raises interest rates sharply, the country's currency will most likely

Increase in relative value.


Transaction Risk

The possible unfavorable impact of changes in currency exchange rates on transactions denominated in a foreign currency, including accounts receivable, accounts payable, and other monetary accounts to be settled in a foreign currency.


Translation risk

The possible unfavorable impact of changes in currency exchange rates on the financial statements of an entity when those statements are converted from one currency to another. Changes in exchange rates directly affect the translated value of income statement and balance sheet items.


Economic risk

The possible unfavorable impact of changes in currency exchange rates on a firm's future international earning power; for example, on future costs, prices, and sales. Exchange rate changes affect the price competitiveness of entities in countries for which the exchange rate changes.


Define "foreign currency forward exchange contract."

Agreement to buy or sell a specified amount of a foreign currency at a specified future date at a specified (forward) rate


Define "foreign currency risk hedging."

A risk management strategy that seeks to offset losses resulting from changes in exchange rates between currencies by using contracts, swaps, options, and other instruments that will result in changes counter to (opposite of) the adverse effects of changes in the currency exchange rate


foreign currency exchange contract

the obligation to buy or sell a foreign currency is firm; the exchange must occur


foreign currency option contract

the party holding the option has the right (option) to buy (call) or sell (put) but does not have to exercise that option; the exchange will occur according to a decision made by the option holder.


Political risk

the risk related to actions by a foreign government, such as enacting legislation that prevents the repatriation of a foreign subsidiary's profits or seizing a firm's assets. Purchasing or selling futures contracts is designed to hedge transaction risks relating to foreign exchange rates.


Describe the primary objective of the World Bank.

To promote general economic development worldwide, focusing on lending to developing countries for infrastructure, agricultural, educational and similar projects


Globalization of production

The sourcing of goods and services from around the world to take advantage of differences in cost and quality of the factors of production and, thereby, gain competitive advantage.


Foreign outsourcing

acquiring goods from foreign suppliers


Foreign direct investment

producing goods in facilities owned or controlled by U.S. companies but located in foreign countries


Identify five risks encountered when engaging in foreign outsourcing.

Quality risk: Goods/services do not meet buyer's standards.
Security risk : Foreign provider misappropriates proprietary information.
Export/Import risk: Trade barriers prevent transfer of goods/services.
Currency exchange risk: Exchange rates change unfavorably.
Legal risk: Home country or foreign country laws are violated.


If the dollar strengthens against a foreign currency, the dollar value of an investment denominated in the foreign currency will DECLINE/INCLINE



The best reason corporations issue Eurobonds rather than domestic bonds is that

These bonds are normally a less expensive form of financing because of the absence of government regulation.


What are Porters 3 generic strategies

Cost Leadership


Identify four of economic factors that should be considered in a PEST analysis of a macroenvironment.

Economic structure, stability, and growth rate
Interest rate
Inflation rate
Currency exchange rates


Identify four of technology factors that should be considered in a PEST analysis of a macroenvironment.

Level of research and development activity
State of automation capability
Level of technology "savvy"
Rate of technology change


Identify four social factors that should be considered in a PEST analysis of a macroenvironment.

Population growth rate
Age distribution
Educational attainment and career attitudes
Health and safety characteristics


Identify four political factors that should be considered in a PEST analysis of a macroenvironment.

Political stability
Tax policy
Labor laws
Environmental laws
International trade attitudes and restrictions


Porters 5 Forces

-Threat of Entry
-Intensity of Rivalry
-Threat of Substitute goods
-Bargaining Power of Buyers
-Bargaining Power of Suppliers


The level of Rivalry depends on what factors?

-Structure of competition
-product differentiation
-industry cost structure
-Entities strategic objectives
-Customer switching costs
-Exit Barriers


Identify the three generic strategies enumerated by Michael Porter.

Cost leadership
Focus (or niche)


Define a "cost leadership strategy."

Under a cost leadership strategy, an entity seeks to be the low-cost provider for a given level of output in an industry. The strategy is intended to enable either higher gross profits than competitors or sales at a lower price to gain market share


Define a "differentiation strategy."

Under a differentiation strategy, an entity seeks to develop and offer a product or service that has unique features for which customers are willing to pay a premium price that more than covers the extra cost of providing the product or service.


Define a "focus strategy."

Under a focus strategy, an entity focuses on a narrow industry segment (an industry subgroup or "niche") and seeks to achieve either a cost advantage, or, differentiation.