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
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
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.
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.
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.
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.
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.
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
Identify four of economic factors that should be considered in a PEST analysis of a macroenvironment.
Economic structure, stability, and growth 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
Educational attainment and career attitudes
Health and safety characteristics
Identify four political factors that should be considered in a PEST analysis of a macroenvironment.
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
-industry cost structure
-Entities strategic objectives
-Customer switching costs
Identify the three generic strategies enumerated by Michael Porter.
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.