Midterm Exam Flashcards
Study for the midterm (91 cards)
1
Q
What is a globalized industry?
A
Refers to industries that effectively operate in all, or most, of the markets across the world. The industry offers roughly equivalent products or services to customers in every market, and the competitive position of companies in that industry depends on performance across all markets.
2
Q
What is PPP?
A
Purchasing Power Parity
3
Q
What is Purchasing Power Parity?
A
Compares different countries’ currencies through a market “basket of goods” approach
4
Q
What is the direct quoting method?
A
- How much does the dollar cost?
- 1 / indirect quote
- $0.79394 US = 1 CAN
5
Q
What is the indirect quoting method?
A
- How much milk can you get for a dollar?
- 1 / direct quote
- Canada = 1.18 USD
6
Q
What are the BRICS?
A
Brazil Russia India China South Africa
7
Q
Where are the trends for emerging markets?
A
- China and India: manufacturing, exports
- Brazil, Russia, and the Middle East: Natural Resources
8
Q
What is globalization?
A
process by which products, are able to move quickly around the world with few cross-border impediments in their way
9
Q
What is an MNC?
A
Multinational Corporation
10
Q
What are the key institutional differences around the world?
A
- Political systems
- Legal systems
- Economic development
- Socio-cultural Differences
11
Q
What is the TRIAD?
A
US, EU and Japan
12
Q
How do you assess market potential?
A
- Market size
- Purchasing Power
- Potential Market Growth
- Economic, political and cultural environment
13
Q
How is globalization measured?
A
- Technological connectivity
- Economic Integration
- Personal Contact
- Political Engagement
14
Q
Where is the US in terms of Globalization?
A
23
15
Q
What is a local industry?
A
dominance of an industry by a different set of local players across countries e.g. construction, hospitality, energy
16
Q
What is the trend of MNCs?
A
Technology focused
17
Q
Who are in the G7?
A
Canada France Germany Italy Japan UK US
18
Q
Who are in the G20?
A
19 countries and the EU.
Australia, Canada, Saudi Arabia, US, India, Russia, South Africa, Turkey, Argentina, Brazil, Mexico, France, Germany, Italy, US, China, Indonesia, Japan, South Korea
19
Q
What is Regional Economic Integration?
A
Efforts to reduce trade and investment barriers among countries within a region
20
Q
What are the five stages of regional economic integration?
A
- Free trade area
- Customs union
- Common Market
- Economic Union
- Political Union
21
Q
What is a Free Trade Area?
A
Removal of intragroup tariffs. E.G. NAFTA
22
Q
What is a Customs Union?
A
Common external tariff. Ex. Mercosur
23
Q
What is a Common Market?
A
Free movement of goods, people, and capital. Ex. CACM (Central American Common Market)
24
Q
What is a Political Union?
A
Integration of political and economic affairs
25
What are the benefits of integration?
- Trade creation
- Greater consensus
- Political cooperation
- Creates jobs
26
What are the potential drawbacks?
- Trade diversion
- Shifts in Employment
- Loss of sovereignty
27
Who are the members of NAFTA?
Canada
Mexico
US
28
What is the USMCA?
The United States-Mexico-Canada Agreement (renegotiation of NAFTA)
29
What is MERCOSUR?
Mercado Commun del Sur
| - The South American Trade bloc established in the 1988. - Members: Argentina, Brazil, Paraguay, Uruguay
30
What are formal institutions?
- Laws
- Regulations
- Rules
(supported by regulatory)
31
What are informal institutions?
- Norms
- Cultures
- Ethics
(supported by normative, cognitive)
32
What is the key role of institutions?
Reduce uncertainty
33
Why is legitimacy important to an MNC?
legitimacy is not a commodity that can be possessed, it is a perceived attribute that is attached to an organization by key constituencies
34
What are the four key forms of legitimacy?
- Local government and regulatory authorities
- Local public
- Local financial community
- Local media
35
How does local government and regulatory authorities control legitimacy?
- Directly: business licenses, public contracts and grants
| - Indirectly: transfer of resources through regulation and legislation
36
How does the local public impact legitimacy?
- Directly: consumer groups and public opinion influence regulation and legislation thru lobbying
- Indirectly: influence on voters
37
How does the local financial community impact legitimacy?
through evaluation of credit worthiness and economic viability of MNCs and allocation of financial capital
38
How does the local media impact legitimacy?
little direct control but considerable influence on allocation of resources by other three consituencies
39
What are the characteristics of Totalitarianism?
- imposed authority
- lack of constitutional guarantees
- restricted participation
40
What are the forms of Totalitarianism?
- Communist
- Theocratic
- Tribal
- Right-wing
41
What is right-wing totalitarianism?
Generally permits individual economic freedom, but restricts political freedom to prevent the rise of communism
42
What is political risk?
corporations face the risk that political decisions, events, or conditions will significantly affect the profiability of a business
43
What are the forms of political risk?
- Outside governmental control
- Foreign government action
- against ownership
- against operations
44
What is expropriation?
Against ownership
| Loss of property
45
What is repatriation?
Returning assets to the home country
46
How could MNCs manage political risk?
- Information gathering to better predict and manage risk
- Adaptation, incorporate risk into strategies
- Influence local politics
47
What is the difference between economic risk analysis and political risk analysis?
Economic risk assesses creditworthiness of governments and countries
48
What are the 4 main types of legal institutions
- Civil Law
- Common Law
- Theocratic Law
- Bureaucratic Law
49
What are the steps in dealing with international commercial disputes?
1. Conciliation
2. Mediation
3. Arbitration
4. Litigation
50
What is a problem for international business?
There is no single, uniform international commercial law.
51
What is Intellectual Property?
the product of intellectual activity, has a high fixed cost
52
What are the 3 Economic Systems?
1. Command
2. Mixed
3. Market
53
What is the government's role in a market economy?
- enforce antitrust laws
- preserve property laws
- provide fiscal and monetary stability
- preserve political stability
54
What are 3 possible effects of the violation of Intellectual Property rights?
1. Negative
2. Neutral
3. Positive
55
How is the HHI calculated?
- summing the squares of the market shares of the competitors in a specific industry
- ranges from 10,000 to zero
- closer to 10,000 the most consolidated
56
What are the 2 ways to compare GDP across countries?
1. FX - current currency exchange rate
| 2. PPP - purchasing power parity fx rate
57
What does GDP FX indicate?
country's international purchasing power and relative economic strength
58
What does GDP PPP indicate?
living standards of less-developed countries (parity of currency to the dollar)
59
What are the top 3 economies based on GDP FX?
1. US
2. China
3. Japan
60
What are the top 3 economies based on GDP PPP?
1. China
2. US
3. India
61
How can MNCs gain a competitive advantage?
- leveraging regional differences around the world (institutional arbitrage)
- tapping into location advantages by becoming part of an industry cluster
62
What is agglomeration?
location advantages that arise from the clustering of economic activities in certain locations (Netherlands and flowers)
63
What are sources of agglomeration advantages?
- knowledge spillovers
- industry demand that creates skilled labor force
- industry demand creating pools of specialized suppliers and buyers
64
What is a cluster?
geographic concentration of interconnected companies and institutions in a particular filed (California wine)
65
What are the five forces that shape industry competition?
1. Threat of new entrants
2. Bargaining power of buyers
3. threat of substitute products or services
4. bargaining power of suppliers
5. rivalry among existing competitors
66
What are demographic trends?
- population growth
- rise of urbanization
- rise of income inequality
67
What are the role of credit agencies?
Assessing creditworthiness of governments
68
What is the Balance of Payments?
National accounting system that records all payment to entities in other countries and all receipts coming into the nation
69
When are current accounts and capital accounts in surplus?
- current = exports + income from abroad > imports + payments abroad
- capital = capital inflows > capital outflows
70
What is a current account?
- record of transactions involving the import & export of goods abroad, and income payments on foreign assets inside the country
- exports + income from abroad vs. imports + payments abroad
- made up of trade in goods, services, and profits earned from overseas assets
71
What is a capital account?
- record of transactions involving the purchase or sale of assets
- capital inflows vs. capital outflows
- includes transactions involving the sale and purchase of assets, such as investment in shares
72
What is foreign portfolio investment?
investments in foreign financial instruments (no control) <10%
73
What are sovereign wealth funds?
state-owned investment investment funds composed of financial assets such as stocks, bonds, real estate, or other financial instruments
74
What fuels a SWF?
excess accumulations of foreign exchange reserves, often derived from the export of natural resources
75
Who are key players owning SWF?
- Norway
- China
- Saudia Arabia
- Singapore
- ANZ
76
What are the tensions around SWFs?
1. dramatic redistribution of wealth from mature industrial countries to less important
2. governments own or control a substantial share of wealth
77
What are the two systems of Financial Markets?
1. International Capital Market
| 2. Foreign Exchange Market
78
What are the three components of the International Capital Market?
1. International Bond Market
2. International Equity Market
3. Eurocurrency
79
What are the two types of bonds?
1. Eurobond
| 2. Foreign bond
80
What is a Eurobond?
Bond that is issued outside the country in who currency the bond is denominated.
81
What is a foreign bond?
Bond sold outside a borrower's county and denominated in the currency of the country in which is was sold.
82
What is the most popular type of bond?
Eurobond
83
Why is the eurobond so popular?
Absense of regulation - government of countries in which they are sold do not regulate them
84
What is the driving force behind the international bond market?
differential interest rates between developed and developing nations
85
What is the key determinant of the price of a (freely convertible) currency?
freely traded in the foreign exchange market and price determined by market forces (supply & demand)
86
How are direct and indirect quotes related?
They depend on the location of the speaker
87
If the direct (or indirect) rate of a currency
| changes, how does the value of this currency change?
In indirect quote, the foreign currency is variable and the domestic currency is fixed at as one unit.
88
What is the Big Mac Index?
- Purchasing Power Parity
- Published by the Economist
- Comparing to the exchange rate
89
What year was the GCC formed?
1981
90
What is an economic union?
Common economic policies
| - For example: The EU
91
What is foreign direct investment?
Purchase of physical assets or significant amount of ownership of a company in another country to gain some measure of management control (≥ 10% of stock)
