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8/8/2019 Definition of Business Terms
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Gross national product (GNP) : The market value of all thefinal goods and services produced by a national economy.
Gross domestic Product (GDP): The market value of a
countrys output attributable to factors of production locatedin the countrys territory.
Gross fixed capital formation: Summarizes the total amount
of capital invested in factories, stores, office buildings, and the
like.Multipoint competition: Arises when two or more enterprises
encounter each other in different regional markets, national
markets, or industries.
Competition policy: Regulations designed to promote
competition and restrict monopoly practices.Comparative advantage: The theory that countries should
specialize in the production of goods and services they can
produce most efficiently. A country is said to have a
comparative advantage in the production of such goods and
services.
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Vehicle currency: A currency that plays a central role in the
foreign exchange market (e.g., the U.S. dollar and Japanese
yen).
Strategy: Actions mangers take to attain the firms goals.Export-Import Bank (Eximbank): Agency of the U.S.
government whose mission is to provide aid in financing and
facilitate exports and imports.
International Accounting Standards Board (IASB):Organization of representatives of professional accounting
organizations from many countries that is attempting to
harmonize accounting standards across countries.
Financial Accounting Standards Board (FASB): The body
that writes the generally accepted accounting principles bywhich the financial statements of U.S. firms must be
prepared.
Auditing standards: Rules for performing an audit.
Accounting standards: Rules for preparing financial assess
(stocks, bonds, currencies) but also sells them short.
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United Nations: International institution with 191 member
countries created to preserve peace.
General Agreement on Tariffs and Trade (GATT):
International treaty that committed signatories tolowering barriers to the free flow of goods across national
borders and led to the WTO.
World Trade Organization (WTO): The organization that
succeeds the General Agreement on tariff and trade
(GATT) as a result of the successful completion of theUruguay round of GATT negotiations.
International Monetary Fund (IME): International
institution set up to maintain order in the international.
World Bank: International institution set up to promote
general economic development in the worlds poorer
nations.
Organization for Economic Cooperation and Development
(OECD): A Paris-based intergovernmental organization of
wealthy nations whose purpose is to provide its 29members
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states with a forum in which governments can compare
their experiences, discuss the problems they share, and
seek solutions that can then be applied within their own
national contexts. United Nations Convention on Contract for the
International Sales of Goods: Agreement establisher
Regional economic integration: Agreements among
counties in a geographic region to reduce and ultimately
remove tariff and non tariff barriers to the free flow ofgoods, services, and factors of production between each
other.
North American Free Trade Agreement (NAFTA):
Free trade area between Canada, Mexico, and theUnited States.
Multilateral Agreement on Investment (MAI): An
agreement that would make it illegal for signatory states
to discriminate against foreign investors; would have
liberalized rules governing FDI between OECD states.
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Multinational enterprise (MNE): A firm that owns
business operations in more than one country.
ASEAN (Association of South East Asian Nations):
Formed in 1967, an attempt to establish a free trade areabetween Brunei, Indonesia, Malaysia, the Philippines,
Singapore, and Thailand.
European Union (EU): An economic group of 15
European + 12 of Eastern Europe nations: Austria,
Belgium, Denmark, Finland, France, Germany, GreatBritain, Greece, the Netherlands, Ireland, Italy,
Luxembourg, Portugal, Spain, and Sweden. Established is a
customs union, it is now moving toward economic union.
Formerly the European Community.Economic Union: A group of countries committed to (1)
removing all barriers to the free flow of goods, services, and
factors of production between each other (2) the adoption of
a common currency (3) the harmonization of tax rates, and
(4) the pursuit of a common external trade policy.
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Common market: A group of countries committed to (1)
removing all barriers to the free flow of goods, services,
and factors of production between each other and (2) the
pursuit of a common external trade policy.
Customs union: A group of countries committed to (1)
removing all barriers to the free flow of goods and
services between each other and (2) the pursuit of a
common external trade policy.European Commission: Responsible for proposing EU
legislation, implementing it, and monitoring compliance.
European Council: Consists of the heads of state of EU
members and the president of the EuropeanCommission.
European Free Trade Association (EFTA): A free trade
association including Norway, Iceland, and Switzerland.
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European Monetary System (EMS): EU system designed to
create a zone of monetary stability in Europe, control inflation,
and coordinate exchange rate policies ofEU countries.
European Parliament: Elected EU body that provides
consultation on issues proposed by European Commission.
CARICOM: An association ofEnglish speaking Caribbean states
that are attempting to establish a customs union.
COMECON: Now defunct economic association of EasternEuropean Communist states headed by the former Soviet Union.
Political system: System of government in a nation.
Political union: A central political apparatus coordinates
economics, social and foreign policy.
Political economy: The study of how political factors influencethe functioning of an economic system.
Command economy: An economic system where the allocation
of resources, including determination of what goods and services
should be produced and it what quantity, is planned by the
government.
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State-directed economy: An economy in which the stateplays a proactive role in influencing the direction and
magnitude of private-sector investments.
Mixed economy: Certain sectors of the economy are left to
private ownership and free market mechanisms, while other
sectors have significant government ownership and
government planning
Market economy: The allocation of resources is determinedby the invisible hand of the price system.
Political risk: The likelihood that political forces will cause
drastic changes in a countrys business environment that will
adversely affect the profit and other goals of a particular
business enterprise.
Economic risk : The likelihood that events, including
economic mismanagement, will cause drastic changes in a
countrys business environment that adversely affect the profit
and other goals of a particular business enterprise.
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Legal risk: The likelihood that a trading partner will
opportunistically break a contract or expropriate intellectual
property rights.
Systematic risk: Movements in a stock portfolios value
that are attributable to macroeconomic forces affecting all
firms in an economy, rather than factors specific to an
individual firm (unsystematic risk).
Economic exposure: The extend to which a firms futureinternational earning power is affected by changes in
exchange rates.
Civil law system: A system of law based on a very detailed set
of written laws and codes.
Theocratic law system: A system of law based on religiousteachings.
Legal system: System of rules that regulate behavior and
the processes by which the laws of a country are enforced an
through which redress of grievances is obtained.
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Common law system: A system of law based on tradition,
precedent, and custom. When law courts interpret common
law, they do so with regard to these characteristics.
Court of Justice: Supreme appeals court for EU law.Democracy: Political system in which government is by the people,
exercised either directly or through elected representatives.
Representative democracy: A political system in which citizens
periodically elect individuals to represent them in government.
Communists: Those who believe socialism can be achievedonly through revolution and totalitarian dictatorship.
Communist totalitarianism: A version of collectivism
advocating that socialism can be achieved only through a
totalitarian dictatorship. Totalitarianism: Form of government in which one person or
political party exercises absolute control over all spheres of
human life and opposing political parties are prohibited.
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Theocratic totalitarianism: A political system in which a
group, or individual that represents the interests of a
particular tribe (ethnic group) monopolizes political power.
Right-wing totalitarianism: A political system in which political
power is monopolized by a party, group, or individual that
generally permits individual economic freedom but restricts
individual political freedom, including free speech, often on
the grounds that it would lead to the rise of communism. Collectivism: An emphasis on collective goals as opposed
to individual goals.
Individualism versus collectivism: Theory focusing on the
relationship between the individual and his or her fellows. In
individuals societies, the ties between individuals are loose andindividual achievement is highly valued. In societies where
collectivism is emphasized, ties between individuals are tight,
people are born into collectives, such as extended families and
everyone is supposed to look after the interests of his or her
collective.
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Group: An association of two or more individuals who have a
shared sense of identity and who interact with each other in
structured ways on the basis of a common set of expectations
about each others behavior.Confucian dynamism: Theory that Confucian teachings
affect attitudes toward time, persistence, ordering by status,
protection of face, respect for tradition and reciprocation of
gifts and favors.
Home country: The source country for foreign directinvestment.
Host country: Recipient country of inward investment by a
foreign firm.
Flow of foreign direct investment: The amount of foreign
direct investment undertaken over a given time period
(normally one year).
Outflow of FDI: Flow of foreign direct investment out of a
country.
Forward vertical FDI: Investing in an industry abroad the
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Vertical foreign direct investment : Foreign direct
investment in an industry abroad that provides input into a
firms domestic operations or foreign direct investment intoan industry abroad that sells the outputs of a firms
domestic operations.
Backward vertical FDI: Investing in an industry aboard
that provides inputs for an firms domestic processes.
Horizontal foreign direct investment: Foreign direct
investment in the same industry aboard as a firm operates at
home.
Horizontal differentiation: The division of the firm into
subunits.
Vertical differentiation: The centralization and
decentralization of decision making responsibilities.
Vertical integration: Extension of a firms activities
into adjustment stages of productions (i.e. those providingthe firms in uts or those that urchase the firms out uts .
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Oligopoly: An industry composed of a limited number of
large firms.
Organizational architecture: Totality of firms organization.
Organizational culture: Norms and value shared by
employees.
Organizational structure: Determined by the formal division
into subunits, the location of decision making, and the
coordination of activities of subunits.
Bureaucratic controls: Achieving control through
establishment of a system of rules and procedures.
Administrative trade policies: Administrative policies,
typically adopted by government bureaucracies, that can beused to restrict imports or boost exports.
Contract: Document that specifies conditions of an exchange
and details rights and obligations of involves parties.
Contract law Body of law that governs contract enforcement.
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Society: Group of people who share a common set of values
and norms.
Socialism: Apolitical philosophy advocating substantial public
involvement, through government ownership, in the means of
production and distribution.
Social strata: Hierarchical social categories.
Social Structure: The basis of social organization of a society.Social democrats: Those committed to achieving socialism by
democratic means.
Social mobility: The extent or which individuals can move out of
the social strata into which they are born.
Caste system: A system of social stratification in which socialposition is determined by the family into which a person is born,
and change in that position is usually not possible during an
individuals lifetime.
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Class system: A system of social stratification in which social
status is determined by the family into which a person is born
and by subsequent socioeconomic achievements. Mobility
between classes is possible.
Class consciousness: A tendency for individuals to perceive
themselves in terms of their class background.
Power distance: Theory of how a society deals with the fact
that people are unequal in physical and intellectualcapabilities. High power distance cultures are found in
countries that let inequalities grow over time into inequalities
as much as possible
Masculinity versus femininity: Theory of the relationship
between gender and work roles. In masculine cultures, sexroles are sharply differentiated and traditional masculine
value such as achievement and the effective.
In faminine cultures, sex roles are less sharply distinguished,
and little differentiation is made between men and women in
the same job.
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Religion: A system of shared beliefs and rituals concerned
with the sacred.
Culture: The complex whole that includes knowledge, belief,
art, morals, law, custom, and other capabilities acquired by aperson as a member of society.
Mores: Mores seen as central to the functioning of a society
and to its social life.
Norms: Social rules and guidelines that prescribe appropriate
behavior in particular situations.
Values: Abstract ideas about what a society believes to be
good, right, and desirable.
Moral hazard: Arises when people behave recklessly because
they know they will be saved if things go wrong.Uncertainty avoidance Extent: to which cultures society
members to accept ambiguous situations and to tolerate
uncertainty.
Cross-cultural literacy Understanding how the culture of a
country affects the way business is practiced.
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Cultural controls: Achieving control by persuading
subordinates to identify with the norms and value
systems of the organization (self-control)
Ethical systems: Cultural beliefs about what is proper
behavior and conduct.
Ethnocentrism: Belief in the superiority of ones own
ethnic group or culture.
Ethnocentric staffing: A staffing approach within theMNE in which all key management positions are filled by
parent-country nationals.
Ethnocentric behavior: Behavior that is based on the
belief in the superiority of ones own ethnic group or
culture; often shows disregard or contempt for theculture of other countries.
Ethnocentric behavior: Behavior that is based on the belief
in the superiority of ones own ethnic group or culture;
often shows disregard or contempt for the culture of
other countries.
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Globalization Trend away from distinct national
economic units and toward one huge global market.
Globalization of markets Moving away from an
economic system in which national markets are distinct
entities, isolated by trade barriers and barriers of
distance, time, and culture and toward a system in which
national markets are merging into one global market.
Globalization of production Trend by individual firms todisperse parts of their productive processes to different
locations around the globe to take advantages of
differences in cost and quality of factors of production.
Global learning The flow of skills and product offerings
from foreign subsidiary to home country and fromforeign subsidiary to foreign subsidiary.
Global matrix structure Horizontal differentiation
proceeds along two dimensions: product divisions and
areas.
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Global Web When different stages of value chain are
dispersed to those locations around the globe where
value added is maximized or where cost of value creation
are minimized.Mass customization The production of a wide variety of end
products at a unit cost that could once be achieved only
through mass production of a standardized output.
First-mover advantages Advantages accruing to the first
to enter a market. First-mover disadvantages Disadvantages associated
with entering a foreign market before other international
businesses.
Late-mover advantages Benefits enjoyed by a companythat is late to enter a new market, such as consumer
familiari with the product or knowledge gained about a
market.
Late-mover disadvantages Handicap that late
entrants to a market suffer.
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Infant industry argument New industries in developing
countries must be temporarily protected from
international competition to help them reach a position
where they can compete on world markets with the firms
of developed nations.
Internalization theory Marketing imperfection
approach to foreign direct investment.
Strategic alliances Cooperative agreementsbetween two or more firms.
Joint venture A cooperative undertaking between
two more firms.
Offshore production FDI undertaken to serve the
home market. Franchising A specialized from of licensing in which
the franchiser sells intangible property to the franchisee
and insists on rules to conduct the business.
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Green-field investment Establishing a new operation in
a foreign country.
Turnkey project A project in which a firm agrees to an
operating plant for a foreign client and hand over the
key when the plant is fully operational.
Local content requirement A requirement that some
specific fraction of a good be produced domestically.
Location-specific advantages Advantages that arisefrom using resource endowments or assets that are tied
to a particular foreign location and that a firm finds
valuable to combine with its own unique assets (such as
the firms technological, marketing or management
know-how). Location economies Cost advantages from
performing a value creation activity at the optimal
location for that activity.
Sourcing decisions Whether a firm should make or
buy component parts.
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Stock of foreign direct investment The total accumulated
value of foreign-owned assets at a given time.
Gains from trade The economic gains to a country from
engaging in international trade.
Timing of entry Entry is early when a firm enters a
foreign market before other foreign firms and late when
a firm enters after other international business have
established themselves.
Eclectic paradigm Argument that combining locationsspecific assets or resource endowments and the firms
own unique assets often requires FDI; it requires the
firm to establish production facilities where those foreign
assets or resource endowments are located.
Wholly owned subsidiary A subsidiary in which the
firm own 100 percent of the stock.
Transnational corporation A firm that tries to
simultaneously realize gains from experience curve
economies, location economies, and global learning,which remainin locall res onsive.
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Global strategy Strategy focusing on increasing
profitability by reaping cost reductions from experience
curve and location economies.
Multidomestic strategy Emphasizing the need to
responsive to the unique conditions prevailing in
different national markets.
Push Strategy A marketing strategy emphasizing
personal selling rather than mass media advertising.
Pull strategy A marketing strategy emphasizingmass media advertising as opposed to personal selling.
Lag strategy Delaying the collection of foreign
currency receivables if that currency is expected to
appreciate and delaying payables if that currency is
expected to depreciate.
Lead strategy Collecting foreign currency receivables
when a foreign currency is expected to depreciate, and
pay foreign currency payables before they are due when
a currency is expected to appreciate.
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Transnational strategy Plan to exploit experience-
ba cost an location economies, transfer core competencies the
firm, and pay attention to local responsiveness.
International strategy Trying to create value bytransferring core competencies to foreign markets where
indigenous competitors lack those competencies.
Strategic trade policy Government policy aimed at
improving the competitive position of a domestic industry
and/or domestic firm in the world market.
Mercantilism A economic philosophy advocating that
countries should simultaneously encourage exports and
discourage imports.
Privatization The sale of state-owned enterprises toprivate investors.
New trade theory The observed pattern of trade in the
world economy may be due in pat to the ability of firms in a
given market to capture first-mover advantages.
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International business Any firm that engages in
international trade or investment.
International division Division responsible for a firms
international activities.
Worldwide area structure Business organizational structure
under which the world is divided into areas.
Worldwide product division structure Business
organizational structure based on product divisions that have
worldwide responsibility.
Strategic commitment A decision that has a long-term
impact and is difficult to reverse, such as entering a foreign
market on a large scale.
Exporting Sale of products produced in one country toresidents of another country.
Expatriate A citizen of one country working in another
country.
Expatriate manager A national of one country appointed to amana ement osition in another countr
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Export management company Export specialists who act
as an export marketing department for client firms.
Free trade The absence of barriers to the free flow of goods
and services between countries.Free trade area A group of countries committed to
removing all barriers to the free flow of goods and services
between each other, but pursuing independent external trade
policies.
Import quota A direct restriction on the quantity of a good
that can be imported into a country.
Dumping Selling goods in a foreign market for less than
their cost of production or below their fair market value.
Antidumping policies Designed to punish foreign firmsthat engage in dumping and thus product domestic producers
from unfair foreign competition.
Antidumping regulations Regulations designed to restrict
the sale of goods for less than their fair market price.
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Trade creation Trade created due to regional economic
integration; occurs when high-cost domestic producers are
replaced by low-cost foreign producers in a free trade area.
Balance-of-trade equilibrium Reached when the incomea nations residents earn from exports equals money paid for
imports.
Barriers to entry Factors that make it difficult or costly for
firms to enter an industry or market.
Current account In the balance of payments, records
transactions involving the purchase or sale of assets.
Capital account In the balance of payments, records
transactions involving the purchase or sale of assets.
Current account surplus The current account of thebalance of payments is in surplus when a country exports
more goods and services than it imports.
Balance-of-payments accounts National accounts that
track both payments to and receipts from foreigners.
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Trade deficit See current account deficit.
Trade surplusSee current account surplus.
Current cost accounting Method that adjusts all items in a
financial statement to factor out the effects or inflation.Voluntary export restraint (VER) A quota on trade imposed
from the exporting countrys side, instead of the
BarterThe direct exchange of goods or services between two
parties without a cash transaction.
E-commerce Conducting business online through the
Internet.
ISO 9000 Certification process that requires certain qua
standards that must be met.
Six sigma Statistically based philosophy to reduce defects,boost productivity, eliminate waste, and cut costs.
Copyright Exclusive legal rights of authors, composers,
playwrights, artists, and publishers to publish and dispose of
their work as they see fit.
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Trademark Designs and names, often officially
register by which merchants or manufacturers designate and
differentiate their products.
Patent Grants the inventor of a new product or processexclusive rights to the manufacture, use or sale of that
invention.
Property rights Bundle of legal right over the use to
which a resource is put and over the use made of the income
that may be derived from that resource.
Intellectual property Products of the mind, ideas (e.g.,
books, music, computer software, designs, technological know-
how). Intellectual property can be protected by patents,
copyright, and trademarks.Product liability Involves holding a firms and its officers
responsible when a product causes injury, death, or damage.
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Positive-sum game A situation in which all countries can
benefit even if some benefit more than others.
Market imperfections Imperfections in the operation of
the market mechanism.Market imperfections Imperfections in the operation of
the market mechanism.
Performance ambiguity Occurs when the causes of good
or bad performance are not clearly identifiable.
Paris Convention for the Protection of Industrial Property
International agreement to protect intellectual property;
signed by 96 countries.
Royalties Remuneration paid to the owners of
technology, patents, or trade names for the use of same.Purchasing power parity (PPP) An adjustment in gross
domestic product per capita to reflect differences in the cost of
living.
Subsidy Government financial assistance to a domestic
producer.
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Lead market Market where products are first introduced.
Efficient Market A market where prices reflect all
available information.
Relatively efficient market One in which few impediments tointernational trade and investment exist.
Inefficient market One in which prices do not reflect all
available information.
Logistics The procurement and physical transmission of
material through the supply chain, from suppliers to
customers.
Historic cost principle Accounting principle
founded on the assumption that the currency unit used to
report financial results is not losing its value due to inflection.Pioneering costs Costs an early entrant bears that later
entrants avoid, such as the time and effort in learning the
rules, failure due to ignorance, and the liability of being a
foreigner.
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Constant returns to specialization The units of
resources required to produce a good are assumed to remain
constant no matter where one is one a countrys production
possibility frontier.Diminishing returns to specialization Applied to
international trade theory, the more of a good that a country
produces, the greater the units of resources required to
produce each additional item.
Price discrimination The practice of charging different
price for the same product in different markets.
Price elasticity of demand A measure of how responsive
demand for a product is to changes in price.
Low of one price In competitive markets free oftransportation costs and barriers to trade, identical product
sold in different countries must sell for the same price when
their price is expressed in the same currency.
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Predatory priding Reducing prices below fair market value
as a competitive weapon to drive weaker competitors out of
the market (fair being cost plus some reasonable profit
margin).Multipoint pricing Occurs when a pricing strategy in one
market may have an impact on a rivals pricing strategy in
another market.
Profit Difference between revenues and costs.
Profitability A rate of return concept.
Market segmentation Identifying groups of consumers
whose purchasing behavior differs from others in important
ways.
Marketing mix Choices about product attribute,distribution strategy, communication strategy, and pricing
strategy that a firm offers its targeted markets.
Market power Ability of a firm to exercise control over
industry prices or output.
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Processes Manner in which decisions are made and work
is performed.
Channel Length The number of intermediaries that a
product has to go through before it reaches the finalconsumer.
Exclusive channels A distribution channel that outsiders
find difficult to access.
Just-in-time (JIT) Logistics systems designed to deliver
parts to a production process as they are needed, not before
Learning effects Cost savings from learning by
doing.
Economies of scale Cost advantages associated with large-
scale production.Experience curve Systematic production cost reductions
that occur over the life of a product.
Experience curve pricing Aggressive pricing designed to
increase volume and help the firm realized experience curve
economies.
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Minimum efficient scale The level of output at which most
plant-level scale economies are exhausted.
Product life-cycle theory The optimal location in the world
to produce a product change as the market for the productmatures.
Materials management The activity that controls the
transmission of physical materials through the value chain,
from procurement through production and into distribution.
Heackscher-Ohlin theory Countries will export those goods
that make intensive use of locally abundant factors of
production and import goods that make intensive use of
locally scarce factors of production.
Managed-float system System under which somecurrencies are allowed to float freely, but the majority are
either managed by government intervention or pegged to
another currency.
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Dirty-float system A system under which a countrys
currency is nominally allowed to float freely against other
currencies, but in which the government will intervene,
buying and selling currency, if it believes that the currencyhas deviated too far from its fair value.
Currency board Means of controlling a countrys
currency
Currency crisis Occurs when a speculative attack
on the exchange value of a currency results in a sharp
depreciator in the value of the currency or forces authorities
to expend large volumes of international currency reserves
and sharply increase interest rates to defend the prevailing
exchange rate.Currency speculation Involves short-term movement of
funds from one currency to another in hopes of profiting from
shifts in exchange rates.
Swaps The simultaneous purchase and sale of a given
amount of foreign exchange for two different value dates.
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Currency swap Simultaneous purchase and sale of a
given amount of foreign exchange for two different value
dates.
Currency translation Converting the financialstatements of foreign subsidiaries into the currency of the
home country.
Freely convertible currency A countrys
currency is freely convertible when the government of that
country allows both residents and nonresidents to purchaseunlimited amounts of foreign currency with the domestic
currency.
Externally convertible currency Non residents can convert
their holdings of domestic currency into foreign currency, but
the ability of residents to convert the currency is limited in
some way.
Nonconvertible Currency A currency is not convertible
when both residents and nonresidents are prohibited from
converting their holdings of that currency into another
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Money management Managing a firms global cash resources
efficiently.
Gold standard The practice of pegging currencies to
gold and guaranteeing convertibility.Gold par value The amount of currency needed to
purchase one ounce of gold.
Ecu A basket of EU currencies that served as the unit of
account for the EMS.
Eurobonds A bond placed in countries other than
the one in whose currency the bond is denominated.
Eurocurrency Any currency banked outside its country of
origin.
Eurodollar Dollar banked outside the United States.Foreign bonds Bonds sold outside the borrowers
country and denominated in the currency of the country in
which they are issued.
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Fixed-rate Bond Offers a fixed set of cash payoffs each
year until maturity, when the investor also receives the face
value of the bond in cash.
Foreign exchange market A market for converting thecurrency of the country into that of another country.
Foreign exchange exposure The risk that future change in a
countrys exchange rate will hurt the firm.
Foreign exchange risk The risk that changes in exchange
rates will hurt the profitability of a business deal.
Exchange rate mechanism (ERM) Mechanism for
aligning the exchange rates of EU currencies against each
other.
Exchange rate The rate at which one currency isconverted into another.
Fixed exchange rates A system under which the
exchange rate for converting one currency into another is
fixed.
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Floating exchange rates A system under which the
exchange rate for converting one currency into another is
continuously adjusted depending on the laws of supply and
demand.Spot exchange rateThe exchange rate at which a foreign
exchange dealer will convert one currency into another that
particular day.
Pegged exchange rate Currency value is fixed relative to a
reference currency.
Forward exchange When two parties agree to exchange
currency and execute a deal at some specific date in the furun
Forward exchange rate The exchange rates governing
forward exchange transactions.Projected rate The spot exchange rate forecast for the
end of the budget period.
Initial rate The spot exchange rate when a budget is
adopted.
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Initial rate The spot exchange rate when a budget is
adopted.
Internal forward rate A company-generated forecast of
future spot rates.Ending rate The spot exchange rate when budget and
performance are being compared.
Capital flight Residents covert domestic currency into a
foreign current
Cost of capital Price of money.
Financial structureMix of debt and equity used to finance a
business
Arbitrage The purchase of securities in one market to
immediate resale in another to profit from a pricediscrepancy.
Equity loan Occurs when a corporation sells stock to an
investor.
Debt loan Requires a corporation to repay loan at regular
intervals.
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Tax credit Allows a firm to reduce the taxes paid to the
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Tax credit Allows a firm to reduce the taxes paid to the
home government by the amount of taxed paid to the foreign
government.
Tax haven A country with exceptionally how, or even no
income taxes.
Tax treaty Agreement between tow countries specifying
what items of income will be taxed by the authorities of the
country where the income is earned.Technical analysis Uses price and volume data to determine
past trends, which are expected to continue into the future.
Counter purchase A reciprocal buying agreement.
Counter trade The trade of goods and services for other
goods and services.Counter vailing duties Antidumping duties.
Ad valorem tariff Tariff levied as a fixed charge for each
unit of good imported.
Specific tariffTariff levied as a fixed charge for each unit of
ood im orted.
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Bill of exchange An order written by an exporter
instructing an importer, or an importers agent to pay a
specified amount of money at a specified time.
Bill of lading A document issued to an exporter by a commoncarrier transporting merchandise. It serves as a receipt, a
contract, and a document of title.
Drawee The party to whom a bill of lading is presented.
MakerPerson of business initiating a bill of lading (draft).
Draft An order written by an exporter telling an importer
what and when to pay.
Time draft A promise to pay by the accepting party at some
future date.
Transaction costs The costs of exchange.Transaction exposure The extent to which income in
individual transactions is affected by fluctuations in for
exchange value.
Transfer fee A bank charge for moving cash from one
location to another.
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Transfer price The price at which goods and services a
transferred between subsidiary companies of a corporation
Translation exposureThe extent to which the report
consolidated results and balance sheets of a corporationaffected by fluctuations in foreign exchange value.
Cross-licensing agreement An arrangement in which a
company licenses valuable intangible property to a foreign
partner and receives a license for the partners valuable
knowledge; reduces risk of licensing.
Quota rent Extra profit producers make when supply is
artificially limited by an import quota.
Smoot-Hawley tariffEnacted in 1930 by the U.S Congress,
this tariff erected a wall of barriers against imports into theUnited States.
Banking crisis A loss of confidence in the banking
system that leads to a run on bank, as individuals and
companies withdraw their deposits.
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Multilateral netting A technique used to reduce the number
of transactions between subsidiaries of the firm, thereby
reducing the total transaction costs arising from foreign
exchange dealings and transfer fees.Management network A network of informal contact
between individual managers..
Specialized asset An asset designed to perform a specific
task, whose value is significantly reduced in its next-best use.