1. Regional Economic Integration
    • Agreements between countries in the same geographic regions to reduce tariffs and non tariff barriers
  2. Free Trade
    eliminates all barriers of trading goods and services among member countries
  3. EFTA
    Iceland, Norway, Switzerland, and Liechtenstein
  4. Levels of Regional Economic Integration
    • Free Trade
    • Customs Union
    • Common Market
    • Economic Union
    • Political Union
  5. Customs Union
    • all countries involved have the same trade restrictions
    • Eliminates barriers of free trade between neighboring countries
    • Common External trade policy
    • Andean Community( (Bolivia, Columbia, Ecuador, Peru)
  6. Common Market
    No barriers all countries have the same policy MERCOSUR (Brazil, Argentina, Paraguay, Uruguay)
  7. Economic Union
    • Same common currency and common monetary and fiscal policy
    • EU
  8. Political Union
    Central Political Apparatus that is in charge of the economic, social, and foreign policy of the states
  9. Pros of integrating economies
    • Free trade and investment
    • Political cooperation
    • Dependent on each other
  10. Cons of integrating economies
    • Loss of national sovereignty
    • Cultural, language, and loss of control
  11. Trade Creation: when low cost producers within free trade are replaced with high cost domestic producers
    when low cost producers within free trade are replaced with high cost domestic producers
  12. Trade diversion
    occurs when high cost suppliers within free trade replace lower cost external suppliers (higher cost has better strategy)
  13. EU
    • 27 members
    • EFTA- 4 members
    • Formed because of world war 2 on western Europe
    • They wanted lasting peace and own political control
  14. European Economic Community
    • Formed at the Treat of Rome ( formed institutions of EU)
    • Wanted to become a common market
  15. Single European Act
    • Wanted a single market
    • Wanted faster economic growth
  16. Political Structure of the EU
    • European Council
    • European Commission
    • European Parliament
    • The Court of Justice
  17. European Council
    controlling authority of the EU
  18. European Commision
    in charge of implementing and monitoring laws and policies
  19. European Parlaiment
    • Democratic part of EU
    • members elected by the people
    • works with the European council
  20. The court of justice
    • Judge from each country
    • There for business reasons
  21. Maastricht Treaty
    • Adopted the euro(single currency)
    • Euro is the 2nd largest currency
    • Used by 18 of the 27 member states
  22. Benefits of the Euro
    • Having a single currency is better than multiple
    • Easier to compare price
    • Increases range of investment options
  23. Negatives of the Euro
    • Loss of control over national monetary policy
    • EU is not an optimal currency area
  24. NAFTA( North American Free Trade Agreement)
    • Abolishes tariffs
    • Removes barriers on cross-border flow of services
    • Protects intellectual property
    • Removes a lot of restriction’s within FDI
    • Each country can have their own environmental standards
  25. Benefits of NAFTA
    • Mexico benefits (job increase)
    • US. and Canada benefit
    • Increase imports by Mexico
    • Access to large market
    • Low cost labor
    • Low prices for consumers
  26. Negatives of NAFTA
    • Agriculture (tariff on corn decreased)
    • Jobs decline in U.S.
    • Canada Pollution
  27. Andean Community
    • Formerly The Andean Pact
    • Operates as a custom union
    • Wants the creation of free trade
    • Was a free trade pact between Brazil and Argentina
    • Accused of trade diversion
    • Central American trade agreement
    • Wanted to lower trade barriers between u.s and members
    established a customs union Caribbean
  31. Foreign Exchange Market
    • Used to convert the currency of one country into the currency of another
    • Provides insurance against foreign exchange risk(consequences of unpredictable changes in exchange rates)
  32. Exchange rate
    • rate that one currency is converted into another
    • Events in the market affect sales, profits, and strategy
    • Determined by supply and demand for different currencies
  33. Three factors that impact future exchange movements
    • Country’s price inflation
    • Country’s interest rate
    • Market psychology
  34. Currency speculation
    the short term movement of funds from one currency to another in order to gain a profit from the change in exchange rates
  35. Hedging
    when a firm insures itself against exchange risk
  36. Spot Exchange rates
    • rate that the currency is converted into another currency on a particular day
    • Based on supply and demand
  37. Forward Exchange rates
    • to unsure against a possible adverse foreign exchange rate movement
    • Two parties agree to exchange currency at a specific date in the future
    • Used for 30,90,or 180 days in the future
  38. Currency Swap
    • a purchase and sale at the same time for the same amount of foreign exchange for two different value dates
    • Between banks
    • Businesses and their banks
    • Between governments
  39. Arbitrage
    buying a currency low and selling it high
  40. Law of one price
    • Identical products sold in different countries must sell for the same price when their price is in the same currency
    • If not there can be arbitrage
    • In competitive markets free of transportation and barriers to trade
  41. Purchasing power parity theory (PPP)
    • The price of a “basket of goods” should roughly be equivalent in each country
    • In relatively efficient markets
  42. International Fisher effect
    Any two countries, the spot exchange rate should change in an equal amount but in opposite direction to the difference in nominal interest rates between two countries
  43. The bandwagon effect
    • Traders can join the bandwagon and move exchange rates based on group expectations
    • Influences short term exchange rate movements
    • Government intervention can prevent from starting
  44. Efficient market school
    Forward exchange rates do the best at forecasting future spot exchange rates so investing in forecasting services is a waste of money
  45. Inefficient market school
    Companies can improve the foreign exchange market’s estimate of future exchange rates by investing in forecasting services
  46. An efficient maker is one that…
    • Prices reflect all available information
    • Forward exchange rates should be unbiased prediction of future spot rates
  47. Fundamental analysis
    Analyzes factors such as interest rates, monetary policy, inflation rates, or balance of payments info to predict exchange rates
  48. Technical analysis
    Uses charts trend with the assumption that past trends are reasonable predicators of future trends and waves
  49. Freely convertible
    Government allows both residents and non residents to purchase unlimited amount of foreign currency with domestic currency
  50. Externally convertible
    • Non residents can convert their holdings of domestic currency into foreign currency
    • Residents are limited in some way
  51. Nonconvertible
    Both residents and non residents cant convert their holdings
  52. Countertrade
    barter like agreements, goods and services are sold for other goods and services
  53. Truncation exposure
    Extent that the income from individual transactions are affected by fluctuations in foreign exchange values
  54. Translation exposure
    Impact of currency exchange rate changes on reported financial statements of a company
  55. Economic exposure
    Extent that a firms future internal earning power is affected by changes in rates
  56. To reduce exchange rate risk…
    Buy forward Use swaps Lead and lag payables and receivables
  57. International Monetary System
    Institutional arrangements that countries adopt to govern exchange rates
  58. Floating exchange rate system
    • when a country allows the foreign exchange market to determine the relative value of a currency
    • Euro, dollar, and yen are floating
  59. Pegged exchange rate system
    When a country fixes the value od its currency relative to a reference currency
  60. Dirty Float Country
    tries to hold the value of its currency within a range of a reference currency such as the US dollar
  61. Fixed exchange rate system
    • When a country fixes their currencies against each other at some mutually agreed on exchange rate
    • European monetary system
  62. Gold Standard System
    that countries peg currencies to gold
  63. Bretton Wood System
    • new international monetary system that would facilitate postwar economic growth
    • Established the IMF to maintain order Established The World Bank to promote general economic development
    • Countries can borrow money in 2 ways(IBRD scheme, money is raised through bond sales) (International Development Agency, IDA loans go only to the poorest countries)
  64. Fixed Exchange Rate System collapse
    • Collapsed when increases in welfare programs
    • Vietnam ware was finances by increasing money supply causing inflation
  65. Jamaica Agreement
    • New exchange rate system established in Jamaica
    • Rules: Floating rates were acceptable, gold was abandoned, total annual IMF quotas
  66. Floating exchange rates provide...
    • Monetary policy autonomy
    • Automatic trade balance adjustments
  67. Fixed Exchange rates provide...
    • Monetary disciple
    • Minimizes speculation
    • Reduces uncertainty
  68. Marketing Mix
    • choices firms offer to its targeted market pricing strategy
    • product attributes
    • distribution strategy
    • communication strategy
  69. Theodore Levitt
    • Argues that the markets were becoming similar making it unnecessary to localize the marketing mix
  70. Global standardization is not possible b/c..
    • Cultural differences
    • Economic differences
    • Trade barriers
    • Difference in product and technical standards
  71. Market segmentation
    • Identifying strict groups of people whom purchasing behaviors differ
    • Segmented by geography demography, socio-cultural factors, psychological factors
  72. Distribution systems
    • Retail concentration
    • Channel length
    • Channel Exclusivity
    • Channel quality
  73. Channel length
    • Number of intermediaries between producer and the consumer
    • (short channel- sells directly… long channel- sells through someone else)
  74. Channel Exclusivity
    How difficult it is for outsider to access
  75. Channel quality
    The expertise, competencies, and skills of established retailers and ability to sell and support products
  76. Communication channels
    • Direct selling
    • Sales promotions
    • Direct marketing
    • Advertising
  77. Push strategy
    • emphasizes personnel selling
    • For industrial product or new products
    • Short channels
    • Few print or electronic media is available
  78. Pull strategy
    • emphasizes mass media advertising
    • For consumer good products
    • Long channels
    • Media is available to carry the marketing message
  79. Price discrimination
    charging different prices for the same product
  80. Price elasticity of demand
    • Measure of responsiveness of demand for a product to changes in price
    • Elastic- small price change =larger demand
    • Inelastic- large price change= small demand
  81. Predatory pricing
    using profit gained in one market to support pricing to drive competitors out in another market
  82. Multi-point pricing
    firms in one market may have an impact on a rivals pricing strategy in another
  83. Experience curve pricing
    low prices worldwide in attempt to build global sales volume quickly
  84. Antidumping
    When selling a product for a price less than the cost of producing it
  85. Competition policy
    Regulations designed to promote competition and restrict monopoly
  86. Staffing Policy
    Selection of employees who have skills required to perform a certain job
  87. Ethnocentric approach
    fill management positions with parent country nationals
  88. Polycentric approach
    recruit host country national to manage subsidiaries in their own country
  89. Geocentric approach
    seek the best people regardless of nationality for key jobs
  90. Expatriate failure
    • is the premature return of an expatriate manager to the home country
    • Ethnocentric and geocentric
  91. Balance sheet approach
    equalizing purchasing power across countries so employees have same standard of living
  92. Growing entrepreneurial firms exhibit
    • Growth
    • Innovation
    • Financing
  93. angel investors
    just wants to give money and watch the company grow
  94. venture capital
    companies that look for promising to make money of them
  95. Microfinance
    • Provides micro loans (50-300)
    • used to start small businesses in order to get entrepreneurs out of poverty
    • Mohammad Unis
    • Started with small businesses by women
  96. Licensing
    agreement to give another firm has the right to use your patent or trademark for a royalty fee(technology or pharmaceutical)
  97. Franchising
    agreement to give another firm the rights (food industry, hotels, rental cars)
  98. Stage model Model
    that shows the step by step process a small or medium enterprise must go through
Card Set
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