Reading §
Chapter 4 §
- National trade ^85660c
- Why do nations trade? ^e5edd0
- Nations trade because trading increases economic growth. Trade provides a new market for products and access to needed resources. Trading makes production and distribution systems more efficient and reduces dependence on the economy of the domestic market.
- Countries that encourage international trade usually have higher levels of economic activity, employment, and wages than countries that restrict international trade.
- Nations usually benefit if they specialize in producing certain goods or services
- What are some measures of the size of the international marketplace?
- Developing countries have lower per capita incomes than the developed nations in North America and Western Europe, but developing nations have populations that are large and growing. China’s population is about 1.4 billion and India’s is roughly 1.3 billion.
- ★ How does a nation acquire a absolute/comparative advantage?
- A country has an absolute advantage if it holds a monopoly or if it produces a good or service at a lower cost than other nations.
- It has a comparative advantage if it can supply one product more efficiently or at a lower cost than it can produce other products.
- Measuring trade between nations
- Compare balance of trade and balance of payments.
- Balance of trade is the difference between exports and imports;
- Balance of payments is the overall flow of money into or out of a country. It includes overseas loans and borrowing, international investments, and profits from such investments.
- Explain the function of an exchange rate.
- A nation’s exchange rate is the rate at which its currency can be exchanged for the currencies of other nations. An exchange rate makes it easier for countries with different currencies to trade with each another.
- What happens when a currency is devalued?
- Devaluation is a reduction in a currency’s value in terms of other currencies or in terms of a fixed standard.
- When the value of the Canadian dollar falls compared with other currencies, the cost paid by foreign businesses and households for Canadian products declines, and demand for exports may rise.
- An increase in the value of the dollar raises the prices of Canadian products sold abroad, but it reduces the prices of foreign products sold in Canada.
- Major barriers of international trade
- How can values and attitudes form a barrier to trade, and how can these barriers be overcome
- Marked differences in values and attitudes, such as religious attitudes, can form barriers between traditionally capitalist countries and countries adopting new capitalist systems.
- Many of these barriers can be overcome by learning about the values and attitudes in other cultures and by respecting such differences.
- What is a tariff? What is its purpose?
- A tariff (关税) is a surcharge or duty charged on foreign products. Its purpose is to protect domestic producers of those items.
- Why is dumping a problem for companies marketing goods internationally?
- Dumping is selling products in other countries at prices below production costs or below typical prices in the home market.
- Dumping decreases the cost of products in the market where they are dumped. Thus, dumping hurts the domestic producers of those products.
- Economic communities
- Canadian economic agreements
- Three economic agreements are the Canada–United States–Mexico Agreement (which replaced the North American Free Trade Agreement), CAFTA-DR, and the European Union.
- What international trade organization succeeded GATT, and what is its goal?
- The World Trade Organization (WTO) succeeded GATT. Its goals are to monitor GATT agreements, mediate disputes, and continue GATT’s aim to reduce trade barriers throughout the world.
- Compare and contrast the goals of the World Bank and the International Monetary Fund.
- The World Bank funds projects that build or expand nations’ infrastructure. These projects include transportation, education, and medical systems and facilities.
- The International Monetary Fund makes short-term loans to member nations that cannot meet their expenses. The fund operates as a lender of last resort for troubled nations.
- What are the goals of the European Union, and how do these goals promote international trade?
- The European Union’s goals are to promote economic and social progress, to introduce European citizenship as a complement to national citizenship, and to give the EU a major role in international affairs. Bringing standards and laws together can contribute to international trade and economic growth.
- Level of involvement
- Name three possible strategies for beginning overseas operations. ^b2b7e3
- Exporting or importing
- Using contract-based agreements such as franchising, licensing, or subcontracting
- Making direct investments in foreign markets through acquisition, joint venture, or setting up an overseas division.
- What is countertrade?
- Countertrade is an agreement to make payments in the form of local products, not in currency.
- Compare and contrast licensing and subcontracting.
- In a foreign licensing agreement, one firm allows another firm to produce or sell its product or use its trademark, patent, or manufacturing process in a specific geographical area. In return, the firm receives royalty payments or other compensation.
- In international subcontracting, a firm hires local companies in other countries to produce, distribute, or sell its goods and services.
- Describe joint ventures.
- In a joint venture, a company shares risks, costs, profits, and management responsibilities with one or more host-country companies.
- Global vs. Multi-domestic ^17ca26
- What is a global business strategy? What are its advantages?
- A global business strategy is a standardized competitive strategy. The firm sells the same product in basically the same way all over the world. This strategy works well for goods and services that are common to many nations. The firm can market the products to many countries without making many changes.
- Ex. Aplple
- What is a multidomestic business strategy? What are its advantages?
- In a multidomestic business strategy, the firm treats each foreign market in a different way. The firm tries to appeal to the customs, tastes, and buying habits of specific national markets. This strategy allows the firm to change its marketing appeals to suit individual cultures or areas.
- Ex. McDonald
Chapter 16 §
- Financial system
- What is the financial system?
- The financial system is the mechanism by which funds are transferred between those who have excess funds (savers) and those who need additional funds (users).
- In the financial system, who are the borrowers and who are the savers?
- Savers and borrowers are individuals, businesses, and governments. Generally, individuals are net savers, meaning they spend less than they make. Businesses and governments tend to be net borrowers (spend more than they make).
- List the two most common ways that funds are transferred between borrowers and savers.
- The financial markets
- Financial institutions.
- Securities
- Define securities
- Securities (证券): also called financial instruments, represent the obligations of the issuers—businesses and governments—to provide purchasers with the expected or stated returns on the funds invested or loaned.
- What are the major type of securities
- Money market instruments (debt instruments)
- Money market instruments are short-term debt securities and tend to be low-risk securities.
- Bonds 债劵 (debt instruments)
- Bonds are longer-term debt securities and pay a fixed amount of interest each year. Bonds are sold by the Canadian government (Canada Savings Bonds), provincial and local governments (municipal bonds), and corporations.
- Mortgage-backed securities are bonds backed by a pool, or group, of mortgage loans. Most municipal and corporate bonds have risk ratings.
- Shares.
- Common shares represent ownership in corporations. Investors who hold common shares have voting rights and a residual claim on the firm’s assets.
- What areas of the government issue bonds?
- Bonds are issued by the federal, provincial, and municipal governments.
- Why do investors purchase common shares?
- Investors purchase common shares for two reasons.
- One reason is to receive dividends, which are cash payments made to shareholders by the firm.
- The other reason is the potential price increase of the shares.
- Financial Markets
- What is a financial market?
- A financial market is a market where securities are bought and sold.
- Distinguish between a primary and a secondary financial market?
- The primary market for securities serves businesses and governments that want to sell new security issues to raise funds.
- The secondary market handles transactions of previously issued securities between investors.
- Briefly explain the role of financial institutions in the sale of securities?
- Financial institutions purchase new securities issues from corporations or provincial and municipal governments, and then resell the securities to investors. The institutions charge a fee for their services.
- Stock Exchange 股票市场
- What are the world’s two largest stock markets?
- The world’s two largest stock markets are the New York Stock Exchange and the NASDAQ Stock Market.
- What makes the London Stock Exchange unique?
- The London Stock Exchange is the most international of the world’s stock markets. A large percentage of the shares traded there are not from British firms.
- Explain the difference between a market order and a limit order?
- A market order instructs the investor’s broker to obtain the best possible price when buying or selling securities.
- A limit order sets a maximum price (if the investor wants to buy) or a minimum price (if the investor wants to sell).
- Financial Institutions
- What are the two main types of financial institutions?
- The two major types of financial institutions are depository institutions (those that accept chequing and similar accounts) and nondepository institutions.
- What are the primary differences between commercial banks and credit unions?
- Today, commercial banks and credit unions offer many of the same services.
- Commercial banks lend money to businesses and to individuals.
- Credit unions lend money mostly to individuals, usually in the form of home mortgage loans (Mortgage-backed securities)
- What is a mutual fund?
- A mutual fund is an intermediary that raises money by selling shares to investors. It then pools, or combines, investor funds and purchases securities that meet the mutual fund’s objectives.
- Bank of Canada
- What is the Bank of Canada?
- The Bank of Canada is Canada’s central bank. It is responsible for regulating the financial system, providing banking-related services for the federal government, acting as the banker’s bank, designing and issuing bank notes, and setting monetary policy.
- List the two main tools the Bank uses to control the supply of money and credit.
- Bank rate
- Open market operations.
- Regulation of financial system
- Who regulates banks?
- All banks are regulated by the federal government.
- Define insider trading.
- Insider trading is defined as the use of material, nonpublic information to make an investment profit
- Global financial system
- Where do Canadian banks rank compared with international banks in terms of asset size?
- Banks in Asia and Europe are generally much larger than Canadian banks. Four of the world’s 50 largest banks are based in Canada.
- Do other countries have organizations that play roles similar to those played by the Bank of Canada?
- Yes, almost all nations have central banks that perform many of the same functions as the Bank of Canada.
Lecture §
PDF:
- Foundation of international business
- What is an International/Global company ^7a33e0
- Better to consider it as a degree on a spectrum rather than as absolute
- International company:
- Exports a significant amount of its produces or services to one or more countries
- Can also import from abroad
- They think internationally, even if they do not yet undertake significant international activities.
- Global company
- One that is pursuing customers in all the major regions, in particular the Americas, Europe, and Asia
- Produce locally what one sell locally
- The real test is whether your business unit headquarters are globally dispersed and whether the top management team consists of individuals from different nationalities
- What are some characteristics of international or global
- Where are there operations: operate locally, sell internationally (international)
- Where are there operations: operate globally (global)
- Why do nations trade ^97c3dc
- Obtain goods they need & want AND cannot produce themselves
- Example
- Trade with Asia for silk, tea – recall Marco Polo & “The Silk Road” from China to Europe
- Europeans trading with the “new world” for furs, sugar, cotton, coffee – and, tragically, slaves
- To obtain gold/hard currencies by running a trade surplus (A net inflow of domestic currency from foreign markets) ^5ab050
- Filling the treasures of the king
- Enables them to pay the armies they need to wage wars
- Some countries have natural absolute advantages in producing goods over other countries
- During the Industrial Revolution, European countries developed an absolute advantage over the rest of the world in producing manufactured/technologically advanced goods
- Theory of Comparative advantage
- Why do companies trade
- Using-up excess resources/capacity
- There is so much local supply that the law of supply & demand would push the price down at home
- Cost reduction
- A network of factories 24/7 spreads fixed cost of building the factories over more production than running one shift per day (achieving desired economies of scale)
- Reduced input costs – Magna can obtain best possible price on steel by producing auto parts for the Canadian and US markets
- Particular foreign market demand
- Italian & French wine producers export not just because they are using-up excess supply – they create extra supply in order to satisfy foreign appetites
- Governments does not do trading, its companies that does the trading
- Risks for international trade
- It’s easier & less risky to do business domestically than internationally
- Exchange rate volatility might hit your profits,
- A war might break out & delay arrival of your shipment of Halloween costumes
- Ship sink, traffic jam
- Therefore, Companies should trade only when they anticipate advantages from trading
- Why does achieving free trade matter
- Consumers will pay lower prices & have greater choice among goods available
- Greater export opportunities lead to more jobs, faster economic growth
- Prevents the economic distortions of trade barriers: “sub- optimal outcomes” for both countries if absolute & comparative advantages are not realized through free trade
- Foreign exchange
- Why are currencies trusted
- One of the characteristics of sovereign states (nations) is that they issue their own currencies, representing the wealth of the nation
- For more than one hundred years, currencies were pegged to the value of gold - the “gold standard”
- ★ How does a low Canadian dollar affect international trade and the economy? ^bfcbf0
- Increase export (more money comes into the country), decrease import
- Decrease trade deficit
- Increase GDP
- Consumer likes high Canadian dollar, manufacture hate high rates
- Culture ^55729e
- Business need to understand cultures
- Culture is a key factor in determining what we decide to do and how we go about doing it
- Advantages for people from different cultures
- Work together
- Compete with each other
- Sell products & services to one another
- Negotiate agreements
- Are rivals in commercial disputes
- Buy each other’s companies
- The challenges of cultural diversity
- Misunderstanding based on the speed of building business relationships
- In different languages words can mean two (or more) different thing - can result in embarrassing (and damaging) outcomes
- Other language (context) barriers - technical, legalistic language
- Unintended offenses – culturally inappropriate gestures, ‘un-funny’ jokes
- Biases, stereotypes & discrimination by some people
- ★ Interesting cultural differences
- Cultural diversity - an issue not only “over there” – also, within Canada & its institutions, probably more than anywhere else on earth
- Latin America (greeting with kisses), not as acceptable with middle east
- Caliban (language expectation is different)
- South Korea (have to go out with afternoon co-worker dinner)
- Middle east (weekends are different)
- Europe (business attire, people dress more formally)
- Culture changes over time, norms changes as well
- International business ethics
- Ethical context
- The ethics of our decisions and actions are defined societally, not individually
- Different labour standards
- ★ Child labour: what is a minimal wage to employ someone
- Working conditions, wages, hours/day, age of workers
- If local standards are ‘looser’ than in the home country, whose ethical issues should apply? The host’s or the home’s?
- Businesses have a long track-record of paying what local markets demand – workers in home country don’t like it… is it fair?
- Corruption
- Should a company pay bribes if it is ‘the way things normally get done’ in a foreign location
- Environmental standards
- Should a company act differently with regard to pollution, resource conservation, and environmental protection in a host country than they would at home? (even if the regulations/ standards are looser?
- Global mail test
- Benefits for corporate social responsibility
- Reputation in the host country
- Foreign company will be scrutinized and compared to behavior in home country
- Impossible to hide
- Many citizens & NGOs are concerned about global corporate responsibility
- “Doing good” vs “Doing well”
- Employee benefits – paying wages above the local market,
- Community development - philanthropy; environmental stewardship
- Positive stakeholder relationships for the long-term
- ★ Case studies
- How does Climate Change Affect the Arctic and Canadian International Business?
- Opens more ground, resources, for international trade opportunities
- What Political Issues Does This Present for Russia and Canada?
- New open ground can cause geographic conflict
- Or create cooperation opportunities
- How Does This Affect Canadian International Business and the Economy
- Access to naturally resources, increase GDP
- Shorting transformation routes, increase GDP
- Forced to collaborate with different countries that can affect Canada image
- More investment for potential resources, jobs
- More budge in military to defend new resources
Active Studying §
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