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C211 International Trade & Foreign Exchange Market

Key Concepts:

Terms in this set (20)

Classical Theory of International Trade
Mercantilism, Absolute Advantage, Comparative Advantage
Dynamic
How is the modern theory view classified?
Static
How is the Classical Theory View Classified?
Absolute Advantage
The economic advantage one nation enjoys that is superior to other nations
Comparative Advantage
The advantage one economic activity nation enjoys in comparison with other nations (relative, not absolute)
Mercantilism
A theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer.
New, Maturing, and Standardized
What are the critical features of the product life cycle?
Strategic trade
Intervention by governments in certain industries can enhance their odds for international success
Supply and Demand Relation to Exchange Rate
The price of a commodity, a country's currency, is fundamentally determined by this. Strong demand leads to price hikes; oversupply results in price drops. The price of a commodity, a country's currency, is fundamentally determined by this. Strong demand leads to price hikes; oversupply results in price drops.
Mercantilism
Which theory came first, mercantilism or modern-day protectionism? (although both are of the idea that governments should actively protect domestic industries from imports and vigorously promote exports)
Transaction Risk
The exchange rate risk associated with the time delay between entering into a contract and settling it.
Forward Transactions (Currency Hedging)
If a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this?
Hedging
a transaction, such as forward transactions, that protects traders and investors from exposure to the fluctuations of the spot rate.
Currency Hedging
A way to protect traders and investors from being exposed to the fluctuations of the spot rate
Strategic Hedging
A means of spreading out activities in different currency zones in order to offset the currency losses in certain regions through gains in other regions (currency diversification)
First mover advantages
Proprietary, technological leadership, pre-emption of scarce resources, establishment of entry barriers to late entrants, avoidance of clash with dominant firms at home, relationships with key stakeholders, (such as governments.)
Late Mover Advantages
Opportunity to free ride on first-mover investments, Resolution of technological and market uncertainty, First mover's difficulty to adapt to market changes.)
Equity and Non-Equity
What are the foreign market entry types?
Non-equity
Reflects relatively smaller commitments to overseas markets. Determines firms MNE status.
Equity
indicative of relatively larger, harder-to-reverse commitments. Determines firms MNE status.
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