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Terms
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- Indirect Quotation:
- Foreign exchange quotation that specifies the units of foreign currency that could be purchase with one unit of the home currency.
- Cross rates:
- The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in.
- What is a spot foreign currency transaction?
- A spot transaction is the exchange of currencies for immediate delivery (2 days later)
- In what cities are the majority of foreign exchange transactions conducted?
- New York, London, Tokyo
- What is purchasing power parity?
- The theory that the price of internationally traded commodities should be the same in every country, and hence the exchange rate between the two currencies of those countries should be the rato of prices in the two countries.
- IMF
- A specialized agency of the United Nations established in 1944 for dealing with the balance of payment problems; the first international monetary authority with at least some degree of power over national authorities.
- World Bank
- An international financial institution created to facilitate trade.
- What has caused the enormous growth in foreign currency trading?
- deregulation of international capital slows, world is risky (exchange rate fluctuations), gains in technology and transaction efficiency
- What is direct intervention?
- The process governments used int eh 1970s if they wished to alter the current value of their currency. It was done by simply buying or selling their own currency in the market using their reserves of other major currencies.
- What is a Eurocurrency?
- Eurocurrency: A bank deposit in a currency other than the currency of the country where the bank is located. (Not confined to banks in Europe)
- What is required to calculate a forward exchange rate?
- Future date, and a future rate
- What is an ADR?
- an American depositary receipt (ADR) is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. ADRs are bought and sold on American markets just like regular stocks, and are issued/sponsored in the U
- What is a letter of credit?
- Undertaking by a bank to make a payment to a seller upon completion of a set of agreed-on conditions.
- What documents customarily accompany an international shipment?
- Letter of credit Assurance from the customer bank that the person is able to pay Bill of lading says that its on the carrier Draft- Request for payment Commercial invoice- customs clearance and invoice, packing list, certification of insurance
- What are typical problems that may arise from operating in a foreign country? Changes in foreign tax laws
- Restrictions placed on when or how much in profits may be repatriated to the parent Other types of restrictions that hinder free movement of merchandise and capital.
- What are transfer prices?
- Transfer prices the prices at which a firm sells its products to its own subsidiaries and affiliates.
- What are methods for managing cash flows within a multinational firm?
- Netting- Cash flow co-ordination between global units so only one smaller cash transfer must be made. Cash pooling Central pool to pay cash flows, resulting in less spending or forgone interest on unnecessary cash balances. Lead and Lags - Payin
- Transaction exposure:
- Transaction exposure: The potential for currency losses or gains during the time when a firm completes a transaction denominated in a foreign currency.
- Translation exposure:
- Translation exposure: The potential effect of a change in currency values on a firms financial statements.
- Economic exposure:
- Economic exposure: The potential change in the value of a firm from unexpected changes in exchange rates. Also called operating exposure and strategic exposure
- What are the proactive motivations to enter foreign markets?
- Proactive: Profit advantage, unique products, technological advantage, Exclusive information, tax benefit, economies of scale
- What are the reactive motivations to enter foreign markets?
- Reactive: Competitive pressures, overproduction, declining domestic sales, excess capacity, saturated domestic markets, proximity to customer and ports.
- What is psychological distance?
- Perception of how similar the cultures are. US-Canada, vs, US- Mexico
- What are typical international entry and expansion strategies?
- International Entry: exporting and importing, licensing and franchising. Expansion: local presence, or FDI (contracts, equity participation, JVs FDI)
- In what ways do trade intermediaries offer assistance?
- Trade intermediaries: Know foreign market competitive conditions Has personal contacts with potential foreign buyers Calculates credit risk associated with foreign buyers Has sales staff to call on current foreign customers in person Assumes resp
- What are the various types of trade intermediaries?
- Export management companies, and trading companies
- What are the critical issues in a licensing agreement?
- does not guarantee future expansion, pirating and copycatting, collecting payment, may create its own competitive product for its own market and export markets, difficulty tracking sales
- What are the major phases in the movement of materials?
- 1. materials management (timely movement of raw materials and parts) 2. physical distribution (movement of finished products)
- What is the most basic goal of logistics management?
- Preserving the overall performance of the supply chain.
- Logistics costs comprise how much of the total landed cost of an international order?
- 10-30% of total landed cost of an international order.
- When choosing a transportation mode what must the international manager consider?
- The decision will be heavily influenced by the need so f the firma and its customers. The performance of each mode on four dimension: time, predictability, cost, and noneconomic factors.
- Which items are most likely to be shipped by air?
- Products which have: High density, perishable, or if for other reasons it requires short transit time.
- What are INCOTERMS? What does each of the terms require?
- International Commerce Terms Widely accepted terms used in quoting export prices.
- What are the functions of freight forwarders?
- Specialists in handling international transportation by contracting with carriers on behalf of shippers.
- What is JIT inventory?
- Materials scheduled to arrive precisely when they are needed on a production assembly line.
- What factors should be considered in determining international service levels?
- Past performance, product desirability, customer sophistication, and competitive status of the firm.
- What is a foreign trade zone (FTZ)?
- Special areas where foreign goods may be held or processed without incurring duties and taxes.
- What are the considerations regarding centrally controlled or localized control of logistics?
- diverse markets/product adaptation each area its own profit making, objective/important/alternative view for centralized person
- What is reverse distribution?
- A system responding to the need for product returns that ensures a firm can retrieve a product from the market for subsequent use, recycling or disposal.
- What determines the organizational structure and locus of decision making in a multinational corporation?
- 1. degree of involvement in international operations 2. products the firm markets 3. the size and importance of the firm's markets 4. the human resource capability of the firm
- What is an export department?
- department of the corporation responsible for exporting products in early stages of globalization may be subset of marketing
- What is an international division?
- after export department separate division of company to serve international with concentrated expertise used more in US than Euro
- What is a matrix structure?
- An organizational structure that uses functional and divisional structures simultaneously
- What does the term glocal mean?
- interplay of local-regional-global interactions; think globally act locally
- What are output controls?
- Output controls - balance sheets, sales data, production data, product-line growth, and performance reviews to make output easy to measure and review
- Behavior controls?
- Behavior controls - organizational control to exert influence over behavior (qualitative) such as trianing manuals, efforts to fit employees into corporate culture
- To attain the two major objectives of human resource management, organizations must have what skills and activities?
- objectives: recruitment/retention and increased effectiveness, skills needed: personnel planning/staffing, personnel training, compensation, understanding of labor-management relations
- Home country nationals:
- Home country nationals: expatriates, people from home country working in foreign country, used for high tech
- Third country nationals:
- Third country nationals: people from other country working in foreign country (cheaper)
- Host country nationals:
- Host country nationals: people from foreign country working in foreign country
- What are the adaptability criteria for selecting managers for overseas assignments?
- interest in overseas work, relational abilities, cultural empathy, appreciation of new management styles, appreciation of enviro constraints, adaptability of family
- What are the phases of culture shock?
- initial euphoria, irritation and hostility, adjustment, and reentry
- What are the various elements considered in determining expatriate compensation?
- cost of living adjustment, housing allowance, education allowance, home-leave allowance, moving allowance, repatriation allowance, exchange rate adjustment, company car