definition of business terms

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.

definition of business terms

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