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Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010...
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Transcript of Chapter 2: TRADE IN THE MODERN WORLD Fundamentals of International Business Copyright © 2010...
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
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CHAPTER 2:
Trade in the Modern World
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Key Terms
importing global sourcing exporting value added licensing agreement exclusive distribution rights franchise joint venture foreign subsidiary protectionism trade quotas
trade embargo trade sanctions exchange rate floating rate currency revaluation currency devaluation terms of trade hard currencies soft currencies
currency speculating
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Chapter Objectives
By the time you finish this chapter, you should be able to:
Identify the types of international businesses Describe the impact technology has had on the international
business environment Identify the factors that affect foreign exchange rates Explain how changes in the value of the Canadian dollar can
affect business opportunities Identify the types of products that trade freely into and out of
Canada and those that are restricted in their movement Identify and locate on a map Canada’s major trading partners
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
International Business Practices
Reasons that Canada trades:
Company growth Entry into new markets Expanded customer base Increased profits Access to inexpensive supplies Lower labour costs Access to financing
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Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
International Business Practices
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Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
International Business Practices
Licensing agreementAn agreement that grants permission to a company to use a product, service, brand name, or patent in exchange for a fee or royalty.
Exclusive distribution rightsA form of licensing agreement that grants a company the right to be the only distributor of a product in a specific geographic area or country.
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
International Business Practices
Joint venture
A common type of international business, in which a new company with shared ownership is formed by two businesses, one of which is usually located in the country where the new company is established.
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
International Business Practices
Foreign subsidiaries
Often referred to as a wholly owned subsidiary, a branch of a company that is run as an independent entity in a country outside of the one in which the parent company is located.
The parent company often sets financial targets, and allows the subsidiary to manage its own day-to-day operations as long as those targets are being met.
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Trade Barriers
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Trade Barriers
Protectionism
The theory or practice of shielding domestic industries from foreign competition, often through trade barriers such as tariffs.
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Trade Barriers
Foreign investment restrictions Canadian law with the greatest impact is the
Investments Canada Act Ensures that all foreign investments are reviewed
to determine how they will benefit Canada
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Trade Barriers
Standards Countries have different standards for products in
areas such as environmental protection, voltage, and health and safety
The ISO (International Organization for Standardization) is a network of standardization groups from over 170 countries established to set quality regulations
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Currency Fluctuations
Exchange rate
The amount of one country’s currency in relation to the
currency of another country.
The Canadian dollar (CAD) is most often quoted against the U.S. dollar (USD) because the two countries are the largest trading partners in the world.
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Currency Fluctuations
Currency revaluation
The increase in value of a currency because the demand for that particular currency is greater than the supply.
Currency devaluation
The decrease in value of a currency because the supply of that particular currency is greater than the demand for it.
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Currency Fluctuations
Factors Affecting the Exchange Rate Economic conditions in Canada—inflation rate,
unemployment rate, GDP, interest rates Trading between countries—the more favourable the
terms of trade (comparison of exports to imports), the higher the currency exchange
Politics—political tension and instability or the threat of terrorism decreases the demand for a currency
Psychological factors—historical significance and stability change the way currencies are viewed
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Currency Fluctuations
Currency speculating
Buying, holding, or selling foreign currency in anticipation of its value changing in order to profit from fluctuations in the price of currency.
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Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Time Zones
Time Zones Communication technology allows the world of
international business to operate twenty-four hours a day
Certain methods of communication can be used at any time (email); other methods (telephone) require knowledge of time zones
Some methods offer immediate feedback and interaction; others do not
Chapter 2: TRADE IN THE MODERN WORLD
Fundamentals of International BusinessCopyright © 2010 Thompson Educational Publishing, Inc.
Time Zones
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