AFM131 Lecture Notes - Canadian Dollar, Absolute Advantage, North American Free Trade Agreement
SchoolUniversity of Waterloo
DepartmentAccounting & Financial Management
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Chapter 3 Notes
Competing in Global Markets
Why Trade with Other Nations:
1. No country can produce all the products that its people want and need.
2. Even if a country become self-sufficient, other nations would seek to trade
with that country to meet the needs of its own people.
3. Some countries have an abundance of natural resources and lack of
technological know-how (China) and vice-versa (Japan). (pg 4)
Comparative advantage theory states that a country should sell to other
countries those products that it produces most efficiently and buy from
countries the products it cannot. (pg 5)
Absolute advantage is when a country has the ability to produce a particular
good or service using fewer resources than another country. (pg 5)
Balance of trade is the ratio of exports to imports. A trade deficit occurs
when imports are greater than exports.
Joint Ventures: it is a partnership in which two or more companies (often from
different countries) join to undertake a major project or form a new company.
The benefits of international joint ventures are:
1. Shared technology and risk
2. Shared manufacturing and management expertise
3. Entry into markets where foreign companies are often not allowed unless
goods are produced locally
4. Shared knowledge of the local market, including customs, government
connections, access to local skilled labour and supplies, and awareness of
domestic laws and regulations. (pg 13)
Strategic Alliance: a long-term partnership between two or more companies
established to help each company build competitive market advantages. (pg 14)
A high Canadian dollar value makes it cheaper to buy foreign goods but makes
Canadian products more expensive for foreign nations to buy. (pg 18)
Countertrading is a complex form of bartering in which several countries may
be involved, each trading goods for goods or services for services. (pg 19)
Factors Affecting Global Trade:
Sociocultural Forces: factors like culture and Religion can be barriers to global trade.
For example, languages are different around the world and can be interpreted in
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