AFM 131 Chapter Summaries (Midterm).doc

10 Pages
Unlock Document

University of Waterloo
Accounting & Financial Management
AFM 131
Bob Sproule

AFM 131 Midterm Chapter 3: competing in global markets Why trade with other nations? - No country can produce all products that people want and need - Even if self-sufficient, other nations seek to trade with country in order to meet needs of own people - Some have abundance of natural resources, lack of technology, vice versa - Enhances quality of life for Canadians and contributes to country’s economic well-being Free Trade – movement of goods and services among nations without political or economic obstruction Comparative advantage – sell to countries products that it produces most effectively and efficiently and buy from countries whose products it cannot produce as effectively.efficiently Absolute advantage – country has monopoly on producing specific product, or able to produce more efficiently than all other countries Balance of trade – nation’s ratio of exports to imports -> favorable = exports exceeds imports (surplus), opposite = deficit Balance of payments – difference between money coming into country (exports) and money leaving (imports) plus money flows from other factors (tourism, foreign aid, military expenditures, foreign investment, etc), goal = more money flowing in Strategies for reaching global markets Exporting Licensing – a firm allows foreign company to produce its product in exchange for a fee - Spends little or no money to produce and market products - Gain additional revenues from product it would not have generated in home market - Licensees must purchase supplies, component materials, consulting services – from licensing firm Franchising – someone with good idea for business sells rights to use business name and sell a product or service to others in given territory Contract manufacturing – foreign country’s production of private-label goods to which a domestic company attaches its brand name or trademark (outsourcing) Joint venture – partnership in which two or more companies undertake major project to form new company - Benefits: shared technology and risk, shared marketing and management expertise, entry into markets where foreign companies are not allowed unless goods produced locally, shared knowledge of local market - Disadvantages – one partner learn other’s technology and uses what it has learned, shared technology become obsolete - Strategic alliance – long-term partnership between two or more companies to help each company build competitive market advantages Foreign Direct Investment – buying of permanent property and businesses in foreign nations - Foreign subsidiary – company owned in a foreign country by another company Trade protectionism- use of government regulations to limit import of goods and services Dumping – selling products in foreign country at lower prices than those charged in producing country Import quota – limits number of products in a certain category that a nation can import Embargo – complete ban on import/ export of certain product Chapter 4: Role of government in business Government activities affecting business – crown corporations, laws and regulations, taxation and financial policies, government expenditures, purchasing policies, and services National policy – placed high tariffs on imports from U.S. to protect Canadian manufacturing, which had higher costs (NAFTA eliminated this) Crown operations - companies owned by federal or provincial governments - Provided service that were not being provided by businesses (air Canada) - Bail out a major industry in trouble (ex. Canadian national railway) - Provide special service that could not otherwise be made available Minor revolution – disposal of government assets and companies - Privatization – process of governments selling crown corporations - Regulated industries became deregulated (partial or complete) - Looking for ways to lower costs and improve efficiencies - Reduce role of government in economy Federal government – responsible for trade regulations, incorporation of federal companies, taxation, banking/monetary system, national defence, unemployment, immigration, criminal law, fisheries Provincial government – regulation of provincial trade and commerce, natural resources within their boundaries, direct taxation for provincial purposes, incorporation of provincial companies, licensing for revenue purposes, administration of justice, health and social services, municipal affairs, property law, labour law, education - Health care reform - provinces implement health care policies set by federal - Free trade between provinces Municipal government – defined by province in which they operate - Role in consumer protection Taxation and financial policies - Tax is source of funding for government operations and programs, encouraging/ discouraging taxpayers (ex. taxation on cigarettes) - Encourage business to hire new employees or purchase new equipment by offering tax credit - Taxes taken from – income, sales, property - Key issue: internet taxation i.e. taxing internet transactions) fiscal policy – federal government’s effort to keep economy stable by increasing/decreasing taxes or government spending - High tax slows economy, draw money away from private sector - Government spends over taxes gathered = deficit - Decrease government spending? - Lower debt = less money need to go to paying national debt - Reduce government spending on interest charges = government spend more money on social program = lower taxes Monetary policy – management of money supply and interest rates - Controlled by bank of Canada - Economy booming = raise interest rates to control inflation, money more expensive to borrow - More money supply available, faster economy grows Transfer payments - direct payments from governments to other governments/individuals (i.e. elderly benefits, employment insurance) = social security, income support Equalization – reduce fiscal disparities among provinces Marketing boards – control supply or pricing of certain agricultural products Chapter 6: Forms of Business Ownership Liability – responsibility to pay for all normal debts and pay because of court order, law, performance under contract, damages to person/property Sole proprietorship – business owned, managed by one person - Advantages: ease of starting/ending business, be your own boss, pride of ownership, leave legacy, retention of company profict, no special taxes - Disadvantages: unlimited liability (risk of personal losses), limited financial resources, management difficulties, overwhelming time commitment, few fringe benefits, limited growth/lifespan Partnerships – legal form of business with two or more owners - General – all owners share in operating business and in assuming liability for business’s debts - Limited – one or more general partners and one or more limited partners o General partner – unlimited liability and is active in managing firm o Limited partner – invests money in business, but doesn’t have management responsibility/ liability beyond investment - Advantages: more financial resources, shared management and pooled skills/knowledge, longer survival, shared risk, no special taxes - Disadvantages: unlimited liability, division of profits, disagreements among partners, difficult to terminate Corporations – legal entity with authority to act and have liability separate from its owners - Public – right to issue stock to public - Private – not allowed to issue stock, limited to 50 or fewer stockholders o Advant
More Less

Related notes for AFM 131

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.