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Possible Final Exam Questions .docx

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1An MBA student tells a B Comm student you with so many bilateral and regional trade agreements the world effectively has DOHA So we do not need to worry about DOHA anymore What do you tell him Bilateral trade agreements BTAs the exchange of goods between two countries Bilateral trade agreements give preference to certain countries in investments between the home country and the foreign country by reducing or eliminating tariffs import quotas export restraints and other trade barriers Bilateral trade agreements can also help minimize trade deficits Regional Trade agreements RTAs Agreements between groups of countries to trade with each other more freely than with the world in general Two or more countries DOHA Conference held in Doha Qatar by WTO to find a solution to antidumping actions trade in agricultural products and better enforcement of intellectual property rights BTAs and RTAs are beneficial for the parties involved since they provide liberation from tariffs policies etc countries can trade and invest greater amounts in each other BTAs and RTAs may not be beneficial for the entire global economy as they take away from the potential of the global economy The global market doesnt control the flow of investments or trade the agreements doThis leads to conflicts with developing countries and developed countries This is where we see issues with problems with dumping agriculture and property rightsGOAL OF DOHA IS TO MAKE A UNIFIED GLOBAL ECONOMY FOR DEVELOPING AND DEVELOPED COUNTRIES THEREFORE WE SHOULD TELL HIM THAT WE NEED DOHA TO CONTINUE2The Purchasing Power Parity Theory predicts that prices for goods should be much the same between countries after adjusting for the exchange rates But the evidence suggests that is no so Explain why Purchasing power parity theory predicts that prices for good should be the same after adjusting for exchange rates if the law of one price applies The law of one price states that in competitive markets free of transportation costs and barriers to trade identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency This application of the PPP theory only applies if it is an efficient market a market with no impediments to the free flow of goods and services Empirical tests have been done and provide evidence to show that the PPP does not predict exchange rates accurately The theory assumes away transportation cost and barriers to trade which in practice create significant price differences Further PPP theory may not hold if many national markets are dominated by a handful of multinational enterprises that have market power to control distribution channels influence price and differentiate their product offerings between nations Another factor that affects PPP theory is government intervention Governments intervene in the foreign exchange market to attempt to influence the value of their currencies which weakens the link between price changes and changes in the exchange rates 3Foreign Direct Investment can take different forms Describe them and explain the advantages and disadvantages of each What is FDI Foreign Direct Investment An investment that gives the investor a controlling interest in a foreign company FDI is the acquisition or construction of physical capital by a firm from one source country in another host country Forms of FDIAcquisitionsMultinational Enterprise a firm that owns business operations in more than one country Acquisition of or merger with an existing local firmProsIQuicker than Greenfield to acquire Since markets evolve rapidly if they dont get it someone else willIIMore profits and control than licensing IIILess risky to acquire those assets rather than build it because Firms have valuable strategic assets such as brand loyalty customer relationships patents distribution systems IVIncreased efficiency of acquired unit by transferring capital technology or management skillsConsILabour cost is highIIAcquiring costs are high due to premium on purchasing existing companyIIIClash between corporate cultures
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