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RSM100Y1 (431)
Chapter 4

RSM100 Chapter 4 Competing in World Markets

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Rotman Commerce
Khan, Michael

RSM100-­‐John_Oesch-­‐textbook_notes-­‐created-­‐by-­‐lavender.y   Chapter  4  Competing  in  World  Markets   4.1  Importance  of  international  business     • Increase  economic  growth  by  providing   ü New  market  for  products   ü Access  to  needed  resources     • Benefit  from  factors  of  production  of  the  other  country   ü Availability,  price,  quality  of  labor,  natural  resource,  capital,  entrepreneurship   • Spread  risk     ü Because   different   nations   at   different   stages   of   business   cycle   /   phases   of   development   • Benefit  from  the  size  of  International  marketplace   ü Developing  countries  have  lower  per-­‐capita,  but  growing  population  (e.g.  China,   India)     • Absolute  and  Comparative  Advantage     4.2  How  nation  measure  trade  &  Significance  of  exchange  rates   • Balance  of  trade   ü Difference  between  exports  and  imports   ü Trade  surplus  -­‐-­‐-­‐  export  >  imports   ü Trade  deficit  -­‐-­‐-­‐  export  <  imports     • Balance  of  payment   ü Overall  money  flows  into  and  out  of  a  country  (inflows  -­‐  outflows)   ü Balance-­‐of-­‐payments  surplus  -­‐-­‐-­‐  positive,  more  money  moved  into  a  country   ü Balance-­‐of-­‐payment  deficit  -­‐-­‐-­‐  negative,  more  money  has  gone  out  of  the  country   ü Affected  by  overseas  loans,  international  investments,  foreign  aid  payment   • Canadian  exports  &  imports   ü Top  exports:  industrial  goods/materials,  energy  products,  machinery/equipment   ü Top  imports:  machinery  /  equipment,  industrial  goods,  automobile       • Exchange  rates   ü Value  of  one  country’s  currency  in  terms  of  the  currencies  of  other  countries   ü Factors:   economic   /   political   conditions,   actions   by   the   central   bank,   balance-­‐of-­‐payments  position,  speculation  over  future  values   ü Floating  exchange  rates  -­‐-­‐-­‐  limited  freedom   ü Devaluation:     Ø Reduction  in  a  currency  value  in  terms  of  other  currencies  /  a  fixed  standard   Ø To  increase  exports  /  encourage  foreign  investments   Ø E.g.  Brazil   ü Hard  currencies:  easy  to  convert  into  other  currencies  (e.g.  euro,  $)   ü Soft  currencies:  cannot  be  converted  easily  (e.g.  central  European  currencies)   ü Foreign  currency  market   Ø Largest  financial  market  in  the  world   RSM100-­‐John_Oesch-­‐textbook_notes-­‐created-­‐by-­‐lavender.y   Ø Most  liquid,  efficient  financial  market     4.3  Major  barriers  that  confront  global  business   • Social  /  cultural  barriers:  language,  values,  religious  attitudes   • Economic  barriers:  currency  shifts   ü Infrastructure  -­‐-­‐-­‐  basic  system  of  a  country’s  communication,  transportation  /   energy  facilities   • Legal  /  political  barriers:     ü International  regulations   ü Trade  restrictions   Ø Tariffs  -­‐-­‐-­‐  taxes,  surcharges  and  duties  on  foreign  products   ² Revenue  tariff   ² Protective  tariff  -­‐-­‐-­‐  to  match  the  price  of  similar  domestic  products   Ø Quotas   ² Limit  set  on  the  amount  of  particular  products  imported     ² Help   prevent   dumping   (selling   products   in   other   countries   at   prices   below   production   costs   to   capture   market   share   from   domestic   co
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