UNIT 1: INTERNATIONAL TRADE

I. Vocabulary
1. Trade in goods: visible trade (GB) or merchandise trade (US)
2. Trade in services (banking, insurance, tourism, and so on): invisible imports and exports
3. Direct exchanges of goods, without the use of money: alter or counter-trade
4. The difference between what a country receives and pays for its exports and imports of
goods: balance of payments
5. The difference between a country’s total earnings from exports and its total expenditure
on imports: balance of trade
6. The (impossible) situation in which a country is completely self – sufficient and has no
foreign trade: autarky
7. A positive balance of trade or payments: surplus
8. A negative balance of trade or payments: deficit
9. Selling goods abroad at (or below) cost price: dumping
10. Imposing trade barriers in order to restrict imports: protectionism
11. Taxes charged on imports: tariffs
12. Quantitative limits on the import of particular products or commodities: quotas.
1. Why do most economists oppose protectionism?
- Because they think protectionism would prevent countries from raisin their living
standard and income.
2. Why do most governments impose import tariffs and/or quotas?
- Improve balance of trade/payment
- Competing with foreign companies
- Protect strategy industries and infant industries
- Reduce a balance of payment deficit
- Protect against dumping
3. Why were many developing countries for a long time opposed to GATT?
- Because they would industrialize in order to counteract what they saw as a inevitable
fall in commodities pace and to protect the infant industries.
4. Why have many developing countries recently reduced protectionism and increased
their international trade?
- Because of IMF pressure on the obligation to export as much as possible and export
leads to growth.
1. What are factors which help countries have an absolute or a comparative
advantage in producing goods?
 Factors of production, most importantly raw materials, but also labor and capital,
climate, economies of scales, and so on.
2. Why does the theory of comparative advantage seem not to explain the
international trade?
 Because it doesn’t explain why the majority of the exports of advanced industrialized
country go to other very similar countries.
3. What is infant industries?
 A recently developed one that has not yet grown to the point where it benefits from
economies of scale, and can be internationally completive.
4. What is the advantage of tariff for government?
 Unlike quotas, they produce revenue.
5. What are the advantages of quotas in quantity of goods?
 Unlike tariffs, you know the maximum quantity of goods that will be imported
4. Give a definition of the net barter terms of trade.
- The commodity, or net barter, terms of trade are the ratio of the unit price of export to
the unit price of import and the deterioration in the index implies that a given volume of
exports is exchanged for a smaller volume of imports.

UNIT 2: FOREIGN DIRECT INVESTMENT

1. Define foreign portfolio investment. How does it differ from foreign direct investment?
 Foreign Portfolio Investment (FPI) is the purchase of shares andlong-term debt
obligations form a foreign entity. Portfolio investor do not aim to take control of a
corporation. They can liquidate their investment at market value anytime.
Compared with FDI:
Foreign Direct Investment (FDI) is the establishment of a plant or distribution
network abroad. Investors can acquire part or all of the equity of an existing foreign
corporation either to control or share control over sales, production, and research and
development.
2. Foreign direct investment decisions are normally based on clear business strategies.
Name at least three categories that companies are looking for.
 The categories are: raw materials, markets, product efficiency, know-how,...
3. Give some examples of investment incentives. What are they supposed to achieve?
 Examples of investment incentives are: cash grants, lower taxes, accelerated
depreciation, training allowance,... They are supposed to attract foreign investment.
4. What is non-exclusive distributor called? What does this mean?
 It is called multiple-distributor, which means a sales agent who represents for more than
one manufacturer.
5. What are royalty payments?
 It is payment made by a foreign manufacturer to a company that has licensed the
manufacturer to produce its products.
6. Define joint venture.
 It is a subsidiary formed by more than one corporation.
1. When foreign direct investors acquire a company, what do they normally seek to
control?
 They normally seek to control over production, R&D, sales,...
2. In considering foreign investment, what is an MNC’s first strategic objective?
 Their first strategic objective is the market for its present or future products. In addition,
they are also raw materials, product efficiency and know-how.
3. What are some financial considerations in making a foreign direct investment?
 They are: interest rates, cash flow projection, sources of working capital ...
4. When is a foreign project said to be viable? What is a nonviable project?
 A foreign project is said to be viable when it has a availably reliable access to outside
financing, while a non-viable project has a lower rate of return compared to the project
in the host country.
5. Name two kinds of legislation that foreign investor study closely prior to making an
investment?
 They are: antitrust legislation and labor laws.
6. Why are investment incentives highest in a depressed area?
 Because these areas need to attract foreign investment to solve the problems like low-
income and living standard or unemployment.
7. When a corporation starts to export for the first time, how will it organize its sales?
 It will usually engage distributors who receive a commission on products sold.
8. What is a drawback of licensing or authorizing foreign distribution?
 The drawback of licensing or authorizing foreign distribution is that manufacturer gives
up the control over their product so if licensed product lacks quality, the exporter’s
reputation suffers.
9. If a company does not want complete manufacturing responsibility for a foreign market, what
ownership possibility remains?
 It isthe original manufacturer gives up control over the product so if licensed product
lacks quality, the exporter’s reputation suffers.

UNIT 3: FOREIGN EXCHANGE TRADING

2. Explain how the gold standard represented the beginning of a foreign exchange system.
 The value of currencies could, on request of the owner, be converted into gold at a
country’s central bank.
3. Name three functions of a country’s central bank. Who owns it?
 Three functions are: regulating the commercial banks; holding gold and foreign currency
reserves; intervening actively by buying and selling its own currency. Government owns
it.
4. Under a floating exchange rate system, what normally determined the value of
currencies?
 Supply and Demand determined the value of currencies.
5. Under what circumstances is an exchange rate system fixed?
 Buying the currency when it reaches its low point.
Selling the currency when it reaches its high point.
6. What is a spot transaction? When does delivery take place?
 Spot transaction is the currency bought or sold today with delivery two business days
later.
10. What is involved in arbitraging? How many markets are entered?
 Arbitraging is the transfer of funds from one currency to another to benefit from
currency differentials or disparities in interest rates. In arbitraging, at least two markets
are entered.
II. Reading
1. Name a payment mechanism used in earlier times. What was it later replaced by?
 Gold standared – after that was replaced by Breton Wood Systems.
2. Briefly describe the importance of the gold standard.
 Determining the value of all currencies based on gold.
10. What is the function of a foreign exchange broker?
 Acting for a client (customer) vis – a – vis the bank.
11. Name at least five active participants in the foreign exchange market.
 Tourists, investors, exporters, importer, governments...
12. Briefly describe spot and forward transactions. Give an example of each.

 Spot transaction in a transaction when currency is bought or sold today with delivery
two business days later.E.g: a French father transfer money to his son in New York.
Forwarding Transaction means buying or selling a currency in the future with payment
and delivery at that future date. E.g:Japanese exports on Toyota cars to the US from the
SC that they will receive a specified US dollar amount in 6 months.
16. An open position is either long or short. Describe both types.
 Long – open positon is when a tracker buy currency forward without selling it forward at
the same time. Short – open positionis when a trader sell currency forward at the same
time.
17. What is the difference between a bid and an offer.
 A bid is the price dealers will pay to acquire pounds (buying) while an offer is the price
they will sell the pounds for (sell price).
18. What is arbitrage? Is this usually a very profitable transaction for a bank?
 Arbitrage is the practice of transfering funds from one currency to another to benefit
from rate differentials.
19. Give an example of interest arbitrage. In which case is interest arbitrage not
possible?
 If Internet rates in England are 2 % higher than in the US money market and a US
investor would dowell to change USD into pounds sterling at the English interest rate in
present of foreign exchange regulation.
UNIT 4: PAYMENT IN INTERNATIONAL TRADE

1. Invoice: Lists of goods sold as a request for payment.

2. Clean collection: Payment by bill of exchange to which documents are not attached.
3. Documentary collection: Payment by bill of exchange to which commercial documents
(and sometimes a document of title) are attached.
4. Bill of exchange: Signed document that orders a person or organization to pay a fixed
sum of money on demand or on a specified date.
5. Bill of lading: Document that shows details of goods being transported; it entitles the
receiver to collect the goods on arrival.
6. Document of title: Document allowing someone to claim ownership of goods.
7. Issuing bank: Bank that issues a letter of credit (i.e. the importer’s bank).
8. Collecting bank: Bank that receives payment of bills, etc. for their customer’s account (i.e.
the exporter’s bank).
9. Confirming bank: Bank that confirms they will pay the exporter on evidence of shipment
of goods.
10. Letter of credit: Method of financing overseas trade where payment is made by a bank
in return for delivery of commercial documents, provided that the terms and conditions
of the contract are met
1. What are some of the risks involved in trading internationally?
 They are: non-payment, late payment, late delivery, wrong documents ...
2. What payment methods do you know that are used when exporting or importing goods?
 There are 4 methods: open account, documentary credit, documentary collection and advanced
payment.
1. Open account: c, b, d
2. Documentary: a, d, g
3. Bills for collection: b, c, d, f
4. Advance: f
a) Exporters must comply with the conditions of the credit documents.
b) Importers may delay payment.
c) Importers may not pay at all.
d) It takes a long time to process payment in some countries.
e) Importers may not accept the bill of exchange.
f) Bank charges may be high.
g) Exporters must take care to present the correct documents.
UNIT 5: MARKETING

I. Vocabulary
Match the terms with their definition.
1. Distribution channel: All the companies or individuals involved in moving a particular
good or service from the producer to the consumer.
2. To launch a product: To introduce a new product onto the market.
3. Market opportunities: Possibilities of filling unsatisfied needs in sectors in which a
company can profitably produce goods or services.
4. Market research: Collecting, analyzing and reporting data relevant to a specific market
situation (such as a proposed new product).
5. Market segmentation: Dividing a market into instinct group of buyers who have different
requirements or buying habit.
6. Packaging: Wrappers and containers in which product are sold.
7. Point of sale: Places where goods are sold to the public – shops, stores, kiosks, market,
stalls, etc.
8. Product concept: An idea for a new product, which is tested with target consumers
before the actual product is developed.
9. Product feature: Attributes or characteristics of a product: quality, price, reliability, etc.
10. Sales representative: Someone who contacts existing and potential customers and
tries to persuade them to buy goods or services.
UNIT 6: TRANSPORT

I. Vocabulary
1. Group-age: Packing together more than one consignment.
2. Barges: Barge-type boat.
3. Bulk: Loose, unpackaged cargo.
4. Canal: Man-made waterway.
5. Navigable: Allowing the passage of ships.
6. Lighter: Flat-bottomed freight boat for shallow waters.
2. What are some of the advantages and disadvantages of air transport?
- Advantages: high speed, low risk, cheaper insurance.
- Disadvantages: costly, limited in quantity.
3. Why do some buyers prefer FOB terms?
- Because they have the option of handling the transport themselves or instructing an
agent to arrange things on their behalf.
4. What is:
a) Ro-Ro ship?
- It is a big vessel designed to carry bulky goods.
b) Ra-Ra ship?
- It is a special ferry that can take railway wagon by sea for part of the journey.
c) A LASH ship?
- It is a specially designed barge-carrying ship.
UNIT 8: MULTINATIONAL CORPORATIONS

1. What is a multinational corporation?

- It is a corporation controlling production and marketing system in several countries
besides its own.
2. In what aspect does a transnational corporation differ from an MNC?
- Nations of the country of origin no longer dominate as in the multinational corporation.
3. What is the importance of innovation for a company?
- Innovation is an important ingredient for a company is growth in sale and profit.
4. What determines whether a company is referred to as subsidiary or an affiliate?
- A corporation in which over 50% the capital belongs to a multinational corporation is
subsidiary. If less than 50%, it is called affiliate.
5. Name three important resources available to corporation.

- Raw materials
- Man power
- Capital
6. What two structures do MNCs use to communicate with their oversea companies?
- International Division Structure
- Global Structure
7. What is the difference between decentralization and centralization?
- Decentralization: a system in which foreign subsidiaries have a significant voice in
making crucial decisions.
- Centralization: a system whereby a parent company retains decision-making power,
maintains direct and tight control over subsidiaries, and establishes nearly all policies.