international monetary system
Institutional arrangements countries adopt to govern exchange rates.
floating exchange rate
A system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand
dirty-float system
A system under which a country's currency is nominally allowed to float freely against other currencies but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value
fixed exchange rate
A system under which the exchange rate for converting one currency into another is fixed
European Monetary System (EMS)
EU system designed to create a zone of monetary stability in Europe, control inflation, and coordinate exchange rate policies of EU countries.
gold standard
The practice of pegging currencies to gold and guaranteeing convertibility
gold par value
The amount of currency needed to purchase one ounce of gold
balance-of-trade equilibrium
Reached when the income a nation's residents earn from exports equals money paid for imports
managed-float system
System under which some currencies are allowed to float freely, but the majority are either managed by government intervention or pegged to another currency.
currency board
Means of controlling a country's currency
currency crisis
Occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defen
banking crisis
A loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits
foreign debt crisis
Situation in which a country cannot service its foreign debt obligations, whether private-sector or government debt
moral hazard
Arises when people behave recklessly because they know they will be saved if things go wrong
timing of entry
Entry is early when a firm enters a foreign market before other foreign firms and late when a firm enters after other international businesses have established themselves
first-mover advantages
accruing to the first to enter a market
first-mover disadvantages
associated with entering a foreign market before other international businesses
pioneering costs
Costs an early entrant bears that later entrants avoid, such as the time and effort in learning the rules, failure due to ignorance, and the liability of being a foreigner
exporting
Sale of products produced in one country to residents of another country
turnkey project
A project in which a firm agrees to set up an operating plant for a foreign client and hand over the "key" when the plant is fully operational
licensing agreement
Arrangement in which a licensor grants the rights to intangible property to a licensee for a specified period and receives a royalty fee in return
franchising
A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business
joint venture
A cooperative undertaking between two or more firms
wholly owned subsidiary
A subsidiary in which the firm owns 100 percent of the stock
MITI
Japan's Ministry of International Trade and Industry
sogo shosha
Japanese trading companies; a key part of the keiretsu, the large Japanese industrial groups
export management company (EMC)
Export specialist that acts as an export marketing department for client firms
letter of credit
Issued by a bank, indicating that the bank will make payments under specific circumstances
bill of exchange
An order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time
draft
An order written by an exporter telling an importer what and when to pay
sight draft
A draft payable on presentation to the drawee
time draft
A promise to pay by the accepting party at some future date
bill of lading
A document issued to an exporter by a common carrier transporting merchandise. It serves as a receipt, a contract, and a document of title
Export-Import Bank (Ex-Im Bank)
Agency of the U.S. government whose mission is to provide aid in financing and facilitate exports and imports
countertrade
The trade of goods and services for other goods and services
barter
The direct exchange of goods or services between two parties without a cash transaction
counterpurchase
A reciprocal buying agreement
offset
Agreement to purchase goods and services with a specified percentage of proceeds from an original sale in that country from any firm in the country
switch trading
Use of a specialized third-party trading house in a countertrade arrangement
buyback
Agreement to accept a percentage of a plant's output as payment for contract to build a plant