Final Exma Review

1. Debt service ratio The amount of interest & principal on foreign loan / total exports If the ratio > 30% indicates the economy of the country has trouble.

2. 4 Ps of marketing Product, Pricing, Place, Promotion

3. Bill of Landing A document issued by a common carrier about the details of the product.

4. Letter of credit A document issued by a bank that guarantees the payment, for a specified time period, of a customer's drafts up to a stated amount.

5. GDP & GNP GDP (Gross Domestic Product) is the total value of goods and services produced within the country in one year. GNP (Gross National Product) equals GDP plus net factor incomes.

6. Political Risks defined as infects of government action, or politically ... e.g. 1. without any compensation, do the confiscation or expropriation. nationalize 2. restriction, e.g. export all of your products. Reduce political risk: buy insurance obey the local law and be a good citizen

7. International Product Life-Cycle (1) New product is innovated and produced in the home country. All demand is met by exporting. (2) Foreign production begins. (3) Competition occurs in the export market. (4) Competition occurs in the home country.

8. International Term of Trade Term-of-Trade = % change in price of Export / % change in price of Import Term-of-Trade of a country >= 1 indicates an economic problem in this country.

9. Levels of International Integration (1) Free Trade Area Goods and services are moved freely inside the area. e.g. EFTA (2) Custom Union Same import/export tariffs e.g. Andean Pact between Bolivia, Colombia, Ecuador and Pero (3) Common Market Factors of production are moved freely among the member countries. e.g. MERCOSUR (4) Economic Union Same monetary policy and fiscal policy. e.g. EU (5) Political Union Same economic, social and foreign policy. EU is forwarding to this level.

10. Spot Foreign Exchange Rate and Forward Foreign Exchange Rate Spot foreign exchange rate is the price of one unit of a foreign currency for immediate delivery. Forward foreign exchange rate is the price of one unit of a foreign currency for delivery at a certain time in the future. Forward premium = (FER - SPR) / SPR Forward discount Arbitrage Converted interest arbitrage NOT ALL CURRENCY HAVE FORWARD EXCHANGE RATE: Canada, Japan, Switzerland, U.K.

11. Balance-of-Payments account Balance-of-payments is a very important document that records all transition between all resident of the country and the rest of the world. Current Account: (1) Trade account: goods import/export (2) Service account: traveling, consultant (3) unilateral account: government helps other countries Capital and financial account: borrowing, lending, FDI, FPI Official reserve account = Current Account + Capital & financial account Components of International Reserves: (1) gold (2) convertible foreign currency (3) SDR - Special Drawing Rights (4) Position in IMF Balance-of-payments measures flows Total international reserves measures stock

12. How exchange rates are determined? Fixed exchange rate system: (1) Gold standard (2) Bretton Woods (US $) Flexible exchange rate system: US(Dollar), UK(Pound), Japanese(Yen), European(Euro) Managed Exchange rate system: China, Korea, Indonesia Pegged Exchange rate system: Hong Kong, Singapore

13. How to forecast exchange rates? 1. PPP - Purchasing Power Parity theory: lower inflation will appreciate 2. International Fisher Effect theory: higher interest will depreciate

8. Price elasticity Price elasticity = (delta Q / Q) / (delta P / P) If price elasticity is greater than 1, the product is price elastic.

14. Abbreviation FOB - Free on Board CIF - Cost, Insurance and Freight CPI - Consumer price index SAFE - State Administration Foreign Exchange WTO - World Trade Organization UNCATAD - United Nations Conference on Trade and Development NTDB - National Trade Data Bank EU - European Union IMF - International Monetary Fund FDI - Foreign Direct Investment FPI - Foreign Portfolio Investment EFTA - European Free Trade Association MERCOSUR - "Common market of the south" among Argentina, Brazil, Paraguay and Uruguay Japanese Yen U.K. Pound U.S. Dollar European Euro

15. Absolute Advantage and Comparative Advantage Absolute Advantage: A country has an absolute advantage in the production of a product when it is more efficient than any other countries at producing it. Comparative Advantage: The theory that countries should specialize in the production of goods and services they can produce mote efficiently. A country is said to have a comparative advantage in the production of such goods and services.

16. Government Intervene International Trade Tariffs: Special Tariffs & Ad valorem Tariffs Special Tariffs levied as a fixed charge for each unit of good import. Ad valorem Tariffs levied as a proportion of the value of an imported good. Non-tariff barrier: Subsidy, Import Quota, Voluntary Export Restricts (VER), antidumping.

17. Monetary Policy by Central Bank and Fiscal Policy by Central Government Monetary Policies: (1) change interest rates (2) change reserve requirement ratio (3) open market operation (4) closed window policy Fiscal Policies: (1) change tax duty rates (2) adjust government expenditure Money supply: All money in circulation plus demand deposit.

18. Foreign Exchange Market The purposes of Foreign Exchange Market: (1) to convert the currency of one country into the currency of another. (2) to provide some insurance against foreign exchange unpredictable risk. Eurocurrency Market: Eurocurrency is the currency deposits outside of its country which of origin. It has to be time deposit and interest bearing. Global Bond Market Euro-equity Market

(info for post-project) President Bush’s Budget

President Bush's Budget: Cutting The Deficit, Growing The Economy

Today, The Office Of Management And Budget Reported The FY2005 Budget Deficit Is Projected to Be $94 Billion Less Than Forecast Last February. At $333 billion, or 2.7 percent of GDP, it would be smaller than the deficits in 15 of the last 25 years as a percentage of GDP.

A Strong Economy Fueled By Tax Relief Is Generating Stronger-Than-Projected Revenues. After three straight years of declines due to economic weakness, tax receipts will have risen two consecutive years.

President Bush's Pro-Growth Policies Have Resulted In Steady Job Growth And Economic Expansion. The economy has created over 3.7 million jobs since May 2003, with steady job gains for each of the last 25 months - and more Americans are working than ever before.

The Unemployment Rate Fell To 5.0 Percent In June, The Lowest Since September 2001, and Lower Than the Average Rate of the 1970s, 1980s, and 1990s.

Background: Meeting The President's Budgetary Goals

Under The President's Policies, The Budget Deficit Is Forecast To Continue Falling. Projections show the deficit will fall to $162 billion in 2009, or 1.1 percent of GDP, significantly surpassing President Bush's goal of cutting the deficit in half from its FY 2004 projected peak of $521 billion, or 4.5 percent of GDP. A deficit of 1.1 percent of GDP would be well below the 40-year average of 2.3 percent of GDP.

The President's Budget Has Held The Line On Spending. President Bush and Congress have brought down the rate of growth of non-security spending in each year of his Administration. President Bush's 2006 Budget, released this February, was the first since the Reagan Administration to propose a cut in non-security discretionary spending, and also proposed to hold discretionary spending to below the expected rate of inflation. It also proposed savings in mandatory programs. Congress's Budget Resolution met these basic goals, and the Administration is working closely with Congress to hold to those limits in the appropriations process and to achieve the $35 billion in mandatory savings called for in the Budget Resolution.

To Keep Our Economy Strong And Achieve The President's Goal Of Cutting The Deficit In Half By 2009, We Must Continue The President's Agenda of Pro-Growth Policies And Responsible Spending Restraint.

Our Growing Economy Is Improving The Federal Budget

The Improved Fiscal Outlook Is Directly Tied To The Strength Of The Economy. With the help of tax relief, the U.S. economy is growing at a healthy pace, creating millions of new jobs and increasing business investment.

A Growing Economy Is Producing Greater Than Expected Revenues. The Mid-Session Review projects tax receipts will rise 14 percent from last year - the largest such year-over-year increase in 25 years. Receipts are on pace to rise $87 billion more than expected last February; spending was $7 billion less than expected.

The Projected Decline In The Deficit Includes Anticipated Costs. The new deficit forecasts take into account full extension of tax relief, war spending in 2005 and a substantial part of 2006, and the expected financing impact from creating voluntary personal retirement accounts under the President's Social Security reform proposal.

Addressing Social Security's Unfunded Obligations Is Critical To The Nation's Long-Term Fiscal Outlook. The Bush Administration is working with Congress to develop legislation that addresses the solvency of Social Security in a manner that protects low-income seniors and makes Social Security a better deal for young workers without raising the payroll tax rate.

From http://www.whitehouse.gov/news/releases/2005/07/20050713.html on Oct. 10, 2005

Mid-Term Examination Review

1. Absolute Advantage and Comparative Advantage Absolute Advantage: A country has an absolute advantage in the production of a product when it is more efficient than any other countries at producing it. Comparative Advantage: The theory that countries should specialize in the production of goods and services they can produce mote efficiently. A country is said to have a comparative advantage in the production of such goods and services.

2. International Product Life-Cycle (1) New product is innovated and produced in the home country. All demand is met by exporting. (2) Foreign production begins. (3) Competition occurs in the export market. (4) Competition occurs in the home country.

3. Government Intervene International Trade Tariffs: Special Tariffs & Ad valorem Tariffs Special Tariffs levied as a fixed charge for each unit of good import. Ad valorem Tariffs levied as a proportion of the value of an imported good. Non-tariff barrier: Subsidy, Import Quota, Voluntary Export Restricts (VER), antidumping.

4. Term of Trade Term-of-Trade = % change in price of Export / % change in price of Import Term-of-Trade of a country >= 1 indicates an economic problem in this country.

5. Levels of International Integration (1) Free Trade Area Goods and services are moved freely inside the area. e.g. EFTA (2) Custom Union Same import/export tariffs e.g. Andean Pact between Bolivia, Colombia, Ecuador and Pero (3) Common Market Factors of production are moved freely among the member countries. e.g. MERCOSUR (4) Economic Union Same monetary policy and fiscal policy. e.g. EU (5) Political Union Same economic, social and foreign policy. EU is forwarding to this level.

6. Monetary Policy by Central Bank and Fiscal Policy by Central Government Monetary Policies: (1) change interest rates (2) change reserve requirement ratio (3) open market operation (4) closed window policy Fiscal Policies: (1) change tax duty rates (2) adjust government expenditure Money supply: All money in circulation plus demand deposit.

7. Spot Foreign Exchange Rate and Forward Foreign Exchange Rate Spot foreign exchange rate is the price of one unit of a foreign currency for immediate delivery. Forward foreign exchange rate is the price of one unit of a foreign currency for delivery at a certain time in the future. Forward premium = (FER - SPR) / SPR Forward discount Arbitrage Converted interest arbitrage NOT ALL CURRENCY HAVE FORWARD EXCHANGE RATE: Canada, Japan, Switzerland, U.K.

8. Foreign Exchange Market The purposes of Foreign Exchange Market: (1) to convert the currency of one country into the currency of another. (2) to provide some insurance against foreign exchange unpredictable risk. Eurocurrency Market: Eurocurrency is the currency deposits outside of its country which of origin. It has to be time deposit and interest bearing. Global Bond Market Euro-equity Market

9. Balance-of-Payments account Balance-of-payments is a very important document that records all transition between all resident of the country and the rest of the world. Current Account: (1) Trade account: goods import/export (2) Service account: traveling, consultant (3) unilateral account: government helps other countries Capital and financial account: borrowing, lending, FDI, FPI Official reserve account = Current Account + Capital & financial account Components of International Reserves: (1) gold (2) convertible foreign currency (3) SDR - Special Drawing Rights (4) Position in IMF Balance-of-payments measures flows Total international reserves measures stock

10. How exchange rates are determined? Fixed exchange rate system: (1) Gold standard (2) Bretton Woods (US $) Flexible exchange rate system: US(Dollar), UK(Pound), Japanese(Yen), European(Euro) Managed Exchange rate system: China, Korea, Indonesia Pegged Exchange rate system: Hong Kong, Singapore

11. How to forecast exchange rates? 1. PPP - Purchasing Power Parity theory: lower inflation will appreciate 2. International Fisher Effect theory: higher interest will depreciate

12. Price elasticity Price elasticity = (delta Q / Q) / (delta P / P) If price elasticity is greater than 1, the product is price elastic.

13. Abbreviation SAFE - State Administration Foreign Exchange WTO - World Trade Organization UNCATAD - United Nations Conference on Trade and Development NTDB - National Trade Data Bank EU - European Union IMF - International Monetary Fund FDI - Foreign Direct Investment FPI - Foreign Portfolio Investment EFTA - European Free Trade Association MERCOSUR - "Common market of the south" among Argentina, Brazil, Paraguay and Uruguay Japanese Yen U.K. Pound U.S. Dollar European Euro

(Info for case anal.) FOREIGN SALES CORPORATION 2004

President Bush signed a law repealing U.S. export tax breaks that were ruled illegal by the World Trade Organization (WTO) and have prompted retaliatory trade sanctions by the European Union (EU). In an October 22 statement, the White House said that the president had signed into law the "American Jobs Creation Act of 2004," which repeals the disputed Extraterritorial Income Act (ETI), provides other tax breaks for business and reforms U.S. tobacco subsidies. The WTO has ruled repeatedly that the ETI and its predecessor, the Foreign Sales Corporation (FSC) program, were de facto export subsidies that violate international trade rules.

Earlier efforts to resolve the EU/U.S. dispute failed, and the WTO authorized the EU to impose tariffs of up to $4 billion on U.S. exports. The EU began in March to impose tariffs of 5 percent on a range of U.S. products and said the rate would increase by one percentage point per month up to 17 percent. As of October 1, the tariff rate was 12 percent. The House of Representatives voted 280-141 on October 7 to pass the measure repealing FSC/ETI provisions. The Senate voted 69-17 in favor of the bill October 11, completing congressional action and sending the measure to the president for his signature. EU officials have said they will lift the retaliatory tariffs as soon as the United States complies with WTO rules, but it remains unclear whether they will accept the new law as fully satisfying U.S. obligations.

Useful Websites

URL	Description
Factors of Countries	Factors of Countries
world economist	Lots of articales
Glossary	Deardorff's Glossary of International Economics
The World Bank
World Trade Organization

Abbreviations

Abbr.	Complete Words
ASEAN	Association of Southeast Asian Nations
BTN	Brussels Tariff Nomenclature
CIF	Cost, Insurance, Freight
FDI	Foreign Direct Investment
FOB	Free on board
GDP	Gross Domestic Product
GNP	Gross National Product
GSP	Generalized System of Preferences
HS	Harmonised System
IMF	International Monetary Fund
MFN	Most Favored Nation
SAFE	State Administration of Foreign Exchange
SIC	Standard Industrial Classification
SOE	State Owned Enterprise
UNCTAD	United Nations Conference on Trade and Development
WTO	World Trade Organization

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