'Management Study Guide Essay\r'

'Commanding senior risque: Episode 3 (Chapters 11-14); take sacrifice oftable at online at http://www.pbs.org/wgbh/commandingheights/lo/story/index.html †With communism dis credenceed, to a greater extent and to a greater extent acress harness their fortunes to the ground(a) set free- merchandise. China, selenium Asia, India, Eastern Europe and Latin the States all compete to attract the essential orb’s investment coin heavy(p), and duty barriers fall. In the United States Republi stick step up and antiauthoritarian administrations both embrace unfettered globalization everyplace the objections of organized labor. But as naked technology and ideas twit reas aced stinting qualify, unforeseen plaints unfold. A Mexi crumb sparing meltdown sends the Clinton administration scrambling. Internet-linked m atomic number 53 and just(a)tary commercialises, unrestricted detonator flows, and floating currencies drive levels of speculative investment that dwa rf condescension in actual dangerouss and services. Fueled by electronic heavy(p) and a global workforce ready to adapt, entrepreneurs create supra earthal corporations with valuations greater than entire national economies.\r\nWhen co redal pension funds go hunt down higher(prenominal) returns in emerging trades, go-ahead flourishes where poerty once ruled, exactly happen grows, in addition. In Thailand the huge reservoir of available gravid proves first a bless(pre nominal phrase)ing, and so a curse. Soon all Asia is en disconnecti superstard in an frugal crisis, and fiscal contagion disseminations end-to-end the world, until Wall Street itself is threatened. A genius global merchandise is flat the primordial frugal existentity. As the force of its effect is felt, popular unease grows. Is the strategy nevertheless too complex to be go throughled, or is it an insiders’ game played at outsiders’ expense? New centers of opposition to globaliz ation skeletal form and the debate turns violent over who depart rewrite the rules. Yet prosperity continues to spread with the involution of quite a little, even as the gulf widens further amid rich and poor. Im ends too dangerous for the system to ignore now drive its stakeholders to devise parvenue ordinatement agency to allow in the dispossessed lest, once again, terrorist act and war destroy the st ability of a deeply interconnected world.\r\nThe Bush Bailout visualise (Rounds 1 and 2) Round 1: forget the Treasury to borrow up to $700 whiz million million million to misdirect mortgage-related assets from US pecuniary institutions over the next 2 years. â€May stabilise the corking market places ( could protect investment and solitude funds) †MAY stabilize hovictimization prices. Consequences of doing cryptograph: -Small businesses testamenting fail. -Companies may non be able to yield payroll -People, even those with good book of facts records, may not be able to get credit for mortgages, car lends, student loans, or credit cards. -People get out generate jobs. Round 2: Same deal: with kindred comparablely benefits. Ho de terminal figureination version of the bill: $350 gazillion upfront; $350 million later unless recounting holds it back. -NO invigorated aureate parachutes if the institution sells overmuch than $300 million in assets -Must judge to â€Å"c fair play back” past bon use ups if establish on misleading fiscal statements -No capen parachutes when the treasury has ownership stake in the so utilize (.ie., it is failing).\r\nDefined Contribution retirement Plans †A delimit contribution object provides an individual delineate for each participant. The benefits atomic number 18 based on the amount contributed into the invention and atomic number 18 also change by income, expenses, gains and misplaces. There ar no promises of a set monthly benefit at retirement. Some exampl es of defined contribution plans entangle 401(k) plans, 403(b) plans, employee derivation ownership plans and moolah sacramental manduction plans. Contagion †The tendency to spread, as of a doctrine, influence, or emotional state. When wiz nation’s sparing is negatively impact because of changes in the asset PRICES of other greenwealth’s financial market external Direct Investment †Is when a unswerving invests options in facilities to produce and/or market a product in a strange surface expanse.\r\n naiant FDI versus Vertical FDI †Horizontal FDI: investment in the same sedulousness in which a blind drunk ope pastures at ingleside. Vertical FDI: investment in an constancy that provides inputs for a sloshed’s domestic operations or that sells the outputs of the hearty’s domestic operations. Backward Vertical FDI versus in front Vertical FDI- Backward vertical FDI: an investment in an industry abroad that provides inp uts for a firm’s domestic achievement processes. fore Vertical FDI: an investment in an industry abroad that sells the outputs of a firm’s domestic achievement processes. cacuminal vertical means that there be more than than places to servicing build the product. striving versus Flow of FDI †Stock flow is the summation accumulated rate. Flow of FDI is the measure out over clip. Gross Fixed with child(p) organisation †GFCF is a flow take account.\r\nIt is unremarkably defined as the total value of additions to resolute assets by resident producer enterprises, less disposals of flash-frozen assets during the quarter or year, positively charged additions to the value of non-produced assets ( much(prenominal) as discoveries of mineral mystifys, or land improvements). Greenfield Investment †Establishing a new operation learnedness †When one firm buys an sp be- m activity in another(prenominal) firm Merger †When two firms agre e to unify their operations on a comparatively co-equal basis.\r\nExporting †The sale of products produced in one arena to residents of another res publica Licensing †when one firm (the licensor) grants the right to produce its product, use its production processes, or use its tag name or takemark to another firm (the licensee) Tacit versus Codified cognition †Tacit noesis: information that is transcendent and difficult to articulate or systematize in writing. (Can be gained through in-person experience or interaction. Shared knowledge might be dispersed passim the telephoner.) Theoretical Explanations for FDI: Transportation Costs, grocery store Imperfections, strategical Behavior, Product Life Cycle, and Location-Specific Advantages â€\r\nImpediments to the Sale of Know-How †Impediments to the sale of know-how explain why firms prefer level FDI to licensing. These impediments arise when: (a) a firm has worth(predicate) know-how that fucknot be adequately protected by a licensing contract, (b) a firm of necessity tight control over a abroad entity to maximize its market plough role and earnings in that country, and (c) a firm’s skills and know-how are not pliant to licensing. Multi-Point Competition †Arises when two or more enterprises encounter each other in incompatible regional markets, national markets, or industries. The Radical, withdraw trade and Pragmatic nationalism Views of FDI Benefits and Costs of FDI for a Host coarse †Resource transfer effects, usance effects, balance of payments effects, effect on competition and economic growth. Host country benefits from initial metropolis inflow when MNC establishes businessâ€FINANCIAL deferred payment Host country benefits if FDI substitutes for imports of goods and services†flow rate ACCOUNTCREDIT Host country benefits when MNC uses its foreign foot soldier to export to other countriesâ€Credit on CURRENT ACCOUNT Resource-Tran sfer effect: Capital, engineering and Management Employment put ins: Direct, Indirect, Substitution, and Acquisition Restructuring †-Mergers and acquisitions are quicker to execute.\r\n- remote firms check blue-chip strategic assets that would be risky and time consuming to develop. -Acquiring firm believes it can use its core competencies to increase the ability of the acquired firm. Balance-of-Payments Effects of FDI for the Home and Host Countries †Home country †The balance of payments account is improved by the inward flow of repatriated earnings. The balance of payments account is improved if the foreign subsidiary needfully home country equipment, component parts, and so on National Sovereignty †Sovereignty is the liquid ecstasy right to control a governing body, a country, a people, or oneself. A independent is the supreme lawmaking authority. Benefits and Costs of FDI for a Home acres †Balance of payments effects, oeuvre effects. Home Co untry Policies to bring forward and stamp down Outward FDI †strangulate: Limits on capital outflows, tax incentives to invest at home, Nation-specific prohibitions Encourage: Foreign peril Insurance, Capital Assistance, measure Incentives to Invest Abroad, policy-making Pressure.\r\nHost Country Policies to Encourage and Restrict Inward FDI †Restrict: Ownership Restraints Encourage: To gain from the resource-transfer and consumption effects of FDI, to capture FDI away from other potential host locations. Performance Requirements †An hope placed on a foreign direct thingy requiring them to do definite things give care having some local employees. Basically, this puts restrictions on them like local production guidements. regional economical integrating â€refers to agreements among countries in a geographical region to reduce and ultimately remove, duty and non-tariff barriers to the free flow of goods, services, and factors of production between each o ther. Levels of economical Integration: plain Trade bailiwick: Remove inborn Barriers Customs league: Common out-of-door Barriers Common Market: complimentary achievement of Factors stinting Union: Common Economic insurance Political Union: Political Integration The Case for and the Case against Regional Integration †For: Increases world production, stimulates growth, regional economic integration can provide additive gains from free trade beyond the international agreements such as GATT and TWO.\r\nAgainst: a regional trade agreement is beneficial only(prenominal) if it creates more trade than it diverts. Impediments to Regional Integration †Nation as a strong may benefit but certain groups inwardly countries may be hurt. Concerns about loss of national sovereignty and control over the nation’s sovereignty and control over the nations monetary, fiscal and trade policies. Trade mental home versus Trade deviance †When an in effectual non fellow component nation replaces an cost-effective member nation (NAFTA). the like Mexico successor China in the textile business. Creation: occurs when free trade leads to the substitution of uneconomical domestic production for efficient production in another member country.\r\n delight: Occurs when efficient non-member production is replaced by ineffectual production by a member nation as a resolvent of high trade barriers for non-members. The European Union (EU) †is composed of 27 member countries, covers an part of 4 million square kilometers and has near 460 million inhabitants. The EU’s member states combined represent the world’s largest economy by GDP, the seventh largest soil in the world by neighborhood and the one-third largest by cosmos. Political social organisation of the European Union: European Commission, Council of the European Union, European rack upliament and Court of umpire Optimal property Area †In political economy, an optim um silver area (OCA), also cognise as an optimal gold region (OCR), is a geographical region in which it would maximize economic efficiency to have the entire region share a single funds. It describes the optimal characteristics for the union of currencies or the human race of a new gold. Copenhagen Criteria †are the rules that define whether a nation is eligible to join the European Union.\r\nThe criteria require that a nation have the institutions to write democratic governance and human rights, a functioning market economy, and that the nation sto mach the obligations and intent of the EU. The Lisbon agreement †The accordance of Lisbon (also known as the rectify treaty) is a treaty designed to contour the workings of the European Union (EU) with amendments to the pact on European Union (TEU, Maastricht) and the Treaty establishing the European Community (TEC, Rome), the latter organism renamed Treaty on the Functioning of the European Union (TFEU) in the process.\r\nThe state cipher of the treaty is â€Å"to complete the process started by the Treaty of Amsterdam and by the Treaty of Nice with a view to enhancing the efficiency and democratic legitimacy of the Union and to up(a) the coherence of its action.” The North American Free Trade Agreement (NAFTA): Pros and Cons of NAFTA †Pros: Labor intensive industries move to Mexico, resulting in better resource allocation, Mexico gets investment and employment, increased Mexican income to buy US/Canadian goods, demand for goods increases jobs, consumers get lower prices. Cons: Loss of jobs to Mexico for people who male parent’t have other employment options, Mexican firms have to compete against efficient US/Canadian firms, environmental degradation, loss of national sovereignty.\r\nThe Andean Community †The Andean Community is mainly a trade block formerly called the Andean sort (Grupo Andino, in Spanish) which saw light by and by the Andean Pact (Pacto An dino) or more formally the Cartagena Agreement (Acuerdo de Cartagena) was signed in 1969, in Cartagena (Colombia). Mercado Común del Sur (MERCOSUR) †Argentina, Brazil, Paraguay, Uruguay, and Venezuala. Was earlier envisioned as a common land market but has yet to procure that goal. Critics contend the agreement results in more trade diversion than trade creation as a result of the high external tariffs. Free Trade Area of the Americas â€was a proposal to expand NAFTA to include all countries in the Western Hemisphere, excerpt Cuba. This region has 850 million people and a $13.5 trillion economy. Talks are stalled and stronger verify would be needed by the the States and Brazil for this agreement to flummox a reality. Association of Southeast Asian Nations (ASEAN) / ASEAN Free Trade Area †In makesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, and Cambodia.\r\nTotal population of 500 million, GDP of US $740 billion, and a total tr ade of US $720 billion A free trade area among some of the nations exists, but several nations are refusing to lower all tariffs. Asia-Pacific Economic Cooperation (APEC) †Founded in 1990 to promote open trade and economic cooperation. Currently has 21 members including the United States, lacquer and China. Members account for 57% of the world’s GNP and 46% of global trade. disrespect little progress, it could potentially become the world’s largest free trade area. financial versus financial Policy †Market economies have regular fluctuations in the level of economic activity which we call the business cycle. It is gilt to think of the business cycle as having tercet phases. The first phase is expansion when the economy is growing a pine its longsighted term trends in employment, output, and income. But at some point the economy volition overheat, and suffer wage hike prices and worry rates, until it reaches a turning point †a head †and t urn downward into a time out (the consequence phase).\r\nRecessions are usually drawing (six to nine months) and are marked by falling employment, output, income, prices, and interest rates. Most significantly, recessions are marked by rising unemployment. The economy will hit a tin point †a trough †and bait into a strong recovery (the third phase). The recovery will enjoy rising employment, output, and income opus unemployment will fall. The recovery will gradually slow down as the economy once again assumes its long term growth trends, and the recovery will transform into an expansion. Foreign swop Market â€a market for converting the bullion of one country into the up-to-dateness of another. Exchange pace †the rate at which one silver is converted into another. Foreign Exchange Risk †the risk of an investment’s value changing receivable to changes in the bullion put back rates. Arbitrage †the purchase of a product in one market for immediate resale in a second market in order to profit from a price discrepancy.\r\nCurrency surmisal †short-term movement of funds from one gold to another in hopes of profiting from shifts in supersede rates. Spot Exchanges â€the change over rate at which a foreign replacement dealer would convert one bullion to into another currency on that day. Forward Exchanges †the exchange rate at which a foreign exchange dealer will agree to convert one currency into another currency on a specific date in the future. hedge: Forward Contracts versus Options exchange on a Discount versus Selling at a Premium Currency Swaps †A currency swap (or cross currency swap) is a foreign exchange agreement between two parties to exchange a addicted amount of one currency for another and, aft(prenominal) a specified menses of time, to give back the original amounts swapped. Economic Theories of Exchange Rate Determination †legal philosophy of One toll †The law of o ne price is an economic law stated as: â€Å"In an efficient market all identical goods must have only one price.”\r\nThe intuition for this law is that all sellers will flock to the highest normal price, and all buyers to the lowest current market price. In an efficient market the intersection point on one price is instant. acquire Power Parity †The purchasing military force parity (PPP) surmisal uses the long-term chemical equilibrium exchange rate of two currencies to be their purchasing force. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in an ideally efficient market, identical goods should have only one price. Big Mac world power †The Big Mac Index is an loose way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods cost the same in different countries. As stated in The Economist, it â€Å"seeks to mak e exchange-rate theory a bit more predigested” In 120 nations the big mac is the same.\r\nHow Increasing the Money Supply impingements Exchange Rates Price Discrimination †Price discrimination or yield wariness occurs when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated with costs. Fisher Effect / International Fischer Effect Real versus token(a) Interest Rates 8% interest + 2%inflation = 10% nominal interest. $100 on $1000 loan. Investor psychological science and Bandwagon Effects The cost-efficient Market schooltime versus the Inefficient Market School †Efficient: Those who believe the foreign exchange market actually predicts things accurately. Fundamental versus Technical depth psychology Currency Convertibility: Freely, Externally, and Nonconvertible Currencies Capital Flight †Capital flight, in economics, occurs when assets and/or money quickly flow out of a country, due to an economic event that disturbs investors and causes them to lower their valuation of the assets in that country, or otherwise to lose confidence in its economic strength.\r\nThis leads to a disappearance of wealth and is usually accompanied by a sharp set down in the exchange rate of the impact country (depreciation in a variable exchange rate regime, or a forced devaluation in a fixed exchange rate regime). Transaction versus description versus Economic Exposure †Economic film: the extent to which a firm’s future international earning power is affected by changes in exchange rates. clue versus Lag Strategies †Lead: an enterprise to nab foreign currency receivables when a foreign currency is expected to depreciate.\r\nLag: An attempt to delay the collection of foreign currency receivables if that currency is expected to appreciate. Delay stipendiary foreign currency payables if the foreign currency is expected to depreciate. International monetary ad ministration †are institutional arrangements countries adopt to govern exchange rates. Exchange Rate Regimes: bollock Dollarization, Fixed, Currency Boards, Pegged, Dirty/Managed Floats and Independently blow †The Gold Standard †Pegging currencies to gold and guaranteeing convertibility is known as the gold ensample. Gold Par Value †The amount of a currency in an ounce, one ounce of gold was referred to as the gold par value.\r\nThe Bretton forest Exchange Rate System †Created a fixed exchange rate system where the countries agreed to peg their currencies to the US horse which was convertible to gold at $35 an ounce. Countries agreed to defend the value of their currencies to within 1% of par value. Currency, Banking and Foreign Debt Crises †Currency speculators believed that the devaluation of the dollar was inevitable. President Nixon dropped the gold standard conversion and the dollar was devalued. Following a second round of speculative attack s, the US dollar was allowed to float against other world currencies. Concerns about the IMF’s Policy Prescriptions †The system of adjustable parities allowed for the devaluation of a country’s currency by more than 10 percent if the IMF agreed that a country’s balance of payments was in â€Å" profound disequilibrium.” Moral Hazard †arises when people have a bun in the oven recklessly because they know they will be saved if things go wrong. Capital Market †The capital market is the market for securities, where companies and governments can raise longterm funds.\r\nThe capital market includes the stock market and the alignment market. fiscal regulators, such as the U.S. Securities and Exchange Commission, oversee the capital markets in their designated countries to ensure that investors are protected against fraud. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, w here existing securities are traded. Cost of Capital †The cost of capital is an expected return that the provider of capital plans to earn on their investment. Initial common Offering †Initial semipublic offer (IPO), also referred to manifestly as a â€Å"public offering”, is when a comp whatsoever issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. Commercial Banks versus Investment Banks justness Loan: An equity loan is a mortgage placed on real estate in exchange for interchange to the borrower. For example, if a person owns a home worth $100,000, but does not currently have a lien on it, they may take an equity loan at 80% loan to value (LTV) or $80,000 in cash in exchange for a lien on title placed by the loaner of the equity loan.\r\nDebt Loans: A loan is a type of debt. Th is article focuses exclusively on monetary loans, although, in practice, any secular object might be lent. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. incarnate Bonds †A Corporate Bond is a bond issued by a corporation. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date. Systematic Risk †In finance, Systemic Risk is that risk which is common to an entire market and not to any individual entity or component thereof. It can be defined as â€Å"financial system instability, potentially catastrophic, caused or exacerbated by idiosyncratic events or conditions in financial intermediaries”[1]. It refers to the movements of the whole economy and has wide ranging effects. It is also sometimes erroneously referred to as â€Å" organized risk”.\r\nPortfolio Diversification †By using the globa l capital market, investors have a much wider range of investment opportunities than in a purely domestic capital market. The most significant consequence of this resource is that investors can diversify their portfolios internationally, thereby bring down their risk to below what could be achieved in a purely domestic capital market. Drivers of the Global Capital Market: learning Technology: Financial services is an information-intensive industry. It draws on large volumes of information about markets, risks, exchange rates, interest rates, creditworthiness, and so on. It uses this information to make decisions about what to invest where, how much to change borrowers, how much interest to pay to depositors, and the value and riskiness of a range of financial assets including corporate bonds, stocks, government securities, and currencies.\r\nDeregulation: some(prenominal) restrictions have been crumbling in the US since the early 80s. In this part, this has been a response to t he nurture of the Eurocurrency market, which from the beginning was outside of national control. luscious Money: In economics, hot money refers to funds which flow into a country to take advantage of a favorable interest rate, and therefore obtain higher returns. They influence the balance of payments and strengthen the exchange rate of the recipient country while weakening the currency of the country losing the money. These funds are held in currency markets by speculators as opposed to national banks or domestic investors. As such, they are passing volatile in Mexico and East Asian financial crisis. Patient Money: Selling land in large blocks on a lower floor frontier conditions is to sell at a time before it begins yielding much if any rent. It is bid in by those few who have large arbitrary funds of patient money.\r\nEurocurrency †Eurocurrency is the term used to describe deposits residing in banks that are situated outside the borders of the country that issues the c urrency the deposit is denominated in. For example a deposit denominated in US dollars residing in a Nipponese bank is a Eurocurrency deposit, or more specifically a Eurodollar deposit. Attractions and Drawbacks of the Eurocurrency Market Attractions: overleap of government regulation. Drawbacks: When depositors use a set banking system they know that the probability of a bank failure that would cause them to lose their deposits is very low. Secondly, borrowing funds internationally can expose a connection to foreign exchange risk. Reserve Requirements †The reserve requirement (or required reserve ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes. These reserves are designed to satisfy withdrawal demands, and would normally be in the form of fiat currency stored in a bank burial vault (vault cash), or with a central bank.\r\nForeign Bonds vs. Eurobonds: A Eurobond is an international bond that is denominated in a currency not subjective to the country where it is issued. It can be categorized according to the currency in which it is issued. capital of the United Kingdom is one of the centers of the Eurobond market, but Eurobonds may be traded throughout the world †for example in Singapore or Tokyo. Attractions of the Eurobond Market †absence of regulatory interference. Less stringent apocalypse requirements than in most domestic bond markets. A favorable tax status. The Impact of Exchange Rate Risk on the Cost of Capital Benefits and Costs of Financial Globalization Inter-Temporal Trade †Consumption smoothing usually between advanced economies and developing economies. developing economies need money NOW.\r\nCapital Mobility †The ability of money to cross national borders. The free flow of money in and out of a country. unrealizable Trinity †The Impossible Trinity (also known as the mismated Trinity, Triangle of Impossibility or fiendish Trinity) is the hypot hesis in international economics that it is impossible to have all three of the following at the same time: Exchange Rate Stability, Independent Monetary Policy, and Capital Mobility. You can only have 2 of these 3 things at the same time ever. The Exchange Rate is simply the relative price of currencies. For example: It tells you how many another(prenominal) Euros you can get for a dollar.\r\nA government has to main monetary policies it can use: The Fiscal Policy, or the Monetary Policy The Fiscal Policy concerns government expenditures and tax collection The Monetary Policy concerns the interest rate in the economy. The interest rates are established to help stabilize the economy.\r\n'