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UGBA178+Midterm+Review_101609_Final

UGBA178+Midterm+Review_101609_Final - UGBA 178 Introduction...

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UGBA 178 Midterm Review Session 10/16/09 GSIs: Erik Kiewiet de Jonge, Kok Loong Lye UGBA 178: Introduction to International Business Fall 2009 Midterm Review Erik Kiewiet de Jonge Kok Loong Lye
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UGBA 178 Midterm Review Session 10/16/09 GSIs: Erik Kiewiet de Jonge, Kok Loong Lye Where we’re headed today… Overview of major trade theories Foreign Direct Investment (FDI) Overview of major international organizations Purchasing Power Parity (PPP) The Fisher Effect and The International Fisher Effect Balance of Payments and Exchange Rates Currency exposure FX Lingo Questions
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UGBA 178 Midterm Review Session 10/16/09 GSIs: Erik Kiewiet de Jonge, Kok Loong Lye International Trade Theory Chapter 5 Focus on understanding the central concepts of the most widely recognized trade theories: Mercantilism Absolute Advantage Comparative Advantage Heckscher-Ohlin Theory New Trade Theory Porter’s Diamond
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UGBA 178 Midterm Review Session 10/16/09 GSIs: Erik Kiewiet de Jonge, Kok Loong Lye International Trade Theory Chapter 5: Mercantilism Mercantilism suggests that it’s in a country’s best interest to maintain a trade surplus -- to export more than it imports Mercantilism advocates government intervention to achieve a surplus in the balance of trade It views trade as a zero-sum game - one in which a gain by one country results in a loss by another Can you name examples of countries that have Mercantilist trade strategies?
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UGBA 178 Midterm Review Session 10/16/09 GSIs: Erik Kiewiet de Jonge, Kok Loong Lye International Trade Theory Chapter 5: Absolute Advantage (Adam Smith) • A country will specialize in production of goods it can produce more efficiently than any other country. • A country will trade it’s specialized goods with other countries, which trade their specialized goods. • Absolute advantage theory argues that trade is not a zero-sum game; trade results in net gains for all countries involved. • Review the book for specific numerical examples. Assumes each country has 200 resource units.
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UGBA 178 Midterm Review Session 10/16/09 GSIs: Erik Kiewiet de Jonge, Kok Loong Lye International Trade Theory Chapter 5: Comparative Advantage (David Ricardo) Assumes each country has 200 resource units. • A country will specialize in production of goods it can produce comparatively more efficiently than any other country. • Comparatively means a country gives up relatively less resources to produce a good than does another country. • Comparative advantage helps explain situations when a country may have an absolute advantage in the production of all goods. • Review the book for specific numerical examples.
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UGBA 178 Midterm Review Session 10/16/09 GSIs: Erik Kiewiet de Jonge, Kok Loong Lye Beware the oversimplified trade theories: Absolute and Comparative Advantage models include several critical assumptions to simplify the complex trade environment: Only two countries exist in the simple model Assumes no transportation costs
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