AMBAI Free Online Distance Course in Management and Business Administration

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For Enrolled Students only! For info on AMBAI Certificate Programas click HERE	Study Guide for the Certificate Program in Management and Business Administration.

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Study Guide	This is a Study Guide. As the name implies, it guides the student in the reading of the textbook, The Virtual MBA. The textbook is divided into 12 Chapters and each chapter into several Sections. Sections are numbered consecutively from the beginning to the end of the textbook. We will refer you to the textbook by citing the Section number. This Subject is based on Chapter XII of the textbook.
Introduction. Why trade inter- nationally?	The concept of the "Global Village" has not come true yet, but it's coming closer and closer to be a reality. Trade barriers are falling, free international movements of capital, goods and technology are a fact of life. Dramatic improvements in communications, the internet, satellite TV, and the widespread use of English as an international language have helped in the development of a new mentality. The textbook explains the theory that was developed to explain a fact known since ancient times: that trade (including international trade) is beneficial. Now please read Section 145. of the textbook and return to this point of the Guide. Please continue.
Free trade agreements. The effect on employment	Several agreements intended to liberalize international trade are in effect. Some are regional, others multilateral including almost all countries in the world. Although considerably out of fashion, there are still a few bilateral trade agreements. The adversaries of trade liberalization have one partially true argument: there may be a short or medium term unemployment effect. Now please read Sections 146. to 149. of the textbook and return to this point of the Guide. Please answer the questions.
Self- evaluation questions	Question 1 A lawyer is more proficient in operating a PC than his secretary (who does know very little about the law). 1) What is the type of advantage the lawyer has over his secretary in both activities? 2) In which activity does the lawyer enjoy a higher relative advantage? See Model Answer A1
	Question 2 The concept "we buy from the countries that buy from us" is the basis of what type of trade agreements? See Model Answer A2
Balances: trade and payments	Since it is true that "there is no free lunch", all imports have to be paid for, and the same is true of all other services (interest on loans, profits on foreign investments, shipping, etc.). These elements are the components of the Balance of Trade and the Balance of Payments. Now please read Section 150. of the textbook and return to this point of the Guide. Please answer the questions.
Self- evaluation questions	Question 3 Country A exports goods for $50 billion and imports goods for $60 billion. What is the name given to the difference of $10 billion? Is it a deficit or a surplus for country A? See Model Answer A3
	Question 4 - Country A, in addition to the transactions mentioned in question 3, has a net surplus income due to non-trade transactions of $20 billion. What is the figure of the balance of payments of Country A? See Model Answer A4
International business	Multinationals is the name given to firms with subsidiaries outside their home country. We could distinguish two basic types. A) Firms whose ownership is basically held in one country (as IBM or GM).. B) Firms whose ownership is held in two or more countries (as Shell -UK and Holland- or DaimlerChrysler -US and Germany) Now please read Sections 151. and 152. of the textbook and return to this point of the Guide. Please answer the questions
Self- evaluation questions	Question 5 What could give a large multinational pharmaceutical company an advantage versus its local competitors in a foreign market? See Model Answer A5
	Question 6 A large French firm producing milk, yogurt, etc., is investing heavily in local production facilities in the US and Latin America. Why would they do this instead of exporting from France? See Model Answer A6
Dis- advantages of foreign operations	Naturally. foreign operations also have disadvantages. Nowadays the risk of "political damage" (expropriation) is almost non-existent. Restrictions for remittance of dividends or repatriation of capital still exist, but this danger has become much lower; almost every country in the world wants a good image with foreign investors. The volatility of exchange rates is the higher risk today. Now please read Section 153. of the textbook and return to this point of the Guide. Please answer the questions.
Self- evaluation questions	Question 7 A large US food processing company has a subsidiary in Brazil, which produces 30% of the parent's operating profit. There is a large unexpected devaluation in Brazil. Why is it that the parent firm's shares in Wall Street fall dramatically? See Model Answer A7
	Question 8 A large French automaker operates several plants in Latin America. There is a considerable international exchange of parts among the parent and the subsidiaries, which have to pay for the parts to each exporting factory. What is the technical name given to the price paid for these parts in inter-affiliate transactions? See Model Answer A8
Hedging the risks of foreign exchange	The more complicated part of foreign investment is the fact that transactions are made in a currency other than that of the parent company's home country. There are ways (at a price, of course) to protect a foreign subsidiary's non-remitted profit and net working capital, or to cover future payments. The most commonly used procedure is the purchase of forward contracts; foreign exchange to be delivered in the future. The forward exchange rate will of course be higher that the spot (present) rate. Now please read Section 154. of the textbook and return to this point of the Guide. Please answer the questions.
Self- evaluation questions	Question 9 You are the Finance Director of a Mexican firm which just purchased machinery from an US firm. You will have to pay for it a fixed amount in US dollars 90 days from now. How would you protect your firm from a fall in the Mexican currency versus the US dollar? See Model Answer A9
	Question 10 At a certain point in time, interest rates for borrowings in local currency in Brazil are 50% while in Argentina they are 10%. In which country would you expect a greater gap between spot and forward exchange rates of the local currency versus the US dollar? See Model Answer A10
Here we say: So long!	This is the End of the Study Guide for the Subject International Trade and International Business. The Subject belongs to the .Curriculum of the free Certificate Program in Management and Business Administration offered by AMBAI as a Public Service.
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A2 - Bilateral trade agreements. Back
A1 - 1) An absolute advantage in both in the law and PC operations. 2) In law practicing. Back
A4 - $10 billion. The $10b deficit in the balance of trade is more than offset by the surplus of $20b in non-trade transactions. Back
A3 - Balance of trade. Deficit. Back
A6 - Their products being perishable, the costs involved in transportation are very high. Also, they may obtain cheaper raw material (milk). In some countries they could be trade barriers for milk products. Back
A5 - Its superior knowledge or technical expertise. Back
A8 - Transfer price. Back
A7 - The devaluation of the Brazilian currency will cause that, at least for some time, the subsidiary's profits are lower in US dollars. Back
A10 - In Brazil the gap would be much greater, reflecting the higher interest rate of borrowings in the local currency. Back
A9 - You might enter into a forward contract to get delivery of US dollars in 90 days payable in Mexican pesos at a fixed exchange rate (the forward rate). Back