Transcript Introduction to International Business

July 28, 2008
Discussion Section
Foreign Direct Investment; Political Economy of FDI;
Foreign Exchange; International Monetary System
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Chapters 3,4,5,6 in a nutshell
Tips for future assignment
Review Chapters 7
◦ Discussion Questions
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Review Chapter 9, 10
◦ Discussion Questions
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Q&A regarding the Midterm
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Chapter 3:
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Chapter 4:
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Chapter 5:
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Chapter 6:
◦ What is culture? What are the determinants of culture? How
does culture affect business?
◦ What are ethical dilemmas? How do ethical dilemma’s arise?
What are some of the standards used to evaluate ethics?
Which ones are “straw men” arguments?
◦ What are the theories that explain the observed pattern of
international trade?
◦ What are some of the instruments that governments use to
restrict trade? What are some political and economic
justifications for trade intervention? Are these justifications
“justified”? How has the world trading system developed?
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Be familiar with current trends regarding FDI in the
world economy.
Understand the different theories of foreign direct
investment.
Appreciate how political ideology shapes a
government’s attitudes towards FDI.
Understand the benefits and costs of FDI to home and
host countries.
Be able to discuss the range of policy instruments that
governments use to influence FDI.
Articulate the implications for management practice of
theory and government policies associated with FDI.
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What is FDI?
FDI in the world economy
◦ Trends; Direction of FDI; Source of FDI; Shift to Services
◦ Form of FDI
 Greenfield vs. Acquisitions and Mergers
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Types of FDI
◦ Horizontal FDI
 Why undertake horizontal FDI?
 Transportation costs; market imperfections (internalization
theory: impediments to exporting, impediments to sale of
know how); strategic behavior
◦ Vertical FDI
 Why undertake vertical FDI?
 Strategic behavior; market imperfections (impediments to the
sale of know how; investment in specialized assets)
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Political Ideology and FDI
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What are the benefits of FDI to host countries?
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What are the costs of FDI to host countries?
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What are the costs and benefits to home countries?
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What are some government policies/instruments regarding FDI?
◦ Radical View
◦ Free Market View
◦ Pragmatic Nationalism
◦ Resource-transfer effects (capital, technology, know-how); Employment
effects; Balance-of-payment effects; Effect on competition and economic
growth
◦ Adverse effect on competition; adverse effects on the balance of
payments; national sovereignty and autonomy
◦ Benefits: inward cash flow; employment effects; skills learned from abroad
◦ Costs: balance of payments; employment effects (outsourcing)
◦ Home country: encourage some outward FDI; restrict some outward FDI
◦ Host country: encourage some inward FDI; restrict other inward FDI
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Be conversant with the functions of the foreign
exchange market.
Understand what is meant by spot exchange rates.
Appreciate the role that foreign exchange rates play in
insuring against foreign exchange risk.
Understand the different theories explaining how
currency exchange rates are determined and their
relative merits.
Be familiar with the merits of different approaches
towards exchange rate forecasting.
Understand the differences between transaction,
translation, and economic exposure, and what
managers do to manage each type of exposure.
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What is the FOREX market for?
◦ Currency conversion; insuring against foreign exchange
risk (using spot exchange, forward exchange, or currency
swaps)
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Arbitrage in FOREX markets
Theories about how FOREX rates are determined
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Forecasting in FOREX markets
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FOREX Exposures and Multinational Firms
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◦ Price and exchange rates: law of one price; purchasing
power parity; money supply and price inflation
◦ Interest rates and exchange rates: Fisher Effect;
International Fisher Effect
◦ Investor psychology and bandwagon effects
 Efficient v. Inefficient Schools; Approaches
 Transaction, Translation, Economic
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Be familiar with the historical development of the modern
global monetary system.
Describe the role played by the World Bank and the IMF in the
international monetary system.
Be familiar with the differences between a fixed and a floating
exchange rate system.
Know what exchange rate systems are used in the world
today and why countries adopt different exchange rate
regimes.
Understand the debate surrounding the role of the IMF in the
management of financial crises.
Appreciate the implications of the global monetary system for
currency management and business strategy.
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Different exchange rate regimes:
◦ Fixed
◦ Floating: pegged; dirty float
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Fixed versus Floating Exchange Rates
◦ Why choose floating exchange rates?
 Monetary policy autonomy
 Trade balance adjustments
◦ Why choose fixed exchange rates?
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Monetary discipline
Speculation
Uncertainty
Trade Balance Adjustment
◦ Who is right?
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Main Street, HK
South Korea’s E-Mart Is No Wal-Mart
Not Exactly Counterfeit
New Economics Arms Race
New Rulers of Finance