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Midterm Review
February 23, 2007
UGBA 178
Sanny Liao / Brian Chen
Exam Format
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22 multiple choice questions
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
Emphasis on knowing key concepts
from reading
5 short answers
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
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2 from the textbook
1 from assigned articles
2 from the cases in the textbook
Review: Hill, International Business 6e
Chapter 1: Globalization

Globalization


Global Institutions


WTO (formerly GATT), IMF, World Bank
(Bretton Wood), UN
Drivers


Markets and Production
Technological change, declining barriers
Globalization Debate

Impact on job and income security; on labor
policies and the environment; on national
sovereignty; on the poor
Chapter 2: National Differences in
Political Economy

Key definitions


Political systems; economic systems;
legal systems; contract law and
property rights, Foreign Corrupt
Practices Act, Purchasing Power Parity
Concepts


Amartya Sen
Link between political economy and
economic progress
Chapter 3: Differences in Culture

Definitions of culture


Components of culture
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
Values/Norms/Folkways/Mores
Determinants of culture


Hofstede/Namenwirth/Weber
Religion, social structure, language, political
philosophy, economic philosophy, education
Hofstede study of culture in the workplace


What are the four dimensions?
Why is it criticized?
Chapter 4: Ethics in International
Business

Key ethical issues in international
business


Philosophical Approaches to Ethics



Employment practices, human rights,
environmental regulations, corruption, moral
obligation of multinational corporations
Straw men
Rights
Ethical Decision Making
Chapter 5: International Trade Theory

Key theories


Mercantilism, Absolute Advantage (Adam
Smith), Comparative Advantage (Ricardo),
Extensions of the Ricardian Model, KeckscherOlin, Vernon (Product Life Cycle), New Trade
Theory, National Comparative Advantage,
Porter’s Diamond
Key Definitions

Factor Endowments (basic and advanced)
Chapter 6: Political Economy of
International Trade

Instruments of Trade Policy



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Tariffs, subsidies, quotas, local content,
administrative policies, antidumping policies
Political Arguments for Intervention
Economic Arguments for Intervention
Development of the World Trading System

Great Depression  Rise of protectionism 
GATT  Uruguay Round  Problems  GATT
criticisms  WTO  Doha Round
Chapter 7: Foreign Direct Investment

Key Definitions



FDI; flow (inflow and outflow), stock
Form of FDI
 Greenfield, mergers and acquisitions
Horizontal FDI
 Reasons for Horizontal FDI


Market imperfections (internalization); high
transportation costs; strategic rivalry; product life
cycle; location specific advantages
Vertical FDI (forward and backward)
 Reasons for Vertical FDI

Strategic behavior; market imperfections
Chapter 8: Political Economy of FDI

Three Ideologies of FDI

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Radical, free market, pragmatic nationalism
Cost benefit analysis under the pragmatic
nationalism view

Benefits to Host Countries
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
Costs to Host Countries


Resource transfer effect, employment effect, balanceof-payment effect; effect on competition and
economic growth
Adverse effects on competition; adverse effects on the
balance-of-payments; national sovereignty and
autonomy
Host Country Policies and FDI


Encouraging Inward FDI (what are the tools?)
Restricting Inward FDI (what are the tools?)
Chapter 10: Foreign Exchange Market

Functions of the FX Market

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Currency conversion; Insurance against FX risks
(know the types of exchanges available –
forwards, swaps, etc)
Economic Theories of Exchange Rate
Determination

Law of one price ( purchasing power parity);
money supply and inflation; interest rates and
exchange rates (Fisher Effect: i = r + I;
International Fisher Effect: S  S  / S 100  i  i );
investor psychology and bandwagon effects
1


Forecasting Exchange Rate



2
$
Yen
Efficient market theory/ inefficient market theory
Currency Convertibility

2
Different forms of convertibility
Tools to restrict convertibility
Chapter 11: International Monetary
System

Key Definitions:


Pegged exchange rates; dirty float; fixed exchange
rates
Fixed vs. Floating Exchange Rates

Benefits of Fixed Exchange Rates


Monetary discipline, speculation, limits speculators,
uncertainty, predictable rate movements, trade
balance adjustments, no link between exchange
rates and trade, link between savings and
investment
Benefits of Floating Exchange Rates


Monetary policy autonomy (restores control to
government)
Trade balance adjustments (adjust currency to
correct trade imbalances
Case and Article Review

Cases



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Wipro
Etch-A-Sketch
Airbus v. Boeing
Starbucks FDI
Articles
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South Korea’s E-Mart Is No Wal-Mart
Karma Capitalism
Not Exactly Counterfeit
China’s Car Sector Gears Up for Big Change