Study Guide – First Midterm Business 187 – Prof. Wood – Spring 2013 Ver. 1.1 The first midterm will include 20 to 28 true-false, multiple choice, and short answer questions plus an essay that has been handed out in class (and is available on the class web site). This guide covers the major topics we have studied and lists questions you will need to be able to answer. The answers to some of these are not simple, so you need to highlight and review the readings and study the notes you took in class as well as reviewing the study guide and slides from the lectures. However, you should be able to figure out at least 90% of the 20 to 28 questions on the test ‘s first part if you know the answers to the questions here. Where an important point is not in the required reading, I give the needed facts here. Topic You should know … Globalization (The What is globalization? (be able to give a definition) New Global How has globalization affected production? Economy) How has globalization affected markets? What kinds of products have Hill-packet pp. 1-20. the most globalized markets? For what kinds of products are national differences still very large? What are the two most important drivers of globalization? Name some technological changes that have encouraged globalization How much have global trade and global production (gross national income) grown since World War II? What parts of the world economy have grown fastest in the last 20 years? (Be able to name some countries) Chapter 3: What is culture? (Know Hofstede definition – though it’s not perfect) Differences in Know that human groups have always tended to take for granted that Culture their own ways of doing things were natural and right. Benedict-packet pp. What are values? Norms? (know the difference). 21-26; What are mores? Folkways? (They are both types of norms, but be able Hill-packet pp. 7-32 to define & give examples.) “Institutions”-packet Know these standard dimensions of social structure of cultures: pp. 33-34 - group (or “collective”) vs. individually oriented - stratification – classes and castes Know meaning of these Hofstede dimensions of culture - individualism, power distance, uncertainty avoidance Institutions: be able to define (“rules of the game”) Political Economy Political economic systems create key institutions/“rules of the game.” and International They differ enormously. Be able to think about what are the rules in a Business place. Can they be relied on? (problems of corruption & of Hill-packet pp. 107-132 undemocratic changes in nations without mature democracy) “political risk”-packet Know benefits for business of mature democracy (constitutions limit p. 133 what government can take etc.; legal systems enforce contracts) Understand definitions of democratic vs. totalitarian, collectivist vs. individualist systems. Know which have more economic freedom. Know market economy, command economy, mixed economy Legal systems-be able to define “property rights,” “contracts,” and “intellectual property;” know why legal work is more complex in global business What does the Foreign Corrupt Practices Act require? What exception does it allow? What organization measures corruption among nations? What are “Gross National Income” and “GNI per capita at PPP?” What are two major political economic changes of the last 30 years? Spread of 1) democracy and 2) market-based systems What is political risk? International Trade Define “free trade.” Why do economists believe there are gains from trade? Theory Explain Adam Smith’s “absolute advantage theory.” Explain Ricardo’s The slides and the comparative advantage theory. Why did Ricardo believe there were Lauren Landsberg web gains even when one country is better at everything? How can you intro are most helpful identify a nation’s comparative advantage (see slides)? How did for understanding Smith and Ricardo believe countries and people could best find the these questions. See activities where they had advantage? They favored free trade and packet pp. 160-162 for free competition among businesses. See Lauren Landsberg: economic arguments http://www.econlib.org/library/Topics/Details/comparativeadvantage.html for intervention in What do successful governments do to make efficient free trade trade. possible? Create infrastructure, education, institutions. List limitations of comparative advantage theory. assumes resources, Review Wolf (packet including people, move freely; doesn’t address income distribution pp. 135-155) when (packet thinking of your essay. What 2 kinds of culture does Martin Wolf say economies need pp. 146-147)? Commercial culture and guardian culture. Describe the ‘infant industry’ argument. What can cause it to fail? Why do some argue for “strategic trade policy?“ Topics in trade Note: While we study ways of restricting trade, remember that most See slides for economists oppose use of most of these tactics. definitions of key Understand definitions (on slides) of key ways of trade restriction: terms; packet pp. 160- tariffs, subsidies, quotas, “voluntary export restraints,” 167 for how the world administrative policies, local content requirements, “dumping.” trading system Development of world trading system: 1) arguments by political developed. philosophers led to free trade in 19th Century, 2) restrictions in early 20th Century contributed to Great Depression; 3) Bretton Woods conference (1944) produced General Agreement on Tariffs and Trade (GATT) (and World Bank, IMF). 4) Lack of enforcement mechanisms caused circumventing of GATT; 5) World Trade Organization was created 1995 with regulatory power. What has the World Trade Organization done? Resolved many more disputes; opened trade in telecommunications, services (including financial services agreement - that may not be working well) Regional Integration Free trade area/customs union (free trade inside the area: NAFTA) All required info is on Economic union (free trade, common tariffs, free mobility of the slides production factors, and harmonized rules: European Union) Foreign exchange Be able to define: money, foreign exchange, exchange rate, spot The key info is in the exchange rate, forward rate. Also bid, offer, and spread slides Understand how rates are set under fixed/pegged and floating rates Understand the concept of currency hedging; know that London is most common site for currency trading. Reasons why values of floating currencies change: inflation, budget and trade deficits, interest rates (higher rates drive currency value up). Chapter 10 History of international monetary system: 1) Gold standard to WW I; The International 2) breakdown followed by a new fixed rate system at 1944 Bretton Woods Monetary System conference – managed by International Monetary Fund; Packet pp. 179-194 3) new collapse and switch to floating rates during Vietnam War Understand both the advantages and the difficulties of fixed rates