Chapter 9
POLITICAL & ECONOMIC FACTORS AFFECTING INTERNATIONAL
BUSINESS
Important Terms
1. Centrally Planned Economy An economy in which the government regulates
the amount, distribution, and price of goods and services
2. Currency Devaluation The reduction by a government of the value of its
currency relative to currencies of other nations
3. Currency Revaluation The adjusting of a country's currency value upwards
4. Democracy Government for and by the people
5. Economic Imperialism The policy or act of extending the rule or authority of one
country over other countries by dominating those countries' economic structures
6. Economic System The factors of production and the rules and regulations
involving production and consumption of goods and services
7. Equilibrium The point at which a business can sell its product at a profit and
where the consumers agree to pay the asking price
8. Exchange Controls Political and economic measures used by a government to
try to regulate the amount and value of its currency
9. Expropriation To take control and ownership (usually by governments) of land,
property, assets, or a private enterprise, whether domestic or foreign
10. Floating Rate A rate of currency exchange that is not fixed and tends to fluctuate
over time through buying and selling on the currency exchange market
11. Foreign Investment The purchase by non-residents of business enterprises,
land, shares, and any other assets with the potential for financial return
12. General Instability Risk Possibility of uncertainty of political or economic
change
13. Global Economy The combined, interdependent economies of all countries
14. Global Equity Market An international stock market that electronically links
stock exchanges in key cities of the world
15. Market Economy A system where individual companies and consumers make
decisions about what, how, and for whom goods and services are produced
16. Mixed Economy An economy that combines government involvement and
private ownership of businesses, has aspects of both market and centrally
planned economics systems
17. Operations Risk Possibility that host government policies and acts may impede
business operations in another country
18. Ownership Risk Risk of losing ownership of property (plants, factories, offices),
business, and assets when threatened by government takeover (nationalization)
or by expropriation
19. Political Risk Risk of negative political change or instability, assessed by looking
at the host country's current or future political system and examining how
changes to its stability might cause a loss to investors
20. Privatize To sell publicly owned assets or enterprises to the private sector
21. Repatriation of Earnings Either retaining a portion of profit by a foreign host
government, or paying profit to the parent company
22. Think Tank An organization, institution or group that studies and researches
specific topics and issues often of an economic and political nature
23. Supply and Demand The relationship between the demand for something and
the supply or availability of it which usually affects prices and production
24. Totalitarian Government with centralized power that often uses the military to
control the country
25. Trade War Situation in which governments act aggressively in international
markets and trade negotiations to promote their own countries' trading interests
26. Transfer Risk The possibility that government policy may adversely affect
currency exchange rates