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
New Global
Economy)
What is globalization? (be able to give a definition)
How has globalization affected production?
How has globalization affected markets? What kinds of products have
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)
What is culture? (Know Hofstede definition – though it’s not perfect)
Know that human groups have always tended to take for granted that
their own ways of doing things were natural and right.
What are values? Norms? (know the difference).
What are mores? Folkways? (They are both types of norms, but be able
Hill-packet pp. 1-20.
Chapter 3:
Differences in
Culture
Benedict-packet pp.
21-26;
Hill-packet pp. 7-32
“Institutions”-packet
pp. 33-34
Political Economy
and International
Business
Hill-packet pp. 107-132
“political risk”-packet
p. 133
to define & give examples.)
Know these standard dimensions of social structure of cultures:
- 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 economic systems create key institutions/“rules of the game.”
They differ enormously. Be able to think about what are the rules in a
place. Can they be relied on? (problems of corruption & of
undemocratic changes in nations without mature democracy)
Know benefits for business of mature democracy (constitutions limit
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
International Trade
Theory
The slides and the
Lauren Landsberg web
intro are most helpful
for understanding
these questions. See
packet pp. 160-162 for
economic arguments
for intervention in
trade.
Review Wolf (packet
pp. 135-155) when
thinking of your essay.
Topics in trade
See slides for
definitions of key
terms; packet pp. 160167 for how the world
trading system
developed.
What is political risk?
Define “free trade.” Why do economists believe there are gains from trade?
Explain Adam Smith’s “absolute advantage theory.” Explain Ricardo’s
comparative advantage theory. Why did Ricardo believe there were
gains even when one country is better at everything? How can you
identify a nation’s comparative advantage (see slides)? How did
Smith and Ricardo believe countries and people could best find the
activities where they had advantage? They favored free trade and
free competition among businesses. See Lauren Landsberg:
http://www.econlib.org/library/Topics/Details/comparativeadvantage.html
What do successful governments do to make efficient free trade
possible? Create infrastructure, education, institutions.
List limitations of comparative advantage theory. assumes resources,
including people, move freely; doesn’t address income distribution
What 2 kinds of culture does Martin Wolf say economies need (packet
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?“
Note: While we study ways of restricting trade, remember that most
economists oppose use of most of these tactics.
Understand definitions (on slides) of key ways of trade restriction:
tariffs, subsidies, quotas, “voluntary export restraints,”
administrative policies, local content requirements, “dumping.”
Development of world trading system: 1) arguments by political
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
All required info is on
the slides
Foreign exchange
The key info is in the
slides
Chapter 10
The International
Monetary System
Packet pp. 179-194
Free trade area/customs union (free trade inside the area: NAFTA)
Economic union (free trade, common tariffs, free mobility of
production factors, and harmonized rules: European Union)
Be able to define: money, foreign exchange, exchange rate, spot
exchange rate, forward rate. Also bid, offer, and spread
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).
History of international monetary system: 1) Gold standard to WW I;
2) breakdown followed by a new fixed rate system at 1944 Bretton Woods
conference – managed by International Monetary Fund;
3) new collapse and switch to floating rates during Vietnam War
Understand both the advantages and the difficulties of fixed rates