CHAP 27: INTERNATIONAL TRADE

1. What is international trade?

International Trade is the buying and selling of Gs &SVs between different countries

BENEFITS
Regional specialization
High level of production
Better standard of living
Worldwide availability of Gs &SVs
Equalisation of prices & wages
Diffusion of knowledge and culture
DRAWBACKS
Dependence on other countries
Uneven levels of development
Exploitation
Commercial rivalry leading to wars

2. Risk Issues
 Country Risk (war, stable political climate, revolution, positive economic environment,…)
 Foreign Exchange Risk (volatile foreign currency)
 Commercial Risk (default or termination, reliable information concerning the company track record, insolvency
of trading partner,…)
 Seller’s Risk (distance, credit worthiness of buyer, disputes, restriction by government,…)
 Buyer’s Risk (late arrival of goods, damaged goods, goods not as per contract requirement,..)
 Force Major
3. Theories of International Trade
a. Classical Country-Based Theory
 Mercantilism (16th-19th centuries): a country should export more than it imports to become strong.
 Absolute Advantage: Ability of a country to produce a good more efficiently and cost-effectively than any
other countries
 Comparative Advantage: Ability of a country to produce a good at a lower opportunity cost than a different
country
 Heckscher-Ohlin: country should export products that use their abundant and cheaper factor of production
and import products that the countries” scarce factor
b. Mordern Firm-Based Theories
 Product Life Circle: Stages of scale
 New trade theory: Economies of scale and first mover advantage
 Porter National Competitive Advantage: Porter’s Diamond (factor endowment, demand conditions, related
& supporting industries and film strategy, structure & rivalry

4. Protectionism and Free Trade

a. Protectionism: the use of trade barriers to protect industries from foreign competition
Type:
 Tariffs: tax placed on imported G&SV
 Quota: Quantitative limits that prevent too many foreign products into a country
 Subsidy: Payments made by government to a domestic business as an aid
 Embargo: Physical bans on international trade with certain countries
 Standard: Imposition on strict standards(health & safety) on certain imported products.
 Voluntary export restraints (ver): VERs are quota on trade imposed by expoting country, typically at the
request of importing country’s government.
 Exchange rate controls: Exchange rate control refers to what a government of a country adopt to effect
exchange rates so as to intervene in foreign exchange markets.
 Regulatory and administrative barriers: they are rules, regulations or policies such as environmental
standard, customs, culture which are imposed by a government in order to introduce barriers to imports.
b. Free Trade: Agreement among countries when there are no barriers to trade put in place by government or
international organizations in order that G freely move cross their borders.
CHAP 24: CORPORATE SOCIAL
RESPONSIBILITY
1. Corporate social responsibility: is the commitment by business to behave ethically and contribute to economic
development while improving the quality of life of workforce and their families as well as of the local community
and society at large.
2. Types:
 Ethical CSR
 Altruistic CSR
 Strategic CR
3. Carroll’s Pyramid of Social Responsibility (1991)
 Philanthropic Responsibility
 Ethical Responsibility
 Legal Responsibility
 Economic Responsibility

CHAP 23: BUSINESS CYCLE

1. Business cycle(economic cycle) refers to a phenomenon that a cyclical economic contraction cycle in the
economy.
2. Phrase of Business
 Recovery phrase
 Expansion(growth) phrase
 Boom(peak) phrase
 Recession phrase
 Trough(depression)
3. Causes of business cycle
a. Internal factors
 Consumption: consumer spending increase, business increase->hire more workers and purchase more
materials & capital goods. And opposite
 Business investment: investment increase, economy grow
 Government activity: influence the business cycle through fiscal policy(tax and spend oilicies) and monetary
policy(control of money supply)
b. External factors
 Inventions and innovation (technology influence business cycle)
 Wars and political events
4. Keynesianism and Monetarism
a. Keynesianism: promote the government intervention through fiscal policies(taxes, government policies, or
budget) the function of Ministry of Finance
b. Monetarism: promote free market economy through monetary policies(cash reserve ratio(CRR), statutory
liquidity ratio(SLR), money supply, exchange rate or the function of central bank.

CHAP 22: GOVERNMENT AND TAXATION

1. Three Branches of Government
Constitution: provided a separation of powers
 Legislative (makes laws): Headed by Congress (Senate and House of Representatives)
 Executive (carries out laws): Headed by the President (The White House)
 Judicial (evaluates laws): Headed by Supreme Court
2. Three Types of Government
 National Government: expressed, implied and inherent powers
  National and State Government: Concurrent powers
 State Government: Reserved powers
3. Taxation: Government finance their expenditure by imposing charges on citizens and corporate entities…
a. Types of Taxes
 Direct Tax: is paid directly by an individual or organization to an imposing entity (income tax, wealth tax,
corporate tax, gift tax)
 Indirect Tax: is a tax imposed on one person but partly or wholly paid by another. In direct tax, person
paying and bearing tax is different. It is the tax on consumption or expenditures (excise tax, customs duty,
sales tax)
b. Terms
 Income Tax: tax on income of a person
 Wealth Tax: tax on wealth of a person
 Excise Tax: tax on manufacturing of goods
 Sales Tax: tax on sale of goods from one state to another state
 VAT: tax on sale of goods with in a state
 Service Tax: tax on services
 Import Duty: tax on purchase of goods outside country
 Export Duty: tax on sale of good outside country
 Progressive Tax: income increase -> average tax rate increase (US Federal income tax)
 Regressive Tax: income increase -> average tax decrease (gasoline tax, bridge tax)
 Proportional Tax: regardless of income level -> average tax rate unchanged (flat income tax, corporate taxes)
 Excise Tax: flat rate per unit -> paid at purchase (gasoline has $0,50 per gallon, cigarettes over $2 per pack)
c. Tax avoidance and Tax evasion
 Tax Avoidance: A legal method used to reduce taxes, it takes advantages of the loopholes in the laws of
taxation
 Tax Evasion: A illegal method that can lead to criminal prosecution, it goes against the taxation laws and is
done in an unfair manner

CHAP 19: ACCOUNTING AND FINANCE

1. Types of Accounting
a. Government Accounting
b. Financial Accounting: provides information to stockholders, creditors and others outside the organization.
c. Managerial Accounting: process of identifying, analysing, recording and presenting financial information that
used for internally by the management for planning, decision making and control.
d. Public Accounting: process of auditing financial statements, designing financial accounting systems, assisting
in the managerial accounting function, providing managerial advisory services, and tax preparation.
e. Fiduciary Accounting
f. Tax Accounting
g. Creative Accounting
2. Financial Statements: a collection of reports about an organization’s financial results, financial condition,
and cash flows.
Income Statement  Statement of Cash Flows  Balance Sheet
Balance Sheet: one of the financial statements and is a statement of assets and liabilities of an enterprise at
a given date.
Retained Earning Statement: shows the retained earnings at the beginning and end of accounting period.
Statement of Cash Flows: include operating, investing and financing activities.

CHAP 14: BANKING

1. Banking: can be defined as the business activity of accepting and safeguarding money owned by other
individuals entities, and then lending out this money in order to earn a profit.
 2. Banking Service including: current accounts, saving accounts, overdraft facilities, financial services,
investment services, foreign exchange services, insurance facilities, mortgage facilities, pension schemes,
online banking facilities.
3. Types of Banks
a. Central Bank: Lender of Last Resort to Banks, Lender of Last Resort to Government, Ensure Stable
Financial System, Growth & Employment, Achieve Marco Economic Targets, Set Interest Rates, Inflation
Targets, Issue Notes and Coins
b. Commercial Bank: financial institution that provides deposit, current(checking) and saving accounts to
individuals, organizations and businesses, it also lends money
c. Investment Bank: it consults on merges and acquisitions, among other things and works in the
investment markets and do not take customer deposits
d. Retail Banking: provide financial services towards consumers via channels
e. Universal Bank: also known as financial services companies, are diversified businesses involved in both
retail banking and investment banking

CHAP 12: MARKETING

1. Marketing: finding out what people want and creating products, services or ideas that match those needs
2. The businesses’ attitude to marketing  Marketing Orientation: starts with the consumer and looks at
consumer needs
Consumer needs  Potential market opportunities  Marketing product and services  Customers

3. Market Research: the systematic gathering, recording, and analysing of data about problems relating to the
marketing of G & SV
Two main types: Primary Research
Secondary Research
4. The Four P’s: the marketing mix often referred to as the Four P’s
Product: product or service that customer buys (quality, variety, design, feature, brand name, packaging,..)
Price: how much customer pays for product (list price, discounts, allowances, payment period, credit terms)
Place: how product is distributed to customer (channels, coverage, locations, transportation, logistics,..)
Promotion: how customer is found and persuades to buy (advertising, personal selling, sale promotions,..)
CHAP 1: MANAGEMENT
1. Management: is an art of getting things done through and with people towards attainment of group goal in
formally organized groups
Management combines features of both science and arts. Art because managing requires certain skills
(personal possessions of managers). Science provides knowledge and art deal with application of knowledge
and skills.
2. Function of management:
 Planning: deciding in advance – what to do, when to do & how to do. It bridges the gap from where we
are & where we want to be => setting performance objectives and deciding how to achieve them
 Organizing: process of bringing together physical, financial and human resources and developing
productive relationship amongst them for achievement of organizational goals => arranging tasks,
people, and other resources to accomplish the work
 Staffing: involves manning the organization structure through proper and effective selection, appraisal &
development of personal to fill the roles designed in the structure
 Directing: deals directly with influencing, guiding, supervising, motivating subordinates for achievement
of organizational goals.
 Controlling: measurement & correction of performance activities of subordinates in order to make sure
that enterprise to obtain them as being accomplished => process of monitoring performance and taking
action to ensure desired results
3. Level of management
 Top managers: set objectives, scan environment, plan and make decisions
 Middle managers: allocate resources, oversee first-line managers, report to top management, develop
and implement activities
 First-line managers: coordinates activities, supervise employees, report to middle managers, involved in
day to day operations