IB CONCEPT QUESTIONS

1) Absolute advantage: A country has an absolute advantage in the production when it is

more efficient than any other country at producing it.
2) Antidumping policies: Designed to punish foreign firms that engage in dumping and
thus protect domestic producers from unfair foreign competition

3) Air Way Bill An air waybill (AWB) is a document that accompanies goods shipped by
an international courier to provide detailed information about the shipment and allow it to
be tracked. The bill has multiple copies so that each party involved in the shipment can
document it.
4) Association of south East Asian nations (ASEAN): Formed in 1967,an attempt to
establish a free trade between Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
the Philippines, Singapore, Vietnam, and Thailand.
5) Balance of payment accounts: It is the national accounts that track both payments to
and receipts from foreigners.
6) Balance of trade equilibrium: Reached when the income a nation’s residents earn from
exports equals money paid for imports.
7) Bandwagon effect: Movement of traders like a herd, all in the same direction and at the
same time, in response to each other’s perceived actions.
8) Barter: It is the direct exchange of goods or services between two parties without a cash
transaction.
9) Bill of exchange: It is an order written by an exporter instructing an importer, or an
importer’s agent, to pay a specified amount of money at a specified time.
10) Bill of lading: It is a document issued to an exporter by a common carrier transporting
merchandise. It serves as a receipt, a contract, and a document of title.
11) Bretton woods: It is a 1944 conference in which representatives of 40 countries met to
design a new international monetary system.
12) Caste System: Caste system is a system of social stratification in which social position is
determined by the family into which a person is born, and change in that position is
usually not possible during an individual's lifetime.
13) Central America Free Trade Agreement (CAFTA): It is the agreement of the member
states of the Central American Common Market joined by the Dominican Republic to
trade freely with the United States.
14) Certificate of Inspection: A document certifying that merchandise (such as perishable
goods) was in good condition at the time of inspection, usually immediately prior to
shipment. Pre-shipment inspection is requirement for importation of goods into many
developing countries.
15) Certificate of Origin/GSP - CO' A document declaring in which country a commodity
or good was manufactured. The certificate of origin contains information regarding the
product's destination and country of export and is required by many treaty agreements
before being accepted into another nation.
16) CIF - Cost, Insurance, Freight (2000 and 2010)
The seller delivers when the goods pass the ship's rail in the port of shipment. Seller must
pay the cost & freight necessary to bring goods to named port of destination. Risk of loss
& damage same as CFR. Seller also has to procure marine insurance against buyer's risk
of loss/damage during the carriage. Seller must clear the goods for export. This term can
only be used for ocean transport.
17) Class system: It is a system of social stratification in which social status is determined by
the family into which a person is born and by subsequent socioeconomic achievements.
Mobility between classes is possible.
18) Collectivism It is an emphasis on collective goals as opposed to individual goals.
19) Comparative Advantage :Ricardo’s theory of comparative advantage suggests that
countries should specialize in the production of those goods they produce most efficiently
and buy goods that they produce less efficiently from other countries, even if this means
buying goods from other countries that they could produce more efficiently at home
20) Countertrade: It is the trade of goods and services for other goods and services.

21) C&F It means Cost and Freight. Cost refers to the cost of goods and freight refers to all
other costs relating to all the means of transportation of the goods. It means that the seller
must pay the costs and freight necessary to bring the goods to a named port of destination
 and must also procure marine insurance against the buyer's risk or loss to the goods
during the carriage.
22) Customs House Agents In India, a customs house agent (CHA) is licensed to act as
an agent for transaction of any business relating to the entry or departure of conveyances
or the import or export of goods at a customs station. CHAs maintain detailed, itemized
and up-to-date accounts. A CHA license may be temporary or permanent.
23) Democracy: It is a Political system in which government is by the people, exercised
either directly or through elected representatives.
24) Deregulation: It is a Removal of government restrictions concerning the conduct of a
business.
25) Dumping: It is selling goods in a foreign market for less than their cost of production or
below their "fair" market value.
26) Economic union It is a group of countries committed to
 Removing all barriers to the free flow of goods, services, and factors of
production between each other,
 The adoption of a common currency,
 The harmonization of tax rates, and
 The pursuit of a common external trade policy.

27) ECGC The ECGC Limited (Formerly Export Credit Guarantee Corporation of India

Ltd) is a company wholly owned by the Government of India based in Mumbai,
Maharashtra. It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce.
28) Ethnocentric: It is staffing a staffing approach within the MNE in which all key
management positions are filled by parent-country nationals.
29) Ethnocentrism: It is belief in the superiority of one's own ethnic group or culture
30) European Free Trade Association (EFTA) It is a free trade association including
Norway, Iceland, and Switzerland.
31) European Union (EU) It is an economic group of 25 European nations. Established as a
customs union, it is now moving toward economic union. (Formerly the European
Community)
32) Exchange rate it is the rate at which one currency is converted into another.
33) Expatriate failure The premature return of an expatriate manager to the home country.
34) Expatriate manager A national of one country appointed to a management position in
another country.
35) Factor endowments A country's endowment with resources such as land, labor, and
capital.
36) Factors of production Inputs into the productive process of a firm, including labor,
management, land, capital, and technological know-how.
37) Fixed exchange rates A system under which the exchange rate for converting one
currency into another is fixed.
38) Floating exchange rates A system under which the exchange rate for converting one
currency into another is continuously adjusted depending on the laws of supply and
demand.
39) FOB: Free on board (FOB) is a trade term that indicates whether the seller or the buyer
has liability for goods that are damaged or destroyed during shipping. "FOB shipping
point" (or origin) means that the buyer is at risk while the goods are shipped, and "FOB
destination" means that the seller retains the risk of loss until the goods reach the buyer.
40) Franchising A specialized form of licensing in which the franchiser sells intangible
property to the franchisee and insists on rules to conduct the business.
41) Free trade the absence of barriers to the free flow of goods and services between
countries.
42) G20 Established in 1999, the 020 comprises the finance ministers and central bank
governors of the 19 largest economies in the world, plus representatives from the
European Union and the European Central Bank.
43) General Agreement on Tariffs and Trade (GATT) International treaty that committed
signatories to lowering barriers to the free flow of goods across national borders and led
to the WTO.
44) Geocentric staffing A staffing policy where the best people are sought for key jobs
throughout an MNE, regardless of nationality.
45) Globalization Trend away from distinct national economic units and toward one huge
global market.
46) Globalization of markets Moving away from an economic system in which national
markets are distinct entities, isolated by trade barriers and barriers of distance, time, and
culture, and toward a system in which national markets are merging into one global
market.
47) Globalization of production Trend by individual firms to disperse parts of their
productive processes to different locations around the globe to take advantage of
differences in cost and quality of factors of production.
48) Gold standard the practice of pegging currencies to gold and guaranteeing
convertibility.
49) Greenfield investment Establishing a new operation in a foreign country.
50) Gross national income (GNI) Measures the total annual income received by residents of
a nation.
51) Hecksher – Ohlin Theory
The Heckscher-Ohlin theory predicts that countries will export goods that make
intensive use of those factors that are locally abundant, while importing goods that make
intensive use of factors that are locally scarce
52) Import quota A direct restriction on the quantity of a good that can be imported into a
country.

53) Invoice An invoice is a commercial document that itemizes a transaction between a

buyer and a seller. If goods or services were purchased on credit, the invoice usually
specifies the terms of the deal, and provides information on the available methods of
payment. An invoice is also known as a bill or sales invoice.
54) Infant industry argument New industries in developing countries must be temporarily
protected from international competition to help them reach a position where they can
compete on world markets with the firms of developed nations.
55) International Monetary Fund (IMF) International institution set up to maintain order in
the international monetary system.
56) Joint venture a cooperative undertaking between two or more firms.
57) Letter of credit Issued by a bank, indicating that the bank will make payments under
specific circumstances.
58) Licensing Occurs when a firm (the licensor) licenses the right to produce its product, use
its production processes, or use its brand name or trademark to another firm (the
licensee). In return for giving the licensee these rights, the licensor collects a royalty fee
on every unit the licensee sells.
59) Mercantilism
 Mercantilism suggests that it is in a country’s best interest to maintain a
trade surplus -- to export more than it imports
 Mercantilism advocates government intervention to achieve a surplus in
the balance of trade
 It views trade as a zero-sum game - one in which a gain by one country
results in a loss by another
 Countries should export more than they import and receive the value of
trade surplus in the form of gold from those countries which experience
trade deficit
60) Multinational enterprise (MNE) A firm that owns business operations in more than one
country.
61) National Competitive Advantage: Porter’s Diamond:The Porter Diamond, properly
referred to as the Porter Diamond Theory of National Advantage, is a model that is
designed to help understand the competitive advantage nations or groups possess due to
certain factors available to them, and to explain how governments can act as catalysts to
improve a country's position in a globally competitive economic environment. The model
was created by Michael Porter, a recognized authority on corporate strategy and
economic competition, and founder of The Institute for Strategy and Competitiveness at
the Harvard Business School. It is a proactive economic theory, rather than one that
simply quantifies comparative advantages that a country or region may have.
Michael Porter tried to explain why a nation achieves international success in a
particular industry and identified four attributes that promote or impede the creation of
competitive advantage:
 Factor endowments
 Demand conditions
 Relating and supporting industries
  Firm strategy, structure, and rivalry
62) North American Free Trade Agreement (NAFTA) Free trade area between Canada,
Mexico, and the United States.
63) Offshore production FDI undertaken to serve the home market.
64) Oligopoly An industry composed of a limited number of large firms.

65) Packing List A packing list is a document used for customs declaration that identifies
the quantity, weight, dimensions, and carton count of the shipped products.

The information listed on the Commercial Invoice must match the corresponding fields
on the Packing List (e.g., the quantity of units for each product should be the same on
both the Commercial Invoice and the Packing List).

66) Privatization The sale of state-owned enterprises to private investors.

67) Product Life Cycle Theory This Theory was introduced by Raymond Vernon in mid
1960s. It states that the location of the production of certain kind of products shifts as
they go through their life cycles. A product life cycle consists of four stages:
Introduction, Growth, Maturity and Decline.
68) Subsidy: Government financial assistance to a domestic producer.
69) Tariff: A tax levied on imports.
70) Tax haven: A country with exceptionally low, or even no, income taxes.
71) The Leontief’s Paradox Leontief's paradox in economics is that a country with a higher
capital per worker has a lower capital/labor ratio in exports than in imports. This
econometric find was the result of Wassily W. Leontief's attempt to test the Heckscher–
Ohlin theory ("H–O theory") empirically.
72) Turnkey project A project in which a firm agrees to set up an operating plant for a
foreign client and hand over the "key" when the plant is fully operational.
73) Wholly owned subsidiary A subsidiary in which the firm owns 100 percent of the stock.
74) World Bank International institution set up to promote general economic development in
the world's poorer nations.
75) World Trade Organization (WTO) The organization that succeeded the General
Agreement on Tariffs and Trade (GATT ) as a result of the successful completion of the
Uruguay round of GATT negotiations.
76) Zero-sum game a situation in which an economic gain by one country results in an
economic loss by another.