Assignment
1. Hedging is a risk management strategy employed to offset losses in investments by
taking an opposite position in a related asset. The reduction in risk provided by hedging
also typically results in a reduction in potential profits. Hedging requires one to pay
money for the protection it provides, known as the premium.
Hedge, in finance, is to take an offsetting position in an asset or investment that
reduces the price risk of an existing position. A hedge is therefore a trade that is made
with the purpose of reducing the risk of adverse price movements in another asset.
Normally, a hedge consists of taking the opposite position in a related security or in a
derivative security based on the asset to be hedged.
2. Outsourcing is the business practice of hiring a party outside a company to perform
services or create goods that were traditionally performed in-house by the company's
own employees and staff. Outsourcing is a practice usually undertaken by companies
as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from
customer support to manufacturing to the back office.
Outsourcing was first recognized as a business strategy in 1989 and became an
integral part of business economics throughout the 1990s.The practice of outsourcing is
subject to considerable controversy in many countries. Those opposed argue that it has
caused the loss of domestic jobs, particularly in the manufacturing sector. Supporters
say it creates an incentive for businesses and companies to allocate resources where
they are most effective, and that outsourcing helps maintain the nature of free-
market economies on a global scale.
3. Transfer pricing is an accounting practice that represents the price that one division in
a company charges another division for goods and services provided.
Transfer pricing allows for the establishment of prices for the goods and services
exchanged between subsidiaries, affiliates, or commonly controlled companies that are
part of the same larger enterprise. Transfer pricing can lead to tax savings for
corporations, though tax authorities may contest their claims.
4. Usury is the act of lending money at an interest rate that is considered unreasonably
high or that is higher than the rate permitted by law. Usury first became common in
England under King Henry VIII and originally pertained to charging any amount of
interest on loaned funds. Over time it evolved to mean charging excess interest, but in
some religions and parts of the world charging any interest is considered illegal.
5. Trade barriers are the methods used by the government to control international trade.
Generally, government design and implement policies or regulations to obstruct the
excessive inflow of foreign goods to the country.
The decisions regarding trade barriers by nations are important to the world economy. A
world of stringent trade barriers can affect the opening up of new markets, trade, and
global economic growth. Furthermore, it can also contribute to economic depression.
6. Protectionism refers to government policies that restrict international trade to help
domestic industries. Protectionist policies are usually implemented with the goal to
improve economic activity within a domestic economy but can also be implemented for
safety or quality concerns.
7. A mixed economic system is a system that combines aspects of
both capitalism and socialism. A mixed economic system protects private property and
allows a level of economic freedom in the use of capital, but also allows for
governments to interfere in economic activities in order to achieve social aims.
According to neoclassical theory, mixed economies are less efficient than pure free
markets, but proponents of government interventions argue that the base conditions
required for efficiency in free markets, such as equal information and rational market
participants, cannot be achieved in practical application.
8. Mercantilism was an economic system of trade that spanned the 16th century to the
18th century. Mercantilism was based on the principle that the world's wealth was
static, and consequently, governments had to regulate trade to build their wealth and
national power. Many European nations attempted to accumulate the largest possible
share of that wealth by maximizing their exports and limiting their imports via tariffs.
9. A letter of credit, or a credit letter, is a letter from a bank guaranteeing that a buyer’s
payment to a seller will be received on time and for the correct amount. If the buyer is
unable to make a payment on the purchase, the bank will be required to cover the full or
remaining amount of the purchase. It may be offered as a facility (financial assistance
that is essentially a loan).
Due to the nature of international dealings, including factors such as distance, differing
laws in each country, and difficulty in knowing each party personally, the use of letters
of credit has become a very important aspect of international trade.
10. Foreign direct investment (FDI) is an ownership stake in a foreign company or project
made by an investor, company, or government from another country.
Generally, the term is used to describe a business decision to acquire a substantial
stake in a foreign business or to buy it outright to expand operations to a new region.
The term is usually not used to describe a stock investment in a foreign company alone.
FDI is a key element in international economic integration because it creates stable and
long-lasting links between economies.
11. Balance of trade (BOT) is the difference between the value of a country's exports and
the value of a country's imports for a given period. Balance of trade is the largest
component of a country's balance of payments (BOP). Sometimes the balance of trade
between a country's goods and the balance of trade between its services are
distinguished as two separate figures.
The balance of trade is also referred to as the trade balance, the international trade
balance, the commercial balance, or the net exports.
12. With foreign exchange investments, the strategy known as arbitrage lets traders lock in
gains by simultaneously purchasing and selling an identical security, commodity, or
currency, across two different markets. This move lets traders capitalize on the differing
prices for the same said asset across the two disparate regions represented on either
side of the trade.
13. Expropriation is the act of a government claiming privately owned property against the
wishes of the owners, ostensibly to be used for the benefit of the overall public. In the
United States, properties are most often expropriated in order to build highways,
railroads, airports, or other infrastructure projects. The property owner must be paid for
the seizure since the Fifth Amendment to the Constitution states that private property
cannot be expropriated "for public use without just compensation."
14. Import duty is a tax collected on imports and some exports by a country's customs
authorities. A good's value will usually dictate the import duty. Depending on the
context, import duty may also be known as a customs duty, tariff, import tax or import
tariff.
15. International marketing is the marketing of products or services outside of your brand's
domestic audience. Think of it as a type of international trade. By expanding into foreign
territories, brands are able to increase their brand awareness, develop a global
audience, and of course, grow their business.
