Encyclopedia of Business in Today's World


Edited by: Charles Wankel

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    • Editorial Advisory Board

      David M. Brock, Ph.D.

      Ben-Gurion University and Yeshiva University

      Sabine Hoffman, Ph.D.

      American University of the Middle East

      Janice M. Traflet, Ph.D.

      Bucknell University

      Andrew J. Waskey, Ph.D.

      Dalton State College


      View Copyright Page

      About the General Editor

      Charles Wankel, Associate Professor of Management at St. John's University, New York, holds a doctorate from New York University. His authored and edited books include 21st Century Management: A Reference Handbook, Reinventing Management Education for the 21st Century, Innovative Approaches to Global Sustainability, The Cutting Edge of International Management Education, Alleviating Poverty through Business Strategy, Global Sustainability Initiatives: New Models and New Approaches, University and Corporate Innovations in Lifetime Learning, Educating Managers with Tomorrow's Technologies, Educating Managers through Real World Projects, New Visions of Graduate Management Education, Innovative Approaches to Reducing Global Poverty, Being and Becoming a Management Education Scholar, and the bestselling Management.

      He is the founder and leader of eight scholarly virtual communities for management professors with 8,000 members in 90 nations. He is internationally prominent and has been a Fulbright Scholar and was sponsored by the United Nations Development Program and the Soros Open Society Fund in Lithuania. He has been a visiting professor lecturing around the world including at the Chiba University of Commerce in Japan, and was the 2004 Keynote Speaker at the Nippon Academy of Management Education; Distinguished Speaker at the Education without Borders Conference in Abu Dhabi, United Arab Emirates; and Keynote Speaker at the Association of MBAs Latin America Conference for Deans and Directors.

      Dr. Wankel was awarded the Outstanding Service in Management Education and Development Award at the Academy of Management's 2004 meeting. Columbia University's American Assembly identified him as one of the nation's top experts on Total Quality Management. His Fortune 50 consulting clients include McDonald's Corporation and IBM.

      Editorial Advisory Board

      David M. Brock, Ph.D.

      Ben-Gurion University and Yeshiva University

      Sabine Hoffman, Ph.D.

      American University of the Middle East

      Janice M. Traflet, Ph.D.

      Bucknell University

      Andrew J. Waskey, Ph.D.

      Dalton State College


      Business in today's world is one of increasing diversity. Undertaking commerce even by an individual can mean working globally through a welter of new media with opportunities of all sorts rapidly appearing. The boundaries, scope, content, structures, and processes of a business activity can morph into completely different ones in the course of a project. Contemporary businesses and certainly future businesses find it incumbent upon them to fit with the requirements of environmental and economic sustainability of the others who inhabit our world. Of course the practices, technologies, and tools of business are currently utilized by professional managers in government, education, arts organizations, not-for-profit organizations, political organizations, social service organizations, etc. That is, rather than having an opera company run by a former singer who charms its patrons, what is expected is a former singer who is a professional manager who is adept at grappling with the issues, requirements, and expectations associated with responsible business.

      With about 1,000 entries written for this volume by experts from an incredible diversity of fields, this volume provides the opportunity for understanding the landmarks and their interrelationships in the wide domain of business. These volumes indeed enable a person to come to understand what the key issues of a business topic are, and then examine associated topics to emerge with an expanding understanding of any of many areas of business. Thus, users of this encyclopedia may use it as a GPS to navigate them into the language and ideas of the main conceptual terrain of business.

      This encyclopedia is designed to include a vast range of different types of entries, including key companies, business policies, regions, countries, dimensions of globalization, economic factors, international agreements, financial instruments, accounting regulations and approaches, theories, legislation, management practices and approaches, ethical and social responsibility issues, legal and contractual structures, professional organizations, technologies, marketing and advertising topics, research and development practices, operations management, and logistics terms, with a global perspective. The wealth of topics included here reflects an integrated vision by the editor of a welter of functions, technologies, and environmental factors. In the past century most business topics were free-standing and mostly of interest to narrow specialists in related departments and organizations. However, the 21st century is one of cross-boundary actions. For example, Amazon incorporates the knowledge of prosumers' book and other product reviews as part of its service to customers. Wal-Mart has suppliers who are alerted by data fed to them by the scanning of RFID tags when the product levels of a particular shelf in a particular Wal-Mart store or in Wal-Mart stores of a particular region or country indicate that it is time to initiate the production packaging and shipping of their products to Wal-Mart. These vendors actually might better understand parts of Wal-Mart's inventory sales, promotions, and requirements better than Wal-Mart managers.

      Such new types of partnering create new terms and topics that those wishing to successfully engage and utilize must understand. Increasingly used structural approaches such as outsourcing and offshoring transcend the still important and now classic conceptualization of international business through an understanding of intercultural issues, the political and economic environment of key countries around the world, home country and host country issues, joint ventures, multinational corporations, international negotiations.

      Globalization is a by-word of the current business epoch. Today it is normal for a business in a developed country to employ clerks, technicians, salespeople, customer relations agents, and increasingly professionals such as managers, engineers, and researchers in emerging market nations such as India, China, and Vietnam. Increasingly, corporate teams work virtually with team members distributed around the world. New technologies provide interfaces that are coming to replicate and in some ways even improve on the kind of exchanges that traditionally were only available in face-to-face situations.

      So, for example, it has been predicted that most people in companies will do part of their work by 2012 using three-dimensional augmented reality interfaces such as that provided by virtual worlds such as Second Life. The need for people in organizations to understand associated newly arising terms and topics such as crowdsourcing, avatars, and teleporting, therefore, is significant.

      In the post-Enron, post-Bhopal, post-Three Mile Island, post-Exxon Valdez, and post-9/11 environment, business and society issues and topics refract off each other with new meanings. For example, what in the past might have just been a climate of corruption, bribery, ineptness, and lack of accountability, now in this or that far-flung place today might have global implications. So, the editor of this volume was engaged by Columbia University to teach cutting-edge human resource management (HRM) topics in a Russian oil company in Nizhny Vartovsk, Siberia, where just as in U.S. oil companies, the sharing of cutting-edge management technologies and approaches was proceeding at a rapid rate. Notions such as whistle-blowing, managing stakeholders, alleviating poverty through business strategy, and microfinance are increasingly important for those interested in understanding business to know.

      Management information systems are a new universe of technologies, and the terms and topics that encompass them, from just 15 years ago. New applications and functions have proliferated, including e-commerce, the blogosphere, social networking (including Facebook and LinkedIn), digital dashboards, e-learning, executive support systems, internet, intranets, extranets, identity theft, moblogs, privacy, spam, transaction processing systems, virtu-alization, virtual companies, VoIP, business process reengineering, data warehouses, and customer relationship management (CRM).

      Operations management is a field of business that is undergoing many structural and technological changes. The quality management revolution starting in Japan and developing in the mid-80s in the United States and Europe has been overtaken by new issues of global supply chain procurement and distribution. New approaches to designing services take on more import in a service economy. Service blueprinting, front office and back office activities, and servicescapes are among the new by-words. Location analysis, hybrid layout design, and process product and fixed position layouts are increasingly structured in their deployment. Enterprise resource planning (ERP) is increasingly sophisticated with new connectivity and integration issues.

      Management strategy has been redefined in the United States by agency theory, the resource-based view of the firm, and such important accounting legislation as the Sarbanes-Oxley Act. New types of financial instruments and their deployment through a wider than traditional spectrum of organizational types resulted from deregulation. The looseness and oversight of this new environment resulted in a looseness in financial dealings. Financial institutions worldwide have been shaken by the great mortgage crisis of 2008. This followed the bailing out of Bear, Stearns, & Co. Inc., a leading global investment banking and securities trading firm, by the American federal government. The world economy is increasingly integrated. The European Union (EU) and NAFTA are just two of many such international structures that foster freer trade. The high price of oil in 2008 reflects the ongoing power of OPEC.

      Marketing is no longer just a department in a company; rather it entails the collaboration of many departments, vendors, and even customers working together to market products and services. Today we find companies such as Dunkin' Donuts focusing on the quick provision of inexpensive cups of coffee to go and at the same time other companies such as Starbucks going beyond that to market an entire experience, lifestyle, variety of flavors, and even music to their target market.

      We see lateral and vertical marketing, yet the classic mix of the 4Ps of product, price, place, and promotion still frame marketing decisions. Pricing decisions can spring from such varied strategies and focuses as penetration, competition's price, bundling, differential product line pricing across different price-points, psychological selection of price amounts, and premium pricing to exclusive target markets. Advertising nowadays at times includes subliminal or covert messages. Internet advertising is arising in many new varieties. Marketing has gone from international marketing to global marketing, where marketing decisions are made to apply across multiple countries.

      This encyclopedia is current and packed with essential and up-to-date information on the state of business in our world. Not only does it reflect where business is, but also conveys the trajectory of business further into the 21st century. The current status of English as the new Esperanto is having a big impact on business around the world. Many business schools in all parts of the world are now offering courses and programs in English. This is creating a need for a reference that will explain English language topics and terms, in university, business, and public libraries. Coverage of the global has not been at the expense of the local. This encyclopedia provides insight into the development and current business situation in a wide spectrum of nations through articles on many individual countries.

      Our hundreds of article authors, with their knowledge of a wide range of literatures, provide bibliographic recommendations for those seeking more specific information. Sometimes as in the case of the article on Austria, this might include a link to a Web site that might offer the ongoing updates of the nation's statistical data. The editor hopes that the Encyclopedia of Business in Today's World will provide clear overviews of the important business topics of our time.

      CharlesWankel General Editor

      Reader's Guide

      List of Entries

      List of Contributors

      Abbeloos, Jan-Frederik J., Ghent University

      Abdallah, Wissam, Lebanese American University

      Adams, Laurel, Northern Illinois University

      Agarwalla, Sobhesh Kumar, Indian Institute of Management

      Al-Ahmad, Zeina, Tishreen University

      Anastakis, Dimitry, Trent University

      Anderson, Donna M., University of Wisconsin-La Crosse

      Andreeva, Irina, University of Manchester

      Andrews, Mitchell, University of Sunderland

      Apfelthaler, Gerhard, California Lutheran University

      Araujo Turolla, Frederico, Escola Superior de Propaganda e Marketing

      Arun, Thankom, University of Central Lancashire Business School

      As-Saber, Sharif N., Monash University

      Ayadi, M. Femi, University of Houston-Clear Lake at Texas Medical

      Ayadi, O. Felix, Texas Southern University

      Baer, Steven D., Weber State University

      Bakir, Caner, Koç University

      Balla, Vassilild, Athens University of Economics and Business

      Ballas, Panagiotis, University of Manchester

      Bamber, Greg J., Monash University

      Barker, Michelle, Griffith University

      Barrera, Juan Carlos, Elmhurst College

      Barrios, Marcelo, Escuela de Direccion de Empresas

      Barron, Andrew, ESC Rennes School of Business

      Beaulier, Scott A., Mercer University

      Bennett, Kenneth C., Griffith University

      Berg, David M., University of Wisconsin-Milwaukee

      Betschinger, Marie-Ann, University of Münster

      Bhasin, Balbir B., Sacred Heart University

      Bodson, Laurent, University of Liège, Belgium

      Boehe, Dirk Michael, University of Fortaleza

      Bögenhold, Dieter, Free Universitz of Bolzano

      Bonin, Hubert, Bordeaux University

      Boughey, David, University of the West of England

      Bozionelos, Nikos, University of Durham

      Braddock, Peter, University of Manchester

      Bragues, George, University of Guelph-Humber

      Brando, Carlos Andres, London School of Economics

      Bristow, Alexandra, Lancaster University Management School

      Brock, David M., Ben-Gurion University

      Campbell, Bruce A., Franklin University

      Campbell, Kevin, University of Stirling

      Caracciolo di Brienza, Michèle, Graduate Institute of International and Development Studies, Geneva

      Carey, Catherine, Western Kentucky University

      Carveth, Rodney A., University of Hartford

      Chamberlin, Silas Adam, Lehigh University

      Chang, Beryl Y., European School of Economics

      Clements, Brian M. W., University of Wolverhampton Business School

      Connell, Carol M., City University of New York-Brooklyn College

      Connor, Tom, University of Bedfordshire

      Corby, Susan, University of Greenwich

      Corfield, Justin, Geelong Grammar School, Australia

      Cottrell, Marilyn, Brock University

      Cox, Mike, Newcastle University

      Cuervo-Cazurra, Alvaro, University of South Carolina

      Cullari, Francine, University of Michigan

      Cumo, Christopher, Independent Scholar

      Curran, Louise, Toulouse Business School

      Cusiter, Mark, University of Northampton

      Dacko, Scott G., University of Warwick

      Dauber, Daniel, Vienna University of Economics & Business Administration

      Davies, William, University of London

      DeGroote, Sharon E., Lawrence Technological University

      DelCampo, Robert G., University of New Mexico

      Demirbas, Dilek, Northumbria University

      Denault, Jean-Francois, Université de Montréal

      Dermody, Janine, University of Gloucestershire Business School

      Dholakia, Nikhilesh, University of Rhode Island

      DiStaso, Marcia Watson, Pennsylvania State University

      Dörrenbächer, Christoph, University of Groningen

      Drtina, Ralph, Rollins College

      Dunlap, Kyle C., University of Rhode Island

      Dupont, Brandon R., Western Washington University

      Egan, Terence R., Central University of Finance and Economics

      Espinosa, Daniel A., St. Thomas University School of Law

      Farrell, Carlyle, Ryerson University

      Fellman, Susanna, University of Helsinki

      Fenner, Charles R., Jr., SUNY-Canton

      Fernândez-Calienes, Raul, St. Thomas University School of Law

      Fischbach, Dirk, Hochschule Harz

      Florea, Liviu, Washburn University

      Fox, Loren, Independent Scholar

      Frederick, Howard H., Unitec New Zealand

      Freire de Lima, Maria Fernanda, Independent Scholar

      Froese, Fabian Jintae, Korea University Business School

      Fryzel, Barbara, Jagiellonian University

      Fullerton, Tom, University of Texas at El Paso

      Fürst, Sascha, EAFIT University

      Gabel, Terrance G., University of Arkansas-Fort Smith

      Gad, Marwa S., University of Warwick

      Garcia-Olmedo, Belen, University of Granada

      Gaur, Ajai, Old Dominion University

      Gaur, Sonjaya S., Auckland University of Technology

      Gemici, Kurtulus, University of California-Los Angeles

      Georgiou, Ion, Fundacäo Getulio Vargas

      Ghoshal, Animesh, DePaul University

      Godden, Christopher J., University of Manchester

      Gomez-Diaz, Donato, Universidad de Almeria

      Gonzalez-Perez, Maria-Alejandra, EAFIT University

      Gordon, Cameron, University of Canberra

      Gould, Marie, Peirce College

      Gregoratti, Catia, Universty of Manchester

      Gregory, Anne, Leeds Metropolitan University

      Grigoriou, Nicholas, Monash College Guangzhou

      Granning, Terje, University of Oslo

      Guay, Terrence, Pennsylvania State University

      Gupta, Sumeet, Icfai University, Dehradun-IBS

      Hab el, Cullen, University of Adelaide Business School

      Hadjichristodoulou, Celia, European University Cyprus

      Haghirian, Parissa, Sophia University

      Hall, Joshua C., Beloit College

      Hannif, Zeenobiyah, University of Wollongong

      Hansen, S. Duane, Purdue University

      Hart, David, Northumbria University

      Haynes, Michael, University of Wolverhampton Business School

      Hemphill, Thomas A., University of Michigan-Flint

      Higgins, David M., University of York

      Hipsher, Scott A., Royal Melbourne Institute of Technology

      Hodgins, Michael, Northumbria University

      Hoffmann, Sabine H., American University of the Middle East

      Hoist, Arthur M., Widener University

      Howell, Llewellyn D., Thunderbird School of Global Management

      Hudson, Bradford T., Boston University

      Ibarra-Colado, Eduardo, Universidad Autonoma Metropolitana

      Igel, Lee H., New York University

      Insch, Andrea, University of Otago

      Iyer, Uma Janardana, Austin Peay State University

      Jagd, S0ren, Roskilde University

      Jain, Arvind K., Concordia University

      Jeffs, Chris, Northumbria University

      Jones, Stacey M., Seattle University

      Jory, Surendranath R., University of Michigan-Flint

      Julian, Craig, Southern Cross University

      Karlsson, Tobias, Lund University

      Kazmi, Azhar, KingFahd University of Petroleum & Minerals

      Keeling, Drew, University of Zurich

      Kim, Dong-Woon, Dong-Eui University

      Kirkham, Elaine D., University of Wolverhampton Business School

      Koehler, Tine, George Mason University

      Korotov, Konstantin, European School of Management and Technology

      Kosmopoulou, Elena, University of Patras

      Kraus, Sascha, Vienna University of Economics & Business Administration

      Kte'pi, Bül, Independent Scholar

      Kyriakidou, Olivia, Athens University of Economics and Business

      Lacktorin, Michael, Akita International University

      Lai, Pei-Chun, National Pingtung University of Science and Technology

      Levendis, John, Loyola University New Orleans

      Lillevik, Waheeda, The College of New Jersey

      Lirio, Pamela, McGill University

      Liu, Chengwei, University of Cambridge

      Lominé, Loykie L., University of Winchester

      Lugovskaya, Lyudmila V., University of Cambridge

      Ma, Shan, Queensland University of Technology

      Machado, Marcelo A., Kwantlen Polytechnic University

      Maloney, Soren E., University of Cambridge

      Malul, Mild, Ben-Gurion University

      Manning, Dorothy, Northumbria University

      Martins, Miguel, University of Wolverhampton

      Mascarenhas, Briance, Rutgers University

      Mathur, Ashok C., Independent Consultant

      Matos, Nancy, Esan University

      Maura Costa, Ligia, Escola de Administraçâo de Empresas de Säo Paulo (FGV-EAESP)

      McNulty, Yvonne, Monash University

      Mennel, Eva, International Finance Corporation

      Metzger, Matthew L., University of Oregon

      Meyskens, Moriah A., Florida International University

      Mishra, Patit Paban, Sambalpur University

      Monem, Reza, Griffith University Business School

      Morriss, Andrew P, University of Illinois

      Moser, Reinhard, Vienna University of Economics & Business Administration

      Mosk, Carl, University of Victoria

      Moskowitz, Sanford L., St. John's University

      Mowell, Barry D., Broward College

      Mukhopadhyay, Kausiki, University of Denver

      Munoz, J. Mark S., Millikin University

      Musson, Tim, Napier University

      Mykhnenko, Vlad, University of Nottingham

      Nadgauda, Seemantinee, Rutgers University

      de Nahlik, Carmel F., Coventry University

      Nanut, Vladimir, Université di Trieste-Facoltà di Economia

      Nathan, Maria L., Lynchburg College

      Naumi, Fabiha, Independent Scholar

      Naveed, Pareesa A., Rutgers University

      Nelson, Patricia A., Seijo University

      Newburry, William, Florida International University

      Nisar, Tahir M., University of Southampton School of Management

      Nye, Christopher D., University of Illinois at Urb ana-Champaign

      Ogwang, Tomson, Brock University

      Oyangen, Knut, BINorwegian School of Management

      Park, Ji Eun, Saint Louis University

      Patten, Lynne A., Clark Atlanta University

      Paul, Helen Julia, University of Southampton

      Paul, Pallab, University of Denver

      Persaud, Nadini, University of the West Indies

      Petrick, Joseph A., Wright State University

      Polley, William, Western Illinois University

      Polychroniou, Panagiotis V., University of Patras

      Poon, Irene Hon Fun, City University Cass Business School

      Poulis, Efthimios, Bournemouth University

      Poulis, Konstantinos, 1ST Studies, Athens

      Puia, George M., Saginaw Valley State University

      Qi Wei, Jean, City University Cass Business School

      Quan, Rose, Northumbria University

      Rahman, Nafis, Ohio Wesleyan University

      Rahman, Noushi, Pace University

      Ramoglou, Stratos E., University of Cambridge

      Ran, Bing, Pennsylvania State University-Harrisburg

      Rankaduwa, Wimal, University of Prince Edward Island

      Raufflet, Emmanuel, HECMontréal Business School

      Reimers, Jane L., Rollins College

      Rivera, Edwin Lopez, Universidad de Bogota Jorge Tadeo Lozano

      Rodriguez, Jenny K., University of Strathclyde

      Romero, Esteban, University of Granada

      Ross-Rodgers, Martha J., Independent Scholar

      Rothman, Norman C., University of Maryland University College

      Rowley, Chris, City University Cass Business School

      Rowley, Jennifer, Manchester Metropolitan University

      Roy, Abhijit, University of Scranton

      Roy, Mousumi, Pennsylvania State University

      Sacks, Michael Alan, Emory University

      Salimath, Manjula S., University of North Texas

      Sarfati, Gilberte, Fundaçao Getulio Vargas

      Sasson, Amir, University College Dublin

      Schiffman, Daniel, Ariel University Center

      Schneper, William, Florida International University

      Schvaneveldt, Shane J., Weber State University

      Scott, Clifford D, University of Arkansas-Fort Smith

      Seaman, Claire, Queen Margaret University

      Senn, Christoph, University of St. Gallen

      Se vie, Aleksandar, Trinity College, University of Dublin

      Sevic, Zeljko, Glasgow Caledonian University

      Shadab, Houman B., George Mason University

      Sharma, Esha, IBS, Jaipur

      Sheeran, Paul, University of Winchester

      Shoham, Amir, Sapir Academic College

      Silberstein-Loeb, Jonathan, University of Cambridge

      Singh, Deeksha A., National University of Singapore

      Singh, Satyendra, University of Winnipeg

      Sloan, Diane, Newcastle Business School

      Smith, Charles, Swansea Metropolitan University

      Smith, Jonathan, Anglia Ruskin University

      Soltani, Ebrahim, University of Kent

      Spangenberg, Sabine, Richmond, The American, International University in London

      Spears, Jennifer S., Emory University

      Staber, Udo, University of Canterbury

      Stacy, Robert N., Independent Scholar

      Stancil, John L., Florida Southern College

      Stephens, Robert D., Shippensburg University

      Stewart, Ian, Birmingham City University

      Suder, Gabriele, CERAM Business School

      Sullivan, Timothy, Towson University

      Syed, Jawad, University of Kent

      Terjesen, Siri, Indiana University

      Thoma, Axel, University of St. Gallen

      Todd, Patricia, Western Kentucky University

      Torres-Coronas, Teresa, Universität Rovira i Virgili

      Traflet, Janice M., Bucknell University

      Trybus, Elizabeth, California State University-Northridge

      Tsahuridu, Eva E., Royal Melbourne Institute of Technology

      Tsang, Denise, University of Reading Business School

      Turgut, Gokhan, HEC Montreal

      Turolla, Frederico A., ESPM, Brazil

      Turtle, Dale B., University of Michigan-Flint

      Umeadi, Michael, Shaw University

      Umemura, Maki, London School of Economics and Political Science

      Ural Marchand, Beyza, University of Alberta

      Vaiman, Vlad, Reykjavik University

      Vasilaki, Athina, Middlesex University Business School

      Velez-Castrillon, Susana, University of Houston

      Verousis, Thanos, Aberystwyth University

      Vianelli, Donata, Université di Trieste

      Viarengo, Martina G., London School of Economics

      Viola, Antonella, European University Institute

      Wagner, Ralf, University of Kassel

      Waskey, Andrew J., Dalton State College

      Watson, Derek, University of Sunderland

      Watuwa, Richard, Cape Breton University

      Weatherston, Jamie, Northumbria University

      Whaples, Robert M., Wake Forest University

      Williams, Nigel, University of Cambridge

      Windsor, Duane, Rice University

      Winfrey, Frank L., Lyon College

      Woods, Peter, Griffith Business School

      Woodward, David G., University of Southampton

      Woolley, Jennifer L., Santa Clara University

      Wooster, Rossitza B., Portland State University

      Worthington, Andrew C., Griffith University

      Wut, Tai Ming, Independent Scholar

      Wymbs, Clifford, CUNY-Baruch College

      Xu, Weichu, Old Dominion University

      Yalcin, Serkan, Saint Louis University

      Yang, Xiaohua, Queensland University of Technology

      Zdravkovic, Srdan, Bryant University

      Chronology of Business

      Fourth Millennium (4000–3000) B.C.E.

      The story of how business in today's world came to be begins at the dawn of history. Long before coins were developed, long before records were kept, we nevertheless find physical evidence for which trade is the most likely explanation. Seashells found in inland communities are one obvious example; whether they were used as a currency or bartered for (in addition to decoration, some shells could be used as scraping devices, building materials, and sources of dye), trade is the most likely reason they would wind up there. Other remnants can survive as well: the remains of animals not native to a region, foreign rocks and ores, and worked goods that bear the distinctive signs of other cultures.

      During the third and fourth millennia b.c.e., we find these signs of trade among the first settled societies of the Fertile Crescent. Developed urban centers-which depend on trade to a greater extent than agricultural communities where each family could theoretically produce all that they need-appear throughout Mesopotamia, in Sumer, Ur, Susa, and Akkad. Trade always enjoyed a symbiotic relationship with urbanity: urban dwelling required, and trade thrived on and enabled, specialization of labor and production.

      As early as 3100 b.c.e., Egyptian goods can be found in Byblos (Phoenicia; now Lebanon), and were likely part of trade of Egyptian grain for Phoenician timber. Around the same time, obsidian was being mined on the Greek island of Mylos, from which it was shipped by traders to various settlements. In this pre-metallurgical age, obsidian was the most reliable cutting tool, but its trade value diminished by the end of the fourth millennium b.c.e., when the alloying of copper with tin ushered in the Bronze Age in the Near East. (The Bronze Age is best thought of as a stage, as opposed to a specific year. The Near East entered it first, about a thousand years before Europe; China followed closely after Europe, with Korea entering the Bronze Age last, around 800 b.c.e.)

      2500–2000 B.C.E.

      Urban centers in southern Mesopotamia develop metallurgical industries based on copper from the northern Iranian plateau, hundreds of miles away. Other Iranian imports to southern Mesopotamia include alabaster, marble, turquoise, and obsidian. Artifacts made in Mesopotamia of these Iranian materials are then traded again, and found all over the ancient world, from Syria to the Indus River Valley to Central Asia-travelling over 1,000 miles along ancient trade routes.

      2000–1500 B.C.E.

      Clearly trade had become vital in Mesopotamia. Just as builders and farmers had developed to answer needs of the community, a professional class of traders called tamkaru develops. Tamkaru combine trading, moneylending, and brokerage. More than just acting as middlemen, the tamkaru offer loans to fund trading expeditions, and local laws develop to deal with the outcome of those expeditions-the proper way to divide profits, to determine what happens if a ship is lost at sea, and so on.

      The Code of Hammurabi, organized by the sixth and greatest king of Babylon, is written around 1760 b.c.e. as a code of laws set down in stone so that they would survive the life of any one king, and to divorce the permanence of the law from the transience of the whims of the powerful. Much of the Code is concerned with the Mesopotamian economy-it deals not only with what is and isn't legal, but with fines, inheritance, property, the prices of goods, and trade.

      The state did not initiate international trade, but it profits from it through taxes and sets rules for the responsibilities of tamkaru. In addition to the worked goods using Iranian raw materials, Mesopotamia transports pottery, leather goods and textiles, and a wide variety of agricultural goods (fruit and vegetables, grains, fish, beer), taking advantage of the natural resources of the Fertile Crescent. The profit from these goods in turn fund the purchase of goods unavailable locally.

      During this same period, trade expands in the eastern Mediterranean, where it is dominated by Minoans and Mycenaeans from Crete and southern Greece. Among the most valuable and most traded goods are timber, Cyprian copper, olives and their oil, grapes and wine, and wheat, a grain cultivated and commodified sometime around 2000 b.c.e. Their trade partners include Anatolia (Asia Minor) and Mesopotamia, but especially Egypt, which has gold from its mines, linen produced from flax, high-quality pottery, and papyrus, an early form of paper. Because it's a minimally processed plant product, papyrus is susceptible to mold in humid conditions, and so is less useful in climates radically different from Egypt's-but in the right climate, it is so practical and cheap to produce that it still thrives as a commodity. Much of Egypt's gold originates in Punt, acquired via trading expeditions along the Nile and the Red Sea. Caravan trading routes are established to Mesopotamia, Syria, and the Mediterranean Sea.

      Unlike in Mesopotamia, in Egypt trade is not the province of private enterprise. The Pharaoh, seen as a divine ruler, controls the economy through a sort of theocratic socialism, and has a total monopoly on international trade, which he delegates to specific traders who work for the state.

      1200 B.C.E.

      Trade throughout the Bronze Age world is disrupted by violence, as cultures grow large enough to come into prolonged conflict with each other, competing for land, territory, and resources. Greece and Anatolia are invaded by Indo-Europeans, the Hittites and Mycenaeans are wiped out entirely, and mighty Egypt is attacked by various groups they call the Sea Peoples.

      There is still a great deal of mystery about who the Sea Peoples were; the Egyptians were never very good at referring to foreign cultures in ways that make it easy for us to identify them now, especially if they made no treaties with them. (Treaties leave us with the names of kings and other leaders, which of course is critical identifying information.) They could have included the Philistines better known from the Bible, the Minoans, or even the Mycenaeans fleeing their own invaders in Greece. Some historians suspect a connection between the Sea Peoples and the Phoenicians.

      While trade does not come to a halt, the dropoff is certainly severe, especially relative to the steady growth of the previous centuries.

      1000 B.C.E.

      The Phoenicians fill the trade gap left by the wars of 200 years earlier. An ancient civilization related to the Canaanites who lived in pre-Hebrew Israel, they were a coastal people who organized in city-states, especially throughout modern-day Lebanon, Syria, and Israel. Their alphabet would later be adopted and adapted by the Greeks, and thence by the Romans and the modern European world. There are many unanswered questions about the Phoenicians, who may have been a culture that included multiple ethnic groups, and who may or may not have seen themselves as distinct from the Canaanites.

      Drawings on the walls of an ancient Egyptian tomb depict the exchange of goods. Egypt had trade and commerce with states throughout the Mediterranean but was under the control of the pharaohs.

      From their first appearances in the historical record, they are associated with high-quality timber-the “cedar of Lebanon” which is highly spoken of by Egyptian traders a thousand years before the Phoenicians became the dominant traders of the region-and with sea travel.

      It seems very possible that their rise to trade dominance is connected to the Sea Peoples to whom, according to many theories, they are related; they may have learned better shipbuilding or sailing techniques through contact with the Sea Peoples at the time of the Egyptian invasion, or the Phoenician culture of 1000 b.c.e. may in fact be a Sea People culture.

      In any case, Phoenicians had been sailing and trading since 1550 b.c.e., and by 1000 b.c.e. they are the principal trade partners of Egypt and the Mesopo-tamian cultures. Other than timber, they have little in the way of native raw materials, but their trading activity brings them olive oil, wine, dyes, pottery, glass, metal, and textiles, from all over the Mediterranean coast, as well as fruit from Mesopotamia and gold and grain from Egypt.

      Over the next four hundred years, Phoenician trade supremacy encompasses the Mediterranean, North Atlantic, and West Africa-Phoenician traders may have even circumnavigated the African continent. Phoenician colonies are established in Rhodes, Cyprus, Sardinia, Sicily, France, Malta, the Balearic Islands, North Africa, and Spain, in addition to Egyptian and Anatolian trading posts. Cyprian copper, Spanish silver, Anatolian iron, and Mediterranean wine are all part of the Phoenician commercial empire, and they sailed as far as Britain-modern-day Cornwall-to mine tin.

      753 B.C.E.

      The Kingdom of Rome is founded.

      750 B.C.E.

      The Phoenician trading empire begins to lose its dominance. Phoenician colonies Carthage (in North Africa), Motya (Sicily), Malta, and Cadiz (Spain) have become independent. Greece begins to emerge from its Dark Ages and establishes strong colonies throughout the Mediterranean.

      734 B.C.E.

      Greek colonists arrive in Italy from Sparta.

      660 B.C.E.

      Early coins, possibly the first, are stamped in Lydia, a kingdom in western Asia Minor. Lydian coins are made of electrum, a naturally occurring gold/silver alloy, and are stamped with the royal symbol of a lion's head. Greek historian Herodotus credits Lydia not only with the first coins but with the first retail stores (as opposed to temporary marketplaces and roaming traders). King Croessus of Lydia-whose name is still remembered in the phrase “wealthy as Croessus”-is responsible for one of the seven wonders of the ancient world, the Temple of Artemis at Ephesus, a 120-year project. India and China soon issue coins as well.

      594 B.C.E.

      Solon, leader of the Greek city-state of Athens, enacts reforms that become the foundation for Athenian democracy.

      539 B.C.E.

      Phoenicia is conquered by Cyrus the Great, the founder of the Persian Empire, and divided up into four kingdoms given to his loyal vassals. Many native Phoenicians who are able to do so flee to Carthage, which soon begins a long and significant history as a strong maritime power. Phoenician influence over foreign cultures, especially in the Mediterranean region, declines immediately after the Persian conquest. Alexander the Great conquers one of the four Phoenician kingdoms, Tyre, in 332 b.c.e., and distinctly Phoenician culture disappears shortly after, becoming absorbed into Greek culture.

      509 B.C.E.

      Rome becomes a Republic when its last king is ousted from power after his son rapes the wife of a senator (this, anyway, is the legend; the exact circumstances of the shift in power are unknown). Key to its government over the next five centuries will be its constitution, which establishes a state in which the legislative branch enjoys considerable power and is meant to represent the will of the people. While not a democracy, it is a remarkable leap toward modern governance, espousing ideals that much of Europe won't adopt for many centuries to come. The office of pontifex maximus-high priest-is soon established, and is notable primarily because when the Catholic Church mirrors much of the structure of the Roman Republic, the Pope takes the place of the pontifex maximus.

      500 B.C.E.

      Greek trading dominance extends throughout the Middle East and eastern Mediterranean to the Balkans and southern Russia, and Greek settlement has spread throughout the Black Sea. The trading network exports olives, wheat, and wine for grain from Egypt and Sicily; copper, tin, zinc, and iron from Italy; silver and salted fish from Spain; metals from Asia Minor; and timber from the Balkans. The trade with what is now southern Russia is especially strong, providing Greece with fish, gold, furs, honey, amber, wax, timber, and slaves, who were resold throughout the Mediterranean. Large ships of 1,000 tons and more are for the first time outfitted to sail the seas, and the Greeks' superior knowledge of navigation proves a critical trade advantage, as they can reliably reach ports other cultures would have trouble with.

      Indian merchants travel to Ceylon, Indonesia, and Southeast Asia to exchange pearls, cotton, black pepper, and Indian manufactured goods for spices.

      411 B.C.E.

      After Athens's defeat by Sparta in the Peloponnesian War, and the city-state's resulting loss of maritime supremacy, the democratic government is temporarily overthrown by a coup that blames the defeat on several democratic politicians. Order is restored eight years later.

      400 B.C.E.

      Goods from India and goods picked from Southeast Asian merchants transported to lands bordering on the Arabian Sea, Persian Gulf, and Red Sea.

      347 B.C.E.

      Death of Plato, the Greek philosopher whose Republic would remain an influence on political philosophy.

      336–323 B.C.E.

      The conquests of Alexander the Great spread the Greek language from the eastern Mediterranean to the Indus Valley, encouraging its adoption as the language of trade and commerce-and more broadly, the language of travelers throughout the ancient world.

      323–146 B.C.E.

      The Hellenistic period. The term Hellenistic is derived from Hellen, the ancient Greeks' name for themselves. Alexander the Great's conquests brought the known world into contact with Greece, its language and culture, and it enjoys an even greater influence on world culture than Phoenicia had. The Attic dialect of Greek becomes a universal language, with regional dialects becoming much less common, just as radically different English dialects are less common today, with most English speakers in the United States speaking an almost identical language to one another.

      Ambitious Greeks migrate to the cities Alexander established in the vast areas between the Mediterranean and the Hindu Kush mountains and between the Arabian desert and the Caucasus mountains. Hellenistic groups establish wine vineyards and olive groves, as well as factories and workshops, and in many places are joined by groups of other ethnicities, especially Jews and Armenians. Hellenistic Greece in general is ethnically diverse, encompassing the many diverse peoples Alexander conquered as well as those who have relocated to do business with Greece and married locals.

      322–185 B.C.E.

      The Mauryan Empire is established in the Indian subcontinent, the largest empire to rule the region. Under its centralized administration, manufacturing of pottery, metal goods, and luxury goods is encouraged for the purposes of trade, and India begins to participate in the international economy to a greater degree than before.

      268–232 B.C.E.

      Roads ordered by Maurya's Emperor Asoka encourage trade through Hindu Kush mountains both west to Persia, Anatolia, and the Mediterranean basin and east through China through what eventually becomes the Silk Road. Building on routes previously established by Persian and Macedonian administrations in the previous two centuries, the Mauryan Empire joins those routes and establishes links to the west, and eventually to China. India exported cotton goods, pepper, and gems to China in return for silk.

      211 B.C.E.

      Rome issues the denarius, the silver coin that becomes the basis for their currency (having previously used cruder bronze coins, as well as the silver drachmae). The denarius is valued at 10 aeses (the aes was a bronze or copper coin). The gold aureus, worth 25 denarii, was rarely used.

      Up to this point, the intrinsic value of a coin (the value of the metals it is made of) was the same as the face value. Roman coins have face values set by the state, greater than their intrinsic values-often twice as high, in fact, and sometimes higher, as the silver content of the denarius is eventually reduced in order to prevent shortages as Rome expands. Like letters of credit, a face value higher than an intrinsic value makes wealth more portable.

      200 B.C.E.

      The Han period begins in China, unifying this vast Asian region into one economic and political unit. The network of roads from the Han capital through Xian, the Tarim basin, Kashgar, and Central Asia becomes joined with the Persian and Indian land routes to become the Silk Road, and China is now part of the economic community that includes Europe and the Mediterranean, the Middle East and the Indian subcontinent, and North Africa. Though called the “Silk Road,” the network of routes actually includes sea routes as well.

      Chinese silk, lacquerware, ceramics, and paper-more expensive than papyrus but much more practical-soon become important trade goods throughout the west.

      146 B.C.E.

      The classical Greek heartlands are annexed by the Roman Republic; Hellenistic culture persists, but Greek political independence ends, signaling the dominance of Rome in the ancient world.

      140 B.C.E.

      The denarius is revalued at 16 aeses, a significant devaluation.

      27 B.C.E.

      After 500 years, the Roman Republic becomes the Roman Empire with the accession of Octavian, now called Augustus Caesar.

      325 C.E.

      The first Council of Nicaea establishes the Catholic Church as a unified body, providing Western Europe with a common religion.


      Sea lanes are established via the South China Sea through the Straits of Malacca to the Bay of Bengal, the Arabian Sea, the Persian Gulf, and the Red Sea to the Mediterranean, expanding the Silk Road.


      The long-weakened Roman Empire ends in the West when Romulus Augustus is deposed. A descendant of the Roman Empire persists in the East in the form of the Byzantine Empire. Western Europe develops in the shadow of Rome, united by closely related languages and culture, intermarriages, and the oversight of the Roman Catholic Church. As a result, though there is great diversity among European states and peoples, the continent remains more closely connected than it might be had it not been for the centuries during which Rome courted, conquered, and colonized it.


      After the Roman Empire falls, Jewish and Christian communities continue the trading activity in the Indian Ocean. East Africans including Christians from Ethiopia and, after the 7th century, Muslims on the Somali and Swahili coasts from the Horn of Africa to central Mozambique participate in the trade. This trade occurs through the Arabian Sea to India. Indian traders (mostly Dravidians from Southeast Indian kingdoms) dominate commerce via the Kra peninsula opening in Southern Thailand and the straits of Malacca between Malaya and the Indonesian archipelago.


      Justinian I, ruler of the Byzantine Empire, issues the Corpus Juris Civilis (“Body of Civil Law”). Centuries of imperial Roman law are compiled into three codices, which revive the use of Roman law throughout Europe, influencing civil law.


      Mohammed, the founder of Islam, dies. By the time of his death, all of Arabia has converted to his faith. Muslims become a powerful economic and political force through the rest of the Middle Ages.


      Jerusalem is captured by Muslims.


      Muslim armies face their first serious defeat when they are driven back after a four-year siege of Constantinople, preventing the Islamification of Europe.


      Muslims are again repelled from Constantinople.


      Pepin, king of France and founder of the Carolingian dynasty, promises the lands of central Italy to the Pope-thus formalizing the Pope's temporal power as a political force in Europe.


      Islamic banks, founded to avoid the Koran's prohibitions of certain kinds of banking, offer a wide variety of services throughout the Muslim world, and are instrumental in funding Indian Ocean trade. Among the available services are moneylending, investment broking, and currency exchange.

      Lines of credit known as “sakk” are available, from which term we derive the English word “check.” Sakks allowed traders to draw letters of credit in one location and cash them in at another, so that the traders did not have to travel with large quantities of gold and silver.

      Much of the supply of gold for Europe and the Middle East before the exploration of the Americas comes from various African empires, transported by Arab and European traders across the Sahara desert. Traders arrive by camel and caravan in West African communities, where they trade cloth, salt, metal, and glass for dye, ivory, and especially gold and slaves. Outsiders, emphasizing Arab involvement, sometimes refer to this trade activity as The Silent Trade of the Moors. Such traders leave their products on the riverbank near the mines (usually in the area of the modern-day Ghana and Ivory Coast), and if their trading partners are satisfied with the offering, they leave gold in its place the next morning. If the offering remains, the process is repeated until a trade is made.

      The Mosque of Sultan Bayazid in Constantinople. The city was the apex of the Muslim effort to expand the Islamic religion into Europe and was under siege for four years from 674 to 678.

      The African empires of Ghana, Mali, and Songhay derive much of their income from the tariffs enacted on these trades, and the routes themselves tend to reflect the dominance of particular states. Ghana is reached via a western trade route from Morocco and Algeria, but the route is abandoned when Muslims sack Ghana's capital; a route from Tunis arises in its place. Muslim traders favor joint ventures in order to avoid sole liability in trading ventures. They pool their resources in several investments in several cargoes on several ships, so that no one's financial well-being can “go down with the ship.”


      During the classic period of the Swahili city-states of the eastern African coast (where modern-day Kenya, Tanzania, and Mozambique are), there is a thriving market for Asian products such as Indian beads, Chinese porcelain, and Persian pottery, as well as for spices. Textile factories produce cloth both for local demand and export, and copper and gold are mined and traded. Adept shipbuilders, the Swahili conduct their own trade with the outside world until the arrival of the Portuguese in the early 16th century.


      The East-West Schism divides the Christian Church into Western Catholicism and Eastern Orthodoxy.


      The First Crusade seeks to liberate Jerusalem from Muslims.


      The Hundred Years War begins as England and France struggle for dominance of Western Europe.


      The Medici family rises to prominence in Florence. Throughout the Renaissance, powerful noble families will be important as patrons of artists and inventors; they and the Catholic Church essentially fund the Renaissance.


      The Portuguese establish plantations on Sâo Tomé and the Cape Verde Islands.


      The European slave trade begins, starting with the Portuguese, with other nations soon following. The triangle or transatlantic trade is a symbol of the increasing global nature of trade and business as it ties together the eastern and western hemispheres in a three cornered interaction. The commercial connection can start anywhere. Merchants can carry clothing, guns, and wine south to Africa and trade these items for rhinoceros horn, ivory, grain of pepper, some gold, and especially slaves. The trade extends from Senegal to Angola.

      Slaves are especially taken from Dahomey (now Benin) and southern Nigeria (Caribbean and West Indies) and Angola (Brazil). In Africa, this leg is called the firearms trade as merchants located at trading posts (factors) exchange guns for goods, including slaves. The collaborators then use the guns to hunt potential slaves in their “protectorates” and sell them to slavers in return for more guns. The product and human cargo cross the Atlantic in the infamous middle passage by which an estimated 15 million are transported and many die.

      The cargo is traded for precious metals from South America and rum, molasses, and sugar from the West Indies and Brazil. The traders then sail up the coast of the Americas, collecting rice and tobacco and later cotton from the American South, wheat from the middle colonies, and naval stores (tar, turpentine, rope, lumber) from New England. The ships then sail back across the Atlantic. The ships could just as easily start from the western hemisphere or Africa. After the slave trade is abolished in the early 19th century, starting with the United States, Britain, and the Netherlands, this trade gradually diminishes.


      After the fall of Constantinople to Ottoman Turks, Europeans take to the sea to obtain many of the products available through the Silk Road, and the land routes associated with the Road decline quickly.


      Christopher Columbus, seeking a trade route to India, establishes a route to the West Indies instead, introducing Europe to the New World of the Americas. The Columbian Exchange that results from Columbus's repeated trips to the New World, and the trips of other explorers, refers not only to trade but to the exchange of food crops and other plants, animals, and diseases between the continents. Though world population more than doubles between 1500 and 1900, to 900 million people worldwide, the population of the New World is reduced by more than 100 million people in that same time.


      After 1500, western European countries facing the Atlantic adopt an economic policy called mercantilism, in which the nation is kept prosperous through government intervention in the private sector. The acquisition of wealth-and for Spain and Portugal, particularly the acquisition of precious metals-is mercantilism's main goal, because stores of such metals are equivalent to a nation's power.

      The goal of trade, in essence, is to exchange exports for as much gold and silver as possible-and so Spanish colonialism is fueled in great part by the quest for gold in the New World. Colonies play a major role in mercantilism: they're meant to provide raw materials that their founding nations back in Europe lack, and to serve as captive markets. The English colonies, for instance, provide rum and timber while serving as reliable, predictable customers for English exports; the Dutch take the same approach to their own colonies. Just as those approaches eventually backfire, so too does the Spanish: the influx of precious metals from the New World devalues Spanish currency.

      Coffee and sugar are introduced to the New World colonies from the eastern hemisphere, and become cash crops in Brazil, Costa Rica, and Louisiana.


      Systemic slave trade begins to the West Indies with Spanish plantations in Hispaniola.


      Antwerp (in Belgium) begins its “continuous fair” and becomes the site for the first permanent stock exchange, a meeting place for bankers, merchants, and businessmen. Though no one realizes it yet, this is the first blow to still-nascent mercantilism and a gesture towards modern economic practices, which favor and protect the private sector.


      The beginning of Dutch involvement in slave trade.


      The Muscovy Company, England's first joint-stock company, is chartered. The joint-stock company, a precursor to the modern corporation, is the chosen instrument of mercantilism. A charter from the state grants the company with a monopoly in a specific region or over a specific trade good. Though trading companies had existed before, these charters came into full flower as mercantilism was adopted, and enable companies to trade all over the world. Many of the New World colonies were founded as joint-stock companies originally.

      The Muscovy Company is specifically granted the right to import furs from Russia and the Baltic, and was founded by adventurers searching for a Northeast Passage to China.


      The Moroccan defeat of the Songhay Empire marks the end of the Sudanic empires and the decline of the Silent Trade of the Moors. By this time, the flow of specie coming from the Americas and West Atlantic trade had undermined the economic role of Sudanic states.


      The British East India Company is granted its charter by Queen Elizabeth I on December 31, 1600, with a 21-year monopoly on British trade in the East Indies (the company persists much longer than its monopoly does). Its main trade was in silk, indigo, opium, tea, and saltpeter, and it was chartered in the hopes of countering some of the Dutch trade superiority in the East Indies. Hostilities with the Dutch East Indies Company (founded 1602) and the Portuguese East Indies Company (founded 1628) are common and sometimes violent. The Dutch dominance in the spice trade is never disintegrated to the extent the crown would like, but inroads are made in the straits of Malacca, originally controlled by the Portuguese.

      Its power and economic importance lead the East India Company to a position of political importance and influence, helping to shape history in the generations to come, and the company is the Crown's agent in the British takeover of the Indian subcontinent.

      17th Century

      New species of animals are introduced into the Americas and Oceania by Europeans settlers and traders, including horses, pigs, sheep, cattle, chickens, cats, dogs, and goats. New industries are begun as a result, and the far more sparsely settled New World has the luxury of providing seemingly limitless grazing space for livestock, leading to thriving cattle (beef, leather, tallow, dairy) and sheep (mutton, wool) industries in the Americas. The horse population is so healthy and has so much room that there is a significant mustang (wild horse) population within generations.

      The transmigration of grains and nuts as items of both export and consumption is even more pervasive. The peanut from the New World is introduced in Africa and becomes so important a cash crop that it's instrumental as an excuse to end the slave trade (now arguably no longer the most profitable use for Africa). West Africa also begins to produce cacao, introduced from the Americas, as a cash crop, and the long-staple cotton of the New World replaces the short-staple cotton of Egypt and India as the dominant form of cotton. Manioc (also called cassava) is introduced to tropical Africa and southeast Asia, and is nutritious enough to support dense populations there with relative ease.

      Chocolate and maize (corn) become important luxury items in the Old World, and other New World vegetables become so popular that it is difficult to imagine Old World cuisines without them-whether it's the tomato in Italy, the potato in the British Isles and central Europe, the paprika critical to the national dishes of Hungary, or the chile peppers that catch on everywhere but France. Wheat, barley, millet, oats, rice, and rye introduced from the Old World become important cash crops in the Americas, alongside textiles like flax and hemp.

      Illustration shows a portrait of Pocahantas as Mrs. John Rolfe, from a portrait painting done in London, England, 1616.

      Jamestown is founded in the Virginia Colony, the first permanent English settlement in the modern-day United States, after the earlier failure of the Roanoke Colony. The original charter of the Virginia Company grants land from the 34th parallel (near Cape Fear, in what is now North Carolina) to the 48th parallel, thus encompassing much of what became New England and the Mid-Atlantic states in America. France and Spain both have claims in this region but are unsuccessful in preventing the English from gaining dominance.

      After the death of Elizabeth, who had chartered the Virginia Company, her successor James I granted separate charters to two different branches of the company-the Plymouth and London Companies. War with Spain had financially taxed England at a time when money was sorely needed to fund expeditions to scout out critical trading routes and secure territory, and dividing Virginia between two companies was a way to raise more funds.

      The competing Plymouth and London Companies sought to establish settlements as quickly as possible, though were forbidden from doing so within 100 miles of each other.

      Plymouth establishes its colony far to the north, in what is now Maine-Popham Colony, which is abandoned a year later when its leader dies and his successor leaves for England upon inheriting an estate and noble title. The London Company establishes its colony further south, named for King James and located on a spot on the water chosen because of the ease of defending it against other European forces.

      Unfortunately, the resulting swampiness makes hunting and agriculture infeasible, and the tidal river water is too salty to drink. The colony faces starvation and economic difficulty at every turn in its early years.


      The French establish their first settlements in what is now Canada. While the Spanish and Portuguese seek previous metals, the French seek instead to form a monopoly over the New World fur trade, to take advantage of the Little Ice Age that has held sway in Europe since 1400 (and persists until 1800), accounting for exceptionally cold winters.


      The first commercial bank is started in Amsterdam for transfer of payments in different currencies.


      John Rolfe, a colonist in Jamestown, Virginia, introduces a strain of tobacco that is exported to the Old World, where it is widely successful. The economic outlook of the colony of Virginia takes a quick upturn, and Rolfe marries Pocahontas, the daughter of the Powhatan Indian chief, two years later. When the Rolfes visit England, they are received as celebrities, as in the European mindset Pocahontas is a visiting princess. Their popularity helps to attract further investors to Jamestown's financial concerns.


      The first slaves are introduced to Virginia.


      The Bank of England opens. The English stock market begins business the following year.

      18th Century

      Various Navigation Acts passed by the British crown in the 18th century limit the trade its colonies can do with other countries, in order to protect its own economic interests and preserve the status of the colonies as captive markets. By this time, English dominance has been fairly well-established in much of North America, with France and Spain maintaining their respective holdings but the Dutch long gone from New Amsterdam (now New York). The colonies have grown enough that they are no longer happy being subservient to the Crown, but they have no real political power, no advocates in the king's court; the complaint about “no taxation without representation” begins long before anyone contemplates independence.


      British “Bubble Acts” are passed to control excessive speculation, by forbidding the selling of stock that the seller does not own.


      James Hargreaves redresses the balance between weavers and spinners through the spinning jenny, which allows spinners to keep up with woven cloth.

      The Currency Act enacted by the British government forbids American colonies from issuing paper money, and discouraged them from minting coins (in the meanwhile, Britain itself minted no copper or silver coins during this period). Prior to this time, the colonies had issued Colonial Scrip, though it was considered of little long-term value since it wasn't backed by gold or silver. The Act may have accidentally been caused by Benjamin Franklin, who had explained the benefits of the scrip system to the British government, only to be confronted with their horror at his recommendations. In retrospect, Franklin and many others blame the Currency Act for the American Revolution, as it points up a vast difference of economic philosophy between the two countries, and underscores the British government's determination to keep the colonies powerless.

      The Sugar Act enacted around the same time taxes sugar and molasses. Although it is only a renewal of an existing act, and cuts the previous tax in half, that older tax was never successfully enforced in the colonies-and so this is in essence a new tax. The economic impact is severe, on an already depressed colonial economy, adding to dissatisfaction.


      The Stamp Act passed by the British government is the first such act to directly tax American colonists, by requiring a tax stamp on any document in order to legitimize it-not simply legal documents requiring the crown's involvement, but commercial contracts, wills, deeds, locally issued permits, even playing cards, pamphlets, and newspapers. The British have grown tired of the expense of their military presence in North America and decided the Americans should be accountable for its funding, even though British economic interests are the principal reason for those militias. Americans bristle at the tax and protest in the streets in many of the colonies, hanging or otherwise abusing effigies of public figures.

      Delegates from nine of the 13 colonies (all but New Hampshire, Georgia, Virginia, and North Carolina) meet for the Stamp Act Congress to discuss what should be done. The meeting is held in secret, with no minutes recorded or records kept, and delegates later report that the issues discussed included not only taxation, but conflicts with the British over the right to trial by jury and the existence of the admiralty courts. It is at the Stamp Act Congress that the issue of “taxation without representation” becomes emblematic of the colonists' concerns with their British leaders-Americans are not represented in Parliament and many of them do not feel they should be taxed by it, but instead by local governments who have to live under the same conditions they do. The Declaration of Rights and Grievances produced by the Congress lists 14 points of contention with recent British acts, most of them economic, the rest dealing with human rights. It is delivered to Parliament, which-making matters worse-refuses to discuss the issue or acknowledge the Declaration.

      James Watt builds his first working steam engine, pushing water through a cylinder to produce steam which, applied to a piston, turns a wheel. The resulting rotary motion converts a pump into a multiple engine, and by the end of the century, there are over 1,000 such steam engines in use. Human and animal power race toward obsolescence. The use of steam power is a prerequisite for the Industrial Revolution, enabling vast amounts of power to be used that previous methods simply could not have generated.


      The Townshend Acts enacted by the British government increase the tax on goods imported into the American colonies, and direct that those taxes be paid directly to the British government, instead of to the local town governments that would usually collect them and use them for their operating expenses. This is another attempt by the British government to collect money from the Americans to fund the British military presence in North America, and it again leads to protests and riots. Dissent is increasing, with less and less time between incidents to let tempers cool down.


      The Tea Act enacted by the British government restructures the tax on tea imported to the American colonies, in an attempt to break an American boycott on high-priced British tea. In response, a group of colonists-most likely Samuel Adams and the Sons of Liberty-dress up like Native Americans and destroy a shipment of tea, throwing 342 crates of just-arrived tea into Boston Harbor (the Boston Tea Party). The British government responds with a group of Acts the colonists call the Intolerable Acts, designed both to punish the colonists and to recoup the cost of the destroyed tea. The Boston Port Act, for instance, forcibly closes the port of Boston until the tea is paid for, drawing criticism that an entire city is punished for the acts of a few dozen men, without trial or discussion. The Massachusetts Government Act goes even further, restructuring the colonial government to provide more control to the British, and the Administration of Justice Act allows the British to relocate an officer accused of a crime to another colony-or back to Britain-if it seems that a fair trial cannot be had in Massachusetts. George Washington calls this act the “Murder Act,” arguing that it provides extraordinary leeway for the actions of British officers who may feel free to mistreat locals, knowing they will not face local trials.


      The Continental Congress of the United States declares its independence from Britain, a year after war broke out in Lexington and Concord.


      Henry Cort invents the pudding furnace, an open-hearth process that cooks molten iron in a great vat. Improvements in the open hearth increase iron production and steel conversion, enabling the heavy industry, shipbuilding, and construction industries worldwide to live up to the promise of the coming Industrial Revolution.


      Edmund Cartwright's power loom is the final nail in the coffin of handicrafts, shifting power to industrial workers.


      The U.S. Constitution goes into effect, and Revolutionary War General George Washington is elected the first American president.


      The Whiskey Rebellion is an insurrection against the new American government, over its tax laws. A tax proposed by Alexander Hamilton on distilled spirits is worded so as to affect small producers more than large ones (which include President Washington). Westerners are especially opposed to the tax since they use whiskey as a barter good, with no cash changing hands-introducing a large tax upsets the balance and its usefulness in barter. Like farming, distilling is not a business one enters into lightly-the start-up cost is significant, and no one wants to abandon it after finally paying off their initial expenses and learning the craft.

      Dissatisfaction leads to armed conflict in western Pennsylvania-a disorganized, frustrated rebellion that robs the local mail, tars and feathers a tax collector, and interrupts court proceedings. There are no fatalities, though. Washington declares martial law, and a militia of over twelve thousand soldiers eventually rounds up some twenty prisoners, in a deliberate display of federal power. Only two are arrested, one of them dying in prison before his trial, and the other freed by Washington. The whiskey tax has one long-lasting effect on American history: small distillers thrive in Kentucky and Tennessee, which in the late 18th century constitute the American frontier, too wild and sparsely settled for tax collectors to ply their trade effectively. Today, Kentucky is home to most of the world's bourbon producers; Tennessee is the home of Jack Daniels. Both styles of whiskey descend directly from these 18th-century distillers.

      “The First Cotton-Gin” drawn by William L. Sheppard depicts African-American slaves using the cotton gin invented by Eli Whitney in 1793. The machine revolutionized the production of cotton, but also enabled the persistence of slavery.

      Eli Whitney invents the cotton “gin” (engine, meaning simply “machine” at this time). Whitney's machine mechanizes the separation of cotton fiber from seedpods, a job that is difficult to do even for experienced workers. This makes cotton more profitable, and assists in making it the key cash crop of the antebellum American South-it also allows the slavery system to persist at a time when it might have died off due to unprofitability.

      Whitney makes little money from his machine, because of poorly handled business practices, but popularizes interchangeable parts in the manufacture of muskets, an idea that is critical to the American system of manufacturing that predominates throughout the Industrial Revolution: interchangeable parts, division of labor, and powered machinery. The system is soon applied to clocks and sewing machines, making them simultaneously more affordable and prized commodities because of the resulting increase in dependability.


      The size of the United States is doubled when Thomas Jefferson purchases the Louisiana Territory from Napoleon, who is badly in need of money to fight his wars in Europe. This increases not only the country's territory but the number of its ports, and brings the economically invaluable Mississippi River into the country's territory.


      First proposed in 1699, the Erie Canal is built, bolstering the economy of upstate New York (indeed, creating many of the communities there) as well as New York City (by making it easier to transport goods from port). A project considered by many fine minds over the 118 years, including the British government and George Washington, Jesse Hawley finally gets the project off the ground, hoping to turn upstate New York into a bread basket of grain fields which can sell their goods by ship. When Jefferson calls the project folly and refuses to fund it, New York governor DeWitt Clinton agrees to raise the funds, a decision widely considered unwise. It is years before the hundreds of miles of canal are finished, and over 1000 workers die of swamp fever along the way, because of the working conditions in some locations. Leaks develop immediately but are sealed with a new form of concrete that has serendipitously been introduced between the time that construction began and the time it is completed. The canal immediately exceeds the expectations of its builders, and enlargements and feeder canals are begun almost right away, and continue throughout the 19th century. The economy of New York state and city is transformed in a matter of years, inspiring cities like Philadelphia and Baltimore to pursue similar projects.


      The Panic of 1819 is the first major economic crisis in American history, though a depression in the 1780s had led to the establishment of the dollar as the American currency. Historians do not all agree on the causes of the Panic, which results in bank failures, record unemployment and foreclosures, and slumps in both agriculture and manufacturing despite the recent advances of the Industrial Revolution. Some economists paint the panic as part of a normal cycle of boom and bust; others blame the federal government's monetary policy after the debts of the War of 1812.

      The Supreme Court case Dartmouth College v. Woodward rules in favor of the college, after the state of New Hampshire attempted to alter its charter and turn it into a public school instead of a private one. Renowned orator Daniel Webster speaks in Dartmouth's favor, reportedly bringing tears to the eyes of the justices. It was not a popular decision, because it limited the power of states-but it did so only by holding them accountable to live up to the contracts they made, which in the long run protected both businesses (including institutions like Dartmouth) and individuals. The Woodward in the case name is the secretary of the new board of trustees appointed by the state, though of course the case was really against the state itself.


      Textile mills in New England expand. Lowell, Massachusetts, becomes the center of the Industrial Revolution in America, a hub of textile production. In the coming years, industrial production is one factor spurring the construction of railroads for faster transport across the vast and still mostly unsettled continent.


      The Panic of 1837 results from rampant speculation on gold and silver, resulting in a five-year depression and the failure of more than a third of the nation's banks.


      The Panic of 1857 sees massive business failures when the prosperity of the Gold Rush and the Mexican-American War slows down. Though not as severe as other panics, the Civil War slows down recovery.


      The Comstock Lode is discovered in Nevada, on the eastern slope of Mount Davison. This is the first major deposit of silver ore found in the United States, and excavating it provides $400 million in silver and gold over the next 20 years. Not only is the lode instrumental in bolstering the economies of Nevada and California (which was beginning to slow down, a decade after its Gold Rush), but it creates a number of individual fortunes as well-including that of George Hearst, a California prospector who turns his mining interests into the country's largest mining firm and eventually runs for Senate. Hearst's son is William Randolph Hearst, whose family fortune made him the newspaper king and a force in early 20th century American politics.


      The American Civil War is fought between an industrial north and an agricultural slave-state south.


      The National Bank Act of the United States establishes national charters for banks, basing currency on the bank holdings of U.S. Treasury securities.


      After George Pullman lends one of his luxury sleeper train cars for the transport of Abraham Lincoln's coffin, such cars become known as Pullman cars.


      The National Grange of the Order of the Patrons of Husbandry-or simply the Grange-is formed, a fraternal organization for American farmers that encourages them to band together cooperatively for their common good. Agriculture is on the decline in the United States; in another generation the country will be mostly urban-dwellers, and that change is already detectable in the air. The oldest agricultural organization in the United States, it remains the most important and powerful through at least the 1950s.


      Andrew Carnegie, one of the wealthiest men in history and one of the best-known tycoons in an age of them, founds Carnegie Steel.


      Construction of the Suez Canal in Egypt, allowing water passage between Europe and Asia without having to circumnavigate the African continent. There were canals in use here in ancient times, but the Suez Canal is a modern project excavated by the French. International response is skeptical; the British deride it, but also consider it a threat to their own economic interests. Few outside of France purchase shares in the Suez Canal Company.

      But in fact, the effect of the Canal is extraordinary, allowing the world to be circumnavigated in times that would have been unthinkable only a year ago, a boon to trade as well as a factor in Europe's ongoing conquest of inland Africa. Only 20 years later, the British find themselves protecting it during an Egyptian civil war-because it is so necessary to their economic interests.

      The first transcontinental railroad in North America is established by the Union Pacific and Central Pacific railroads. The last spike, a symbolic gold spike, is hammered into a special tie of polished laurel wood from California, in a ceremony at the Promontory Summit in Utah-and immediately removed so it could be replaced with a more practical iron spike. The railroad is a vital link for trade and westward travel, and ends the age of the covered Conestoga wagon and the famous searches for safe passage over the Rockies by would-be pioneers. Not coincidentally, a generation later-in 1890-the Census Bureau declares the frontier “closed,” meaning that the population density of the United States has reached a point that there is no significant amount of space left unsettled.

      Despite the name “transcontinental,” the rail line does not traverse the entire continent-it simply makes it possible to traverse the continent by rail, by crossing the Rocky Mountains. The route spans some 1,800 miles, from Sacramento in the west to Council Bluffs, Iowa, in the east, more or less the same route taken by I-80 now.

      The railroad made the west more profitable, not only by reducing loss of goods in transit but by shortening the time between production and sale. Westerners with more money to spend could now spend more of it on mail-order goods, which were of increasing popularity-this is the golden age of the Sears catalogue, when everything a person couldn't be expected to make at home, from a new Sunday dress to a crank-operated ice cream maker to snow shoes to shotguns to Franklin stoves, could be ordered through the mail.


      The Panic of 1873 leads to a four-year depression, following the crash of the Vienna Stock Exchange and the bankruptcy of the banking firm Jay Cooke & Company. One factor is the outbreak of equine flu, which brings the horse-driven rail industry to a halt, which in turn affects locomotives as coal cannot reach them. Many businesses are forced to have men pull wagons of cargo by hand, and ships stay in port with their cargo untouched, no one available to unload it. Fires rage in major cities with no one able to get to them in time to put them out.

      In response to the Panic, the federal government moves to a gold standard, no longer minting silver coins or stocking silver. This reduces the money supply, greatly hurting anyone with a large debt load- which in practice means virtually every farmer in the country, farming being a business which all but the wealthiest men have to fund with loans.


      If the first stage of industrialization emphasized factory production and the mass production of goods on a global basis, the second stage of industrialization emphasizes mass energy as applied to mass transportation and communication on a global basis as well as scientific research with global effects. The combination of steam and locomotion led to the railroads becoming the major form of transportation after 1860. The advance of electrical conversion leads to coal becoming the main fuel until 1900 as well as new mass forms of transportation in the growing urban areas.

      The spread of the internal combustion and diesel engines leads to petroleum fuels replacing electricity. As a result, gas and oil ultimately replace coal in the transportation industry, beginning with land and air transport, followed by water transport.


      The Interstate Commerce Commission is established in the United States to regulate railroads and ensure fair prices.


      The Sherman Antitrust Act is passed to limit cartels and monopolies. The Industrial Revolution created opportunities for national companies to thrive in the United States, but they did so at the peril of smaller companies. The Sherman Antitrust Act actually encouraged businesses that operated in multiple states, by specifically prohibiting certain abusive practices in order to make it unnecessary to outlaw such operation altogether. The ultimate purpose is to encourage competition, keep the market healthy, and prohibit collusive practices between companies at the expense of the consumer, competitors, or the state. The act itself proves to be too vague, and it's refined with further acts and court decisions, but it remains an important statement of legal principle in federal law.


      The Panic of 1893 is in many ways a resumption of the 1873 panic, which had been temporarily salved by a speculation-driven expansion during the railroad boom. That speculation led to overextension, which in turn led to the bankruptcy of the Pennsylvania and Reading Railroad.

      European investors, foreseeing the panic, accept payment only in gold, which weakens the federal gold reserve and thus the value of the dollar; such fears are justified when the reserve reaches its mandated minimum, at which point notes can no longer legally be exchanged for gold, for fear of bankrupting the federal government of hard currency. This, unsurprisingly, leads to bank failures and a drop in the value of silver, followed by a series of business failures and railroads going bankrupt. Frustrated men in various industries attempt strikes, to little improvement.

      President Cleveland and his party, the Democrats, are blamed for the economic troubles, and the following election sees record Republican victories. The depression becomes a key talking point in the bimetallism debate between those who advocate gold and silver standards for currency, and that debate fuels the political careers of pro-silver William Jennings Bryan and (ultimately victorious) pro-gold William McKinley.

      Out of frustration, many people seek new lives out west, where the frontier may no longer exist but new opportunities certainly do. From Seattle to Los Angeles, the western cities see significant growth as easterners and Midwesterners arrive seeking a fresh start, a blank slate, the old American promise of a day's wage for a day's work.


      The Industrial Workers of the World, or Wobblies, are founded in Chicago at a convention of radicals and socialists who oppose the American Federation of Labor (AFL), finding the AFL too conservative.


      The Pure Food and Drug Act is passed by the American government in response to public outcry over the quality of packaged foods and the potential poison-ousness of patent medicines. The Meat Inspection Act, similarly, empowers the Department of Agriculture to inspect and destroy any meat found unfit for human consumption.


      Henry Ford's Model “T” is the first wildly successful automobile, a product of his assembly line. Though they have been around for decades, after the Model “T” automobiles rapidly shift from luxury items to necessities.


      The Federal Trade Commission (FTC) is established in the United States as a further act of antitrust legislation, seeking to protect consumer interests. The FTC is charged with the creation of regulations that further the elimination of anti-competitive practices.

      The Clayton Antitrust Act refines the Sherman Antitrust Act, prohibiting anti-competitive price discrimination, mergers and acquisitions that lessen or harm competition, many cases of exclusive dealings and tyings, and one person serving as director of more than one corporation in the same industry.


      The New York stock market crash of Black Tuesday on October 29 leads to a lengthy worldwide depression, underscoring the increasing interconnectedness of national economies. Ironically, optimism persists after the crash more than in some previous panics, with many people convinced that the days of severe banking panics are behind them; instead, the Great Depression is the worst depression of modern history, its effects persisting until World War II in the United States-and indeed helping to precipitate that war by making Germany more and more economically desperate.

      A portrait of Henry Ford in 1919. He became an icon of the American manufacturing system.

      President Franklin D. Roosevelt institutes his New Deal programs to deal with the Great Depression. The First New Deal, enacted in his first year of office, is a series of short-term fixes, emergency relief programs, and banking reforms. The Second New Deal, enacted in 1935 and 1936, more specifically targets the large corporations that the Roosevelt administration holds partially accountable for the Depression.

      A number of New Deal programs still exist and have become integral to the federal government, including the Federal Deposit Insurance Corporation that backs banks, the Social Security Administration, and the Securities and Exchange Commission that oversees the securities and stock market.


      The United Nations Monetary and Financial Conference, often called the Bretton Woods conference, is held in Bretton Woods, New Hampshire, in the last months of World War II. A group of 730 delegates arrive from all 45 Allied nations, preparing for a postwar world economy.

      The conference seeks to accelerate postwar recovery and to preserve political stability by avoiding severe economic panic in any affected nation. An international currency exchange system is established that remains in use through the 1970s. The conference is notably pro-capitalist, and seeks to protect open markets, ending economic nationalism and the use of trade blocks to preserve national economic interests (an idea that remains controversial today).

      Bretton Woods also establishes the International Monetary Fund (IMF), an organization that oversees the global economy to promote free trade and economic growth.


      When Bretton Woods fails to create its proposed International Trade Organization, the General Agreement on Tariffs and Trade (GATT) is adopted instead. GATT is a treaty that seeks to further the Bretton Woods ideal of ending economic nationalism by reducing or eliminating tariffs, allowing national economies to intermingle without such filters. There are eight rounds of such tariff reductions over the next 44 years, leading up to the establishment of the World Trade Organization.

      Dwight D. Eisenhower addresses a North Atlantic Treaty Organization conference in the late 1950s.

      The North Atlantic Treaty Organization (NATO) is established with headquarters in Brussels, Belgium. At first a political association of anti-communist nations-Belgium, Luxembourg, the Netherlands, France, the United Kingdom, the United States, Canada, Portugal, Italy, Norway, Denmark, and Iceland- the organization is galvanized by the 1950 outbreak of the Korean War, because of the assumption that all communist nations are working together. NATO becomes a military force from then on, dealing with Cold War conflicts.


      The Treaty of Paris creates the European Coal and Steel Community (ECSC), a common market for coal and steel for France, West Germany, Italy, and the three Benelux states (Belgium, Luxembourg, the Netherlands). The goal is to prevent further war between France and Germany. Attempts to create similar European Defense and European Political communities fail.


      The Warsaw Pact, a treaty among communist nations, is established in Poland. A response to the formation of NATO, it is originally composed of Albania, Bulgaria, the Czechoslovak Soviet Republic, Hungary, Poland, Romania, and the Soviet Union; East Germany joins in the following year. Like NATO, the Warsaw Pact nations pledge to support each other if any member are attacked; during the next thirty-some years of the Cold War, the Warsaw Pact and NATO member states engage in a number of proxy wars, never fighting directly.


      The European Coal and Steel Community countries form the European Economic Community (EEC), also called the European Common Market, to integrate the economies of its member states, dissolving tariffs and other trade barriers.

      Euratom, the European Atomic Energy Community, is formed at the same time. Early conflicts among the EEC revolve around the difficulties of establishing a unified agricultural policy and the worries of infringing on the sovereignty of Community member states.


      The Organization of Petroleum Exporting Countries (OPEC) is formed, bringing together Iran, Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab Emirates, Libya, Algeria, Nigeria, Angola, Venezuela, and Ecuador, at Venezuela's instigation. Essentially a cartel, OPEC's influence on the oil market has alarmed onlookers from the moment of its inception, and it bears significant responsibility for the oil crises of the 1970s. Advocates point out that before OPEC, and especially before World War II, Western nations regularly exploited the oil-producing Middle East.


      The Association of the Southeast Asian Nations (ASEAN) is formed, composed of Thailand, Malaysia, Singapore, and the Philippines, with further involvement on the part of Brunei, Burma (now Myanmar), Laos, Cambodia, and Vietnam.

      The ECSC, EEC, and Euratom merge to become the European Community (EC), the precursor to today's European Union.


      Denmark, Ireland, and the United Kingdom join the European Community.


      Greece joins the European Community.


      Portugal and Spain join the European Community.


      The Asia-Pacific Economic Cooperation (APEC) is formed as a forum for 21 Pacific Rim nations to discuss common economic and trade concerns. Member states account for nearly half of the world's population and more than half of its gross domestic product, and include Australia, Brunei, Canada, China, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the United States, Hong Kong, Mexico, Papua New Guinea, Chile, Peru, Russia, and Vietnam.

      The Revolutions of 1989 bring about the fall of the “iron curtain” in Eastern Europe, as many socialist states are dismantled. The Berlin Wall is taken down in October, leading in less than a year to the reunification of Germany after two generations. In December, the United States and the Soviet Union officially declare the Cold War to be over.

      President Ronald Reagan (right) and Arizona Senator John McCain in 1987. Reagan favored “trickle down” economics.

      The Soviet Union collapses amid a resurgence of nationalist sentiment among citizens of its member states and the examples set by the revolutions of 1989.


      The North America Free Trade Agreement (NAFTA) is signed amid considerable controversy. NAFTA reduces trade and movement restrictions among the North American nations-Canada, the United States, and Mexico-and in the United States is criticized by both the left and the right wing, as it leads to a significant decline in American manufacturing employment (commonly ascribed to corporations closing American plants and opening Mexican ones with cheaper workers). Though free passage across the borders is foreseen as a second stage of NAFTA, the tightening of American borders after the 9/11 attack postpones this indefinitely.

      The Maastricht Treaty goes into effect, forming the European Union (EU), formerly the European Community, which is now one of three pillars of the EU, alongside the Common Foreign and Security Policy and Justice and Home Affairs. Though the name reflects the fact that the EU is no longer a merely economic community, it is the economic effects that are the most profound in both the short- and long-term, as work begins to put the euro into circulation and member states ready themselves for the adjustments of economic unification.


      The World Trade Organization (WTO) supercedes GATT, which was perceived as ill-adapted for an increasingly global economy. GATT isn't dissolved, but is under the umbrella of the WTO now; the WTO thus supervises international trade, policing member states to ensure adherence to WTO trade agreements, enforces matters pertaining to intellectual property (a growing concern in an age of computer software and digital media), and so on. WTO member states must grant all other member states most-favored-nation status-or in other words, a member state can favor no other member state more than the others.

      Austria, Finland, and Sweden join the European Union.


      China joins the World Trade Organization.


      The euro is adopted by members of the EU, replacing the national currencies of 12 countries.


      In the European Union's (EU) largest expansion- the Eastern bloc enlargement-Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia are admitted on May

      1. Though the largest in countries, population, and landmass, this is the smallest enlargement in gross domestic product (GDP), and brings the per-capita GDP of the EU down severely.


      Bulgaria and Romania join the EU, having been unprepared to join as part of the Eastern bloc enlargement.


      The mortgage credit crisis in the United States reaches critical mass. The U.S. housing bubble that peaked in 2005 led to declining home values from 2006 on, followed by more and more borrowers becoming delinquent or defaulting. The first effects are confined to the banking and housing industries. Foreclosed properties sell for less than expected thanks to lack of demand, so much of the inflated demand of the bubble having been fueled by speculative purchasing. But the effects on the national and international economies are far more severe than in previous housing slumps. The crisis becomes the focal issue of the presidential election, and the George W. Bush administration and both candidates support an unpopular emergency bailout plan drawing on a $700 billion fund called the Troubled Assets Relief Program.


      In response to the ongoing worldwide financial crisis, recently inaugurated U.S. President Barack Obama signs into law the American Recovery and Reinvestment Act (“stimulus plan”) on February 17. The largest chunk of the act's $787 billion in expenditures goes to federal programs, including assistance to those most in need (unemployment benefits, food stamp and Social Security increases, school lunch programs and Meals on Wheels, public and low-income housing), infrastructure improvements (including much-needed bridge repair programs and funding for public transportation), and improvements to the country's energy sector. Despite the size of the stimulus plan, it does not represent the whole of the spending expected by the Obama administration.

      Norman C.Rothman University of Maryland University College
      BillKte'pi Independent Scholar
    • Glossary


      Absolute Advantage: An absolute advantage exists when a nation or economic region is able to produce a good or service more efficiently (using the same amount of resources) than a second nation or region.

      Accelerated Tariff Elimination: An increased rate of reduction of import duties at a faster rate than what was originally planned or decided upon.

      Accounting Exposure: Changes in a corporation's financial statements as a result of changes in currency values. Also known as translation exposure.

      Acquisition of Assets: In an acquisition of assets, one firm acquires the assets of another company.

      Acquisition of Stock: In an acquisition of stock, one firm buys the equity interest of another firm.

      Acquisition Premium: In a merger or acquisition, the difference between the purchase price and the preacquisition value of the target firm.

      Active Fund Management: An investment approach that actively shifts funds either between asset classes (asset allocation) or between individual securities (security selection).

      Active Income: In the U.S. tax code, income from an active business as opposed to passive investment income.

      Activity-Based Costing (ABC): An accounting method that allocates costs to specific products or services or activities.

      Adjusted Present Value: A valuation method that separately identifies the value of an unlevered project from the value of financing side effects.

      Ad Valorem Tariff: A tariff assessed as a percentage of the value of an import.

      Advance Payment: Trading method in which the buyer pays for the goods before they are shipped to the buyer.

      Adventure: It is also called “marine adventure.” It is a term of art in the marine insurance business. All insured cargo owners and every shipper on that vessel are part of the adventure.

      Advising Bank: Bank, usually in the country of the seller, whose primary function is to authenticate the letter of credit and advise it to the seller.

      Advisory Capacity: Used to indicate that a shipper's agent or representative is not empowered to make definitive changes or adjustments without approval of the group or individual represented.

      African, Caribbean, and Pacific Countries (ACP): The African, Caribbean, and Pacific Group of States (ACP) is an organization created by the Georgetown Agreement in 1975. It is composed of African, Caribbean, and Pacific states signatories to the Georgetown Agreement or the Partnership Agreement between the ACP and the European Union.

      African Developmental Bank Group (ABD Group): The ABD Group is one of four major regional developmental banks currently operating in the global economy; it is headquartered in Abidjan, Cote d'Ivoire.

      African Union (AU): The African Union is an organization for regional, social, and economic cooperation. It consists of 53 member nations in Africa and was derived from the OAU (Organization of African Unity). Its goal is to unify Africa and promote peace, security, and stability on the continent through social and economic cooperation.

      Agency Costs: The costs incurred to ensure that agents and managers act in the best interest of the principal.

      Agent: Someone who represents another. In corporate governance terminology, management is the agent of the principal stakeholders in a principal-agent relationship.

      Aggregate Demand: The total demand of all potential buyers of a commodity or service. Includes all individuals and organizations that have the ability, willingness, and authority to purchase such products.

      Agreement on Textiles and Clothing (ATC): The Agreement on Textiles and Clothing (ATC) and all restrictions thereunder terminated on January 1, 2005. The expiry of the 10-year transition period of ATC implementation means that trade in textile and clothing products is no longer subject to quotas under a special regime outside normal WTO/GATT rules but is now governed by the general rules and disciplines embodied in the multilateral trading system.

      Air Waybill: A nonnegotiable instrument of domestic and international air transport that functions as a bill of lading.

      All-in-Cost: The percentage cost of a financing alternative, including any bank fees or placement fees.

      Allocational Efficiency: The efficiency with which a market channels capital toward its most productive uses.

      Allocation-of-Income Rules: In the U.S. tax code, these rules define how income and deductions are to be allocated between domestic-source and foreign-source income.

      Allowance: An amount paid or credited by sellers to the buyers on products due to one or more reasons that did not meet buyers' specifications such as late shipment and faulty packaging.

      Alternative Tariff: A tariff that has two or more rates for the same product, trading to and from the same points, with the authority to use one that produces the lowest charge.

      American Option: An option that can be exercised anytime until expiration (contrast with European option).

      American Shares: Shares of a foreign corporation issued directly to U.S. investors through a transfer agent in accordance with SEC regulations.

      American Terms: A foreign exchange quotation that states the U.S. dollar price per foreign currency unit (contrast with European terms).

      Andean Community (CAN): The Andean Community or Comunidad Andina de Naciones in Spanish (CAN) is made up of Bolivia, Colombia, Ecuador, Peru, and Venezuela. It is a series of bodies and institutions that work to bring Andean subregional integration, promote external projection, and reinforce the actions connected with the process.

      Andean Pact: A regional trade pact that includes Venezuela, Colombia, Ecuador, Peru, and Bolivia.

      Annuity: A level stream of equal dollar payments that lasts for a fixed time. An example of an annuity is the coupon part of a bond with level annual payments.

      Annuity Factor: The term used to calculate the present value of the stream of level payments for a fixed period.

      Antidumping Laws: Laws that are enacted to prevent dumping—offering a price in the overseas market that is lower than that at which a product is sold in its home domestic market.

      Appellate Body (AB): The Appellate Body is a World Trade Organization (WTO) entity, which was established in 1995 under Article 7 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). Its purpose is to hear appeals and reports issued by panels in disputes between WTO members. It is composed of a standing body of seven people and has the power to uphold, modify, or reverse the legal findings and conclusions of a panel. These rulings must be accepted by the parties of the dispute. The Appellate Body has its seat in Geneva, Switzerland.

      Appreciation: An increase in a currency value relative to another currency in a floating exchange rate system.

      Arab Maghreb Union (AMU): A regional alliance seeking economic and political unity in northern Africa. Members are Algeria, Libya, Mauritania, Morocco, and Tunisia.

      Arbitrage: The process of purchasing and selling the identical products, such as foreign exchange,

      stocks, bonds, and other commodities, in several markets intending to make profit from the difference in price. Arbitrage is generally seen as a “risk-less” transaction.

      Arbitrage Pricing Theory (APT): APT is a theory used in finance to find the prices of assets and is typically used in stock pricing. Its asset pricing model assumes a linear relation between required return and systematic risk as measured by one or more factors according to Rj = mj + bljFl + … + bKjFK + ej.

      Asian Development Bank (ADB): The Asian Development Bank (ADB) is a multilateral development financial institution owned by 67 members (48 from the region and 19 from other parts of the globe). Its goal is to improve the welfare of the people in Asia and the Pacific. ADB is headquartered in Manila, Philippines. It is one of four major development banks around the world.

      Asia-Pacific Economic Cooperation (APEC): A forum designed to promote economic growth, cooperation, and integration among member nations. APEC has also worked to reduce tariffs and other trade barriers across the Asia-Pacific region. Its vision is based on the “Bogor Goals” adopted in the 1994 meeting in Bogor, Indonesia.

      There are 21 member economies including Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; Republic of the Philippines; Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Vietnam.

      Ask Rates: The rate at which a market maker is willing to sell the quoted asset. Also known as offer rates.

      Asset Allocation Policy: The target weights given to various asset classes in an investment portfolio.

      Assets in Place: Those assets in which the firm has already invested (compare to growth options).

      Association of Southeast Asian Nations (ASEAN): An economic and geopolitical affiliation formed in 1967 that includes Singapore, Brunei Darussalam, Malaysia, Thailand, the Philippines, Indonesia, Myanmar (Burma), Laos, Cambodia, and Vietnam.

      Attachment: The legal seizure of a property or a person before the judgment is made in order to secure compensation if awarded. The prosecutor can request the court to issue an order to seize a property.

      At-the-Money Option: Option with an exercise price that is equal to the current value of the underlying asset.

      Autarky: In models of international trade, a situation in which there is no cross-border trade.

      Aval: A guarantee of the buyer's credit provided by the guarantor, unless the buyer is of unquestioned financial standing. The aval is an endorsement note as opposed to a guarantee agreement.

      Avalization: Payment undertaking given by a bank in respect of a bill of exchange drawn.

      Average Accounting Return (AAR): Average project earnings after taxes and depreciation divided by the average book value of the investment during its life.


      Back Order: A customer order for materials, goods in process, or finished goods that is not currently in stock but is to be delivered when it becomes available.

      Backward Innovation: Building a more basic version of an existing product for a lesser-developed market.

      Balanced Economy: In national finances, it is when exports are equal to imports.

      Balance of Payments: The International Monetary Fund's accounting system that tracks the flow of goods, services, and capital in and out of each country.

      Balance of Trade: The difference between a country's total imports and exports over a set period.

      Balance Sheet: A statement showing a firm's accounting value on a particular date. It reflects the equation, Assets = Liabilities + Stockholders' Equity.

      Bank-Based Corporate Governance System: A system of corporate governance in which the supervisory board is dominated by bankers and other corporate insiders.

      Banker's Acceptance: A time draft drawn on and accepted by a commercial bank.

      Banker's Draft: A payment instrument used to make international payments.

      Bank for International Settlements (BIS): An international organization that promotes international monetary and financial cooperation among nations by fostering the cooperation of world central banks.

      Bank Release: A document issued by a bank authorizing the delivery of goods.

      Bankruptcy: The status of an individual or a legal entity that does not have sufficient resources to pay its debts as they become due.

      Bargain Purchase Option: A lease provision allowing the lessee to purchase the equipment for a price predetermined at lease inception, which is substantially lower than the expected fair market value at the date the option can be exercised.

      Barter: Trade in which merchandise is exchanged directly for others without use of money or the involvement of a third party.

      Basel Convention: An international treaty concerned with restricting the movement of hazardous wastes between countries, especially from developed to underdeveloped countries.

      Basic IRR Rule: Accept the project if the (Internal Rate of Return) IRR is greater than the discount rate; reject the project if IRR is less than the discount rate.

      Basis: The simple difference between two nominal interest rates.

      Basis Point: Equal to 1/100 of 1 percent.

      Basis Risk: The risk of unexpected change in the relationship between futures and spot prices.

      Basis Swap: A floating-for-floating interest rate swap that pairs two floating rate instruments at different maturities (such as six-month LIBOR versus 30-day U.S. T-bills).

      Bearer Bonds: Bonds that can be redeemed by the holder. The convention in most west European countries is to issue bonds in registered form (contrast with registered bonds).

      Benchmarking: A systematic procedure of comparing a company's practices against the best practice and modifying actual knowledge to achieve superior performance.

      Beneficiary: A party who receives a legal benefit.

      Beta: A measure of an asset's sensitivity to changes in the market portfolio (in the Capital Asset Pricing Model) or to a factor (in the APT). The beta of an asset j is computed as bj = rj, k (sj/sk), where k represents a market factor (such as returns to the market portfolio in the CAPM).

      Bid Bond: A type of bond that guarantees the fulfillment of an offer or bid if it is accepted.

      Bid-Offer Spread: The difference between the interest rates at which the bank borrows money and lends money.

      Bid Rate: The rate at which a market maker is willing to buy the quoted asset.

      Bilateral Investment Treaty (BIT): A treaty between two countries to ensure that investments between the two countries receive the same treatment as domestic or other international investments.

      Bilateral Trade Agreement: A commercial agreement between two countries, often detailing what specific quantities of what specific goods can be exchanged.

      Bill of Lading (BOL): A document that establishes the terms and conditions of a contract between a shipper and a shipping company under which freight is to be moved between specified points for a specified charge.

      Blank Endorsement: The method whereby a bill of lading is made into a freely negotiable document of title.

      Blanket Bond: A bond that covers a group of people, articles, or properties.

      Blanket Contract: A long-term contract in which the supplier promises to resupply the buyers as needed at agreed-upon prices over the contracting time.

      Blanket Rate: A rate that is applied broadly over different articles or entities.

      Blockade: The act of seizing commercial exchange with a particular country. Such act is common during wartime.

      Blocked Funds: Cash flows generated by a foreign project that cannot be immediately repatriated to the parent firm because of capital flow restrictions imposed by the host government.

      Bogor Goals: The Bogor Goals were created by the Asia-Pacific Economic Cooperation (APEC) in Bogor, Indonesia, in 1994, with the intention of increasing economic unity among Asian Pacific nations by increasing trade.

      The goals are to have free trade and investment in developed nations by 2010 and in developing nations by 2020.

      Bonded Exchange: Foreign exchange that cannot be freely converted into other currencies.

      Bond Equivalent Yield: A bond quotation convention based on a 365-day year and semiannual coupons (contrast with effective annual yield).

      Bond of Indemnity: An agreement relieving the party to whom the bond is issued of responsibility in a situation in which the party would normally be liable.

      Break-Even Analysis: Analysis of the level of sales at which a project would make zero profit. The term can also be used for sales of financial instruments.

      Bretton Woods Agreement: An agreement made at Bretton Woods, New Hampshire, near the end of World War II to promote exchange rate stability and facilitate the international flow of currencies.

      Bretton Woods Conference: An international conference held in 1944 at Bretton Woods, New Hampshire with representatives from 43 countries. The conference established the International Monetary Fund and the World Bank.

      Buffer Stock: Goods set aside and reserved for sale specifically to balance out the market in the case of a shortage of that good. In the case of a surplus, more of the good would be bought and set aside.


      Call Option: The right to buy the underlying currency or security at a specified price and on a specified date from the option writer/seller.

      Calvo Doctrine: A foreign policy doctrine that states that the country in which an investment is located has jurisdiction over that investment.

      Cap: In banking and finance, when the interest on borrowed funds is tied to the market rate, an upper limit or a cap can be negotiated and agreed upon, so that even when the market rate is higher than the stated level, no premium will be paid.

      Capital Account: A measure of change in cross-border ownership of long-term financial assets, including financial securities and real estate.

      Capital Asset Pricing Model (CAPM): An asset pricing model that relates the required return on an asset to its systematic risk.

      Capital Budgeting: Planning and managing expenditures for long-lived assets.

      Capital Formation: The process of increasing the amount of capital goods—also called capital stock—in a country.

      Capital Gain: The positive change in the value of an asset; a negative capital gain is a capital loss.

      Capital Goods: Manufactured goods that are used for production, such as machine tools.

      Capitalism: An economic system that is based on private ownership; economic development is proportionate to and dependent upon the accumulation and reinvestment of profits.

      Capital Market Line: The line between the risk-free asset and the market portfolio that represents the mean-variance efficient set of investment opportunities in the CAPM.

      Capital Markets: Markets for financial assets and liabilities with maturity greater than one year, i.e., long-term loanable funds, such as long-term government and corporate bonds, preferred stock, and common stock.

      Capital Rationing: The case where funds are limited to a fixed dollar amount and must be allocated among the competing projects.

      Capital Structure: The mix of the various debt and equity capital maintained by a firm. Also called financial structure. The composition of a corporation's securities used to finance its investment activities; the relative proportions of short-term debt, long-term debt, and owners' equity.

      Caribbean Community and Common Market (CARICOM): CARICOM consists of Antigua & Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent & The Grenadines, Suriname, and Trinidad & Tobago. Its purpose is to provide a continued economic linkage after the dissolution of the West Indies Federation for English-speaking countries in the Caribbean.

      Carrier: An individual or entity that transports persons or goods for compensation under the contract of carriage.

      Cartage: The delivery of goods with short distance.

      Cartel: An agreement among, or an organization of, suppliers of a product to limit production in order to minimize competition and maximize market power.

      Cash Against Documents (CAD): Payment for goods where a commission house or other intermediary transfers title documents to the buyer upon payment in cash.

      Cash Cover: In a letter of credit transaction, money deposited by the applicant with the issuing bank.

      Cash Flow: Cash generated by the firm and paid to creditors and shareholders. It can be classified as (1) cash flow from operations, (2) cash flow from changes in fixed assets, and (3) cash flow from changes in net working capital.

      Cash in Advance (CIA): Payment for goods in which the price is paid in full before the shipment is made. This type of payment is usually only made for very small shipments or when goods are made to order.

      Cash With Order (CWO): Payment for goods in which the price is paid at the time the order is placed.

      Central America Free Trade Agreement (CAFTA-DR): CAFTA-DR is an extensive trade agreement between Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States.

      Central Bank: The sole institution of a nation that has the authority to issue bank notes and set monetary and credit policies. It manages the rate of exchange of the nation's currency and determines the internal and external monetary stability of the currency.

      Centrally Planned Economy: An economy in which the government, rather than free-market activity, controls the allocation of resources.

      Certificate of Acceptance: Term used in leasing. A document whereby the lessee acknowledges that the equipment to be leased has been delivered, is acceptable, and has been manufactured or constructed according to specifications.

      Certificate of Analysis/Certificate of Inspection: Documents that may be asked for by the importer and/or the authorities of the importing country, as evidence of quality or conformity to specifications.

      Certificate of Manufacture: A statement that is usually notarized in which the producer of goods certifies that the goods have been produced and are now available to the buyer.

      Certificate of Origin: Documents that may be asked for by the authorities of the importing country, as evidence of the country of manufacture of the goods.

      Certificate of Product Origin: A document required by certain foreign countries for tariff purposes, certifying the country of origin of specified goods.

      Change in Net Working Capital: Difference between net working capital from one period to another.

      Characteristic Line: The line relating the expected return on a security to different returns on the market.

      Chattel: An item of movable personal property.

      Chill a Sale: The collusion of buyers or bidders in a sale to check competition in order to obtain goods or properties below fair value.

      Civil Law: A body of law created by the legislation of a state or nation, and based upon written statutes, for its own regulation.

      Civil Society Organizations (CSOs): Nongovernmental and nonprofit groups that work to improve society and the human condition.

      Clean Bill of Lading: A receipt for goods issued by a carrier that indicates that the goods were received in apparently good order and without damage.

      Clean Collection: Collection in which only the financial document is sent through the banks.

      Clearance: The completion of customs entry requirements that results in the release of goods to the importer.

      Clearing: The settlement of a transaction, often involving exchange of payments and/or documentation.

      Clearing House Interbank Payments System (CHIPS): Financial network through which banks in the United States conduct their financial transactions.

      Closed-End Fund: A mutual fund in which the amount of funds under management is fixed and ownership in the funds is bought and sold in the market like a depository receipt.

      Closed-End Transaction: A credit transaction in which the time for repayment and amount are fixed.

      Codex: Codex Alimentarius Commission (a world food standards body).

      Collar: An agreement that fixes the interest rate between a lower and an upper boundary, regardless of the market rate.

      Collecting Bank: The bank that acts as the agent of the seller to collect payment(s) from the buyer and then transfer the payment(s) to the remitting bank (seller's bank).

      Collection Order: In a collection, the document in which the seller instructs the banks as to how the collection is to be conducted.

      Collective Mark: A trademark or service mark for a cooperative, association, or a collective group to indicate membership in this collective group.

      Collectivist Society: A society in which people feel more comfortable thinking and acting in groups.

      Collusion: An agreement (usually secret) among mostly oligopolistic competing firms in an industry to control the market, raise the market price, and otherwise act like a monopoly.

      Command Economy: An economy based on government ownership and/or control of society's resources; during the 20th century, the dominant form of command economy was communism.

      Commercial Bank: A bank whose primary function is to accept demand deposits (which can be withdrawn upon depositories' demand), and grant short-term and long-term loans.

      Commercial Credit: A letter of credit that assures the seller that buyer will pay for the goods being sold. Such letter is usually issued by a bank upon client's request.

      Commercial Document: General term for documents describing various aspects of a transaction, e.g., commercial invoice, transport document, insurance document, certificate of origin, certificate of inspection, etc.

      Commingling: Method of packing a shipment in which various goods subject to differing duties are grouped together. Because of this, the value of each type of item is difficult to determine.

      Commodity Price Risk: The risk of unexpected changes in a commodity price, such as with oil.

      Commodity Swap: A swap in which the (often notional) principal amount on at least one side of the swap is a commodity such as oil or gold.

      Common Carrier: An organization that transports persons or goods for a fee.

      Common Law: The body of law based on customs, usages, and court decisions rather than statutory laws.

      Common Market: A common market is a group of countries that have common external tariffs against nonmember nations. It may also allow labor mobility as well as common economic policies. For example, the European Union (EU).

      Common Market for Eastern and Southern Africa (COMESA): An organization of states that intends to promote the development of the resources of its members, COMESA forms a major trading block of 20 nations: Angola, Burundi, Comoros, Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.

      Common Market of the South: See Mercosur.

      Commonwealth: An association of independent states that promotes cooperation, consultation, and mutual assistance among members. However, such association has no treaty or constitution. For example, the British Commonwealth.

      Comparative Advantage: A comparative advantage exists when a nation or economic region is able to produce a product at a lower opportunity cost compared to another nation or region. The rule of economics that states that each country should specialize in producing those goods that it is able to produce relatively most efficiently.

      Compensatory Trade: The sale of goods or services that is paid for by bartering other goods or services.

      Complementary Imports: The imports of goods or services that the importing country does not possess or produce.

      Compliant Documents: Documents presented under a letter of credit that comply with all its terms and conditions. The banks are only obliged to pay the beneficiary if documents are totally compliant.

      Compounding: Process of reinvesting each interest payment to earn more interest. Compounding is based on the idea that interest itself becomes principal and therefore also earns interest in subsequent periods.

      Compound Interest: Interest that is earned both on the initial principal and on interest earned on the initial principal in previous periods. The interest earned in one period becomes in effect part of the principal in a following period.

      Compound Rate: A rate that has both a specific rate as well as an ad valorem rate.

      Compound Value: Value of a sum after investing it over more than one period. Also called future value.

      Confirming Bank: Bank that adds its payment undertaking to a letter of credit.

      Consignee: Party to whom goods are to be delivered.

      Consignment: Delivery of merchandise from an exporter (the consignor) to an agent (the consignee) under agreement that the consignee sells the merchandise of the account of the consignor, while the consignor retains title to the goods until the consignee sells them. The consignee sells merchandise for commissions and remits the net proceeds to the consignor.

      Consignor: A consignor is an individual entity, partnership, or company that ships its goods to another party to be taken care of. A consignor is usually an exporter.

      Consolidated Income: The sum of income across all of the multinational corporation's domestic and foreign subsidiaries.

      Consolidation: A form of corporate reorganization in which two firms pool their assets and liabilities to form a new company. The term can also be used for shipping, in which a freight consolidator combines shipments of cargo that are less than truckload (LTL) in order to reduce shipping rates.

      Consular Statement: A document required by some foreign countries, describing a shipment of goods and showing information such as the consignor, consignee, and value of shipment. Certified by a consular official of the foreign country, it is used by the country's officials to verify the value, quantity, and nature of the shipment.

      Consulate: The diplomatic station located in a foreign country that represents the commercial interests of the home country.

      Consumer Goods: Goods produced for individuals rather than for manufacturing purposes.

      Consumer Price Indexes (CPI): A program that produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. It is one indication of inflation.

      Contango: The amount the buyer pays the seller to delay the transaction of a security, especially when the future price of the security is above the expected future spot price. The opposite is called backwardation.

      Contingency Insurance: Contingency insurance protects the exporter in any situation in which exporter responsibility relied on the buyer to insure, but sustained a loss because of inadequate coverage from that source. It will cover situations in which the FOB endorsement would have otherwise served had that been in force.

      Contingent Claim: Claim whose value is directly dependent on, or is contingent on, the value of its underlying assets. For example, the debt and equity securities issued by a firm derive their value from the total value of the firm.

      Continuous Compounding: Interest compounded continuously, every instant, rather than at fixed intervals.

      Continuous Quotation System: A trading system in which buy and sell orders are matched with market makers as the orders arrive, ensuring liquidity in individual shares.

      Contract Manufacturing: A firm allowing another firm to manufacture a prespecified product.

      Contribution Margin: Amount that each additional product, such as a jet engine, contributes to after-tax profit of the whole project: (Sales price – Variable cost) × (1 – T), where T is the corporate tax rate.

      Controlled Foreign Corporation (CFC): In the U.S. tax code, a foreign corporation owned more than 50 percent either in terms of market value or voting power by U.S. shareholders.

      Convention on the International Trade in Endangered Species (CITES): CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora) is an international agreement between governments.

      CITES aims to ensure that international trade in specimens of wild animals and plants does not threaten their survival.

      Convertible Bonds: Bonds sold with a conversion feature that allows the holder to convert the bond into common stock on or prior to a conversion date and at a prespecified conversion price.

      Convertible Currency: A currency that can be traded for other currencies at will.

      Convex Tax Schedule: A tax schedule in which the effective tax rate is greater at high levels of taxable income than at low levels of taxable income. Such a schedule results in progressive taxation.

      Cooperation Council for the Arab States of the Gulf (GCC): The Cooperation Council for the Arab States of the Gulf (GCC) was established on May 25, 1981. It joined the six states of the United Arab Emirates, State of Bahrain, Kingdom of Saudi Arabia, Sultanate of Oman, State of Qatar and State of Kuwait. The framework's focus is on achieving a state of unity in all fields among its member states. It also stresses a furthering of relations and cooperation among member states and provides a platform to address security and economic development challenges.

      Copenhagen Criteria: The regulations that all applicant countries to the European Union must meet and that all EU member nations must maintain.

      Corporate Culture: The set of values, beliefs, relationships between individuals, and functions that guide the decisions of a company to achieve its objectives.

      Corporate Governance: The way in which major stakeholders exert control over the modern corporation.

      Corporate Social Responsibility (CSR): The responsibilities that corporations (including MNCs) have to workers and their families, to consumers, to investors, and to the natural environment.

      Corporation: Form of business organization that is created as a distinct “legal person” composed of one or more actual individuals or legal entities. Primary advantages of a corporation include limited liability, ease of ownership, transfer, and perpetual succession.

      Correlation: A measure of the covariability of two assets that is scaled for the standard deviations of the assets (rAB = sAB/sAsB such that −1 < rAB < +1).

      Correspondent Bank: A bank that, in its own country, handles the business of a foreign bank.

      Corruption Perceptions Index (CPI): A ranking of countries by level of corruption that is researched and published by Transparency International (TI), the world's leading nongovernmental organization dedicated to fighting corruption.

      Cost and Freight: A pricing term that indicates that the cost of the goods and freight charges are included in the quoted price.

      Cost of Equity Capital: The required return on the company's common stock in capital markets. It is also called the equity holders' required rate of return because it is what equity holders can expect to obtain in the capital market. It is a cost from the firm's perspective.

      Cottage Industry: An industry comprised of a labor force that produces goods for sale at home, often with their own equipment.

      Counter Credit: Another name for back-to-back letter of credit.

      Countertrade: The sale of goods or services that are paid for in whole or part by the transfer of goods or services from a foreign country.

      Countervailing Duties: Duties levied on an imported good that has been unfairly subsidized by a foreign government. Imposing duties on the good is meant to raise the product's price to a “fair market value.”

      Country Risk: The political and financial risks of conducting business in a particular foreign country.

      Coupon: The stated interest on a debt instrument.

      Coupon Swap: A fixed-for-floating interest rate swap.

      Courtage: A European term for brokerage fee.

      Covariance: A measure of the covariability of two assets (sAB = sAsB rAB).

      Cover Note: Insurance document evidencing that insurance cover for a consignment has been taken out, but not giving full details.

      Credit Risk Insurance: Insurance that covers the risk of nonpayment for delivered goods.

      Creeping Nationalization: The succession of small but important changes in a firm's condition or standing that bring it slowly under national control.

      Cross-Hedge: A futures hedge using a currency that is different from, but closely related to, the currency of the underlying exposure.

      Culture: Collective mental paradigms that a society imparts to individuals in the form of behavior patterns, shared values, norms, and institutions.

      Cumulative Translation Adjustment (CTA): An equity account under Financial Accounting Standards Board Statement No. 52 that accumulates gains or losses caused by translation accounting adjustments.

      Currency Coupon Swap: A fixed-for-floating rate nonamortizing currency swap traded primarily through international commercial banks.

      Currency Cross-Hedge: A hedge of currency risk using a currency that is correlated with the currency in which the underlying exposure is denominated.

      Currency of Reference: The currency that is being bought or sold. It is most convenient to place the currency of reference in the denominator of a foreign exchange quote.

      Currency Option: A contract giving the option holder the right to buy or sell an underlying currency at a specified price and on a specified date. The option writer (seller) holds the obligation to fulfill the other side of the contract.

      Currency Risk: The risk of unexpected changes in foreign currency exchange rates. Also known as foreign exchange risk.

      Currency Swap: A contractual agreement to exchange a principal amount of two different currencies and, after a prearranged length of time, to give back the original principal. Interest payments in each currency are also typically swapped during the life of the agreement.

      Current Account: A measure of a country's international trade in goods and services.

      Current Account Balance: A broad measure of import-export activity that includes services, travel and tourism, transportation, investment income and interest, gifts, and grants along with the trade balance on goods.

      Current Rate Method: A translation accounting method, such as Financial Accounting Standards Board Statement No. 52 (FAS #52) in the United States, that translates monetary and real assets and monetary liabilities at current exchange rates. FAS #52 places any imbalance into an equity account called the “cumulative translation adjustment.”

      Customhouse Broker: A person or firm obtains the license from the treasury department of its country when required, and helps clients (importers) to enter and declare goods through customs.

      Customs: The authorities designated to collect duties levied by a country on imports and exports.

      Customs Union: A form of a regional economic integration group that eliminates import and export tariffs among member nations and establishes common external tariffs.


      Dealing Desk: The desk at an international bank that trades spot and forward foreign exchange. Also known as trading desk.

      Debt Capacity: The amount of debt that a firm chooses to borrow to support a project.

      Debt-for-Equity Swap: A swap agreement to exchange equity (debt) returns for debt (equity) returns over a prearranged length of time.

      Debtor Nation: A nation that is owed less in foreign currency than it owes other nations.

      Decision Trees: A graphical analysis of sequential decisions and the likely outcomes of those decisions.

      Deferred Payment Credit: A type of letter of credit that provides for payment some time after presentation of the shipping documents by the exporter.

      Del Credere Risk: Situation created when a sales agent sells on credit and there is a chance that the buyer either does not want to or does not have the money to pay.

      Deliverable Instrument: The asset underlying a derivative security. For a currency option, the deliverable instrument is determined by the options exchange and is either spot currency or an equivalent value in futures contracts.

      Delta-Cross-Hedge: A futures hedge that has both currency and maturity mismatches with the underlying exposure.

      Delta-Hedge: A futures hedge using a currency that matches the underlying exposure and a maturity date that is different from, but preferably close to, the maturity of the underlying exposure.

      Demand Management: A business process with the intention to coordinate and influence all sources of demand for a firm's products.

      Depository Receipt: A derivative security issued by a foreign borrower through a domestic trustee representing ownership in the deposit of foreign shares held by the trustee.

      Depreciation: (1) The expense against earnings to write-off purchase price of an asset over its useful life. (2) A decrease in a currency value relative to another currency in a floating exchange rate system.

      Derivative Security: A financial security whose price is derived from the price of another asset. The value of a derivative is determined by the fluctuations in the asset.

      Devaluation: A decrease in a currency value relative to another currency in a fixed exchange rate system. The purpose of devaluation typically is to increase export and decrease import in order to correct a balance of payment deficit.

      Developed Countries: The richer, more industrialized countries in the world.

      Developing Country: A country that is in the process of becoming industrialized. Average national income must be below $9,265 for a country to be classified as a developing country. A developing country typically lacks industrialization, infrastructure, high literacy rate, and advanced living standards.

      Difference Check: The difference in interest payments that is exchanged between two swap counterparties.

      Digital Divide: The digital divide refers to the widening technological gap between the richer and the poorer countries of the world.

      Direct Costs of Financial Distress: Costs of financial distress that are directly incurred during bankruptcy or liquidation proceedings.

      Direct Exporting: Marketer takes direct responsibility for its products abroad by selling them directly to foreign customers or through local representatives in foreign markets.

      Direct Financing Lease: A nonleveraged lease by a lessor in which the lease meets any of the definitional criteria of a capital lease, plus additional criteria.

      Direct Product Profitability: Measuring the direct costs associated with handling a product from the warehouse until a customer buys from the retail store.

      Direct Terms: The price of a unit of foreign currency in domestic currency terms, such as $0.6548/DM for a U.S. resident (contrast with indirect quote).

      Discount: If a bond is selling below its face value, it is said to sell at a discount.

      Discounted Cash Flow: A valuation methodology that discounts expected future cash flows at a discount rate appropriate for the risk, currency, and maturity of the cash flows.

      Discounted Payback: The length of time needed to recoup the present value of an investment; sometimes used when investing in locations with high country risk.

      Discounted Payback Period Rule: An investment decision rule in which the cash flows are discounted at an interest rate and the payback rule is applied on these discounted cash flows.

      Discounting: Calculating the present value of a future amount. The process is the opposite of compounding.

      Discretionary Reserves: The accounting balance sheet accounts that are used in some countries to temporarily store earnings from the current year or the recent past.

      Discriminatory Pricing: The practice of selling a product or service at different prices that do not reflect a proportional difference in costs.

      Dispatch: An amount paid by a vessel's operator to a charter if loading or unloading is completed in less time than stipulated in the charter party.

      Dispute Settlement Body (DSB): Dispute Settlement Body is a part of the World Trade Organization (WTO) that settles trade disputes between governments.

      Dispute Settlement Panel (DSP): The WTO's Dispute Settlement Body forms different Dispute Settlement Panels to resolve conflicting issues among its members.

      Dispute Settlement Understanding (DSU): The Dispute Settlement Understanding (DSU) of the World Trade Organization (WTO) was one of the key outcomes of the Uruguay Round of multilateral trade negotiations.

      Distributor: A foreign agent who sells for a supplier directly and maintains an inventory of the supplier's product.

      Diversifiable Risk: A risk that specifically affects a single asset or a small group of assets. Also called unique or unsystematic risk.

      Diversionary Dumping: The sale of foreign products at less than fair value to a third country where the products are further processed and sold to another country.

      Dock Receipt: A receipt issued by an ocean carrier to acknowledge receipt of a shipment at the carrier's dock or warehouse.

      Dock Statement: A receipt issued by an ocean carrier to acknowledge the receipt of a shipment at the carrier's dock or warehouse facilities.

      Domestic Bonds: Bonds issued and traded within the internal market of a single country and denominated in the currency of that country.

      Domestic International Sales Corporation: In the U.S. tax code, a specialized sales corporation whose income is lumped into the same income basket as a foreign sales corporation.

      Domestic Liquidity: The aggregate of money supply, quasi-money or savings and time deposits, and deposit substitutes.

      Downstream Dumping: A type of dumping in which the primary producer first sells its product to another domestic producer at below fair value or cost. The second producer then further processes the product and exports it to another country at a lower than normal cost.

      Draft: A means of payment whereby a drawer (the importer) instructs a drawee (either the importer or its commercial bank) to pay the payee (the exporter). Also known as trade bill or bill of exchange.

      Dual Pricing: The practice of selling identical products in different markets for different prices.

      Dumping: Selling merchandise in another country at a price below the price at which the same merchandise is sold in the home market or selling such merchandise below the costs incurred in production and shipment, that is, selling the product at less than fair value. Dumping is an illegal trade practice.

      Dumping Margin: The difference between the fair value of a product and the amount for which it is available in the case of dumping.

      Duty: A tax imposed on imports by the customs authority of a country.


      Earnings Response Coefficient: The relation of stock returns to earnings surprises around the time of corporate earnings announcements.

      Easement: A right held by one party to make use of the land of another.

      East African Community (EAC): The East African Community (EAC) is a regional organization comprised of the Republics of Kenya, Uganda, and the United Republic of Tanzania.

      The EAC provides a forum for cooperation on a broad range of topics including: trade, science and technology, wildlife management, investments and industrial development, and foreign affairs. The three East African countries encompass a population of 82 million and cover an area of 1.8 million square kilometers.

      Eclectic Paradigm: A theory of the multinational firm that posits three types of advantages benefiting the multinational corporation: ownership-specific, location-specific, and market internalization advantages.

      Economic Community of West African States (ECOWAS): A regional group consisting of fifteen West African nations. It is a free trade area for agricultural products and raw materials, and a preferential trade area for various industrial products.

      Economic Exposure: Change in the value of a corporation's assets or liabilities as a result of changes in currency values.

      Economic Freedom: Economic freedom occurs when individuals and businesses make most of the economic decisions in an economy.

      Economic Integration: The integration of commercial and financial activities and commerce among countries through the abolishment of economic discrimination.

      Economic Union: A group that combines the economic characteristics of a common market with some degree of harmonization of macroeconomic policies, such as monetary and fiscal policies.

      Economic Value Added: A method of performance evaluation that adjusts accounting performance with a charge reflecting investors' required return on investment.

      Economies of Scale: Achieving lower average cost per unit through a larger scale of production. This is achieved by spreading fixed costs over a greater amount of production.

      Economies of Vertical Integration: Achieving lower operating costs by bringing the entire production chain within the firm rather than contracting through the marketplace.

      Effective Annual Interest Rate: The interest rate as if it were compounded once per time period rather than several times per period.

      Effective Annual Yield: Calculated as (1+i/n)n, where i is the stated annual interest rate and n is the number of compounding periods per year (contrast with bond equivalent yield and money market yield).

      Effective Exchange Rate: Spot exchange rates that are actually paid or received by the general public, including taxes on any transactions as well as bank commissions.

      Efficient Frontier: The mean-variance efficient portion of the investment opportunity set.

      Efficient Market: A market in which prices reflect all relevant information.

      Embargo: A type of economic sanction that totally disallows the imports of a specific product or all products from a specific country. Embargoes are typically placed in time of war.

      Emerging Market: An emerging market has a very high growth rate, which yields enormous market potential. It is distinguished by the recent progress it has made in economic liberalization.

      Emerging Stock Markets: The stock markets of emerging economies. These markets typically have higher expected returns than established markets but also higher risk.

      Employment Rate: The ratio, in percent, of the number of employed persons to total labor force.

      Endogenous Uncertainty: Price or input cost uncertainty that is within the control of the firm, such as when the act of investing reveals information about price or input cost.

      Equity-Linked Eurobonds: A Eurobond with a convertibility option or warrant attached.

      Erosion: Cash-flow amount transferred to a new project from customers and sales of other products of the firm.

      Euro: The single currency of the European Economic and Monetary Union (EMU) introduced in January 1999; it became the official currency of EMU member countries on January 1, 2002.

      Eurobond: A bond that is denominated in a currency other than that of the country of issue.

      Eurocurrencies: Deposits and loans denominated in one currency and traded in a market outside the borders of the country issuing that currency (e.g., Eurodollars).

      Eurocurrency Market: A money market for currencies held in the form of deposits in countries other than that where the currency is issued.

      Eurodollars: Dollar-denominated deposits held in a country other than the United States.

      European Article Number (EAN): A standard international numbering code system that is used primarily in retail applications. It is also compatible with the

      U.S. UPC (Universal Product Code).

      European Bank for Reconstruction and Development (EBRD): One of four major regional development banks currently operating in the global economy.

      European Central Bank (ECB): The central bank for the European Union (EU). It sets monetary policy for member countries.

      European Committee for Standardization (CEN): An organization comprised of the national standards organizations of 30 European countries. The European Committee for Standardization, or CEN, seeks to promote the European economy in the global market by providing an efficient and standardized infrastructure for trade.

      European Currency Unit (ECU): A trade-weighted basket of currencies in the European Exchange Rate Mechanism (ERM) of the European Union.

      European Exchange Rate Mechanism (ERM): The exchange rate system used by countries in the European Union in which exchange rates are pegged within bands around an ERM central value.

      European Free Trade Association (EFTA): The European Free Trade Association (EFTA) is an international organization established in 1960. It is comprised of Iceland, Liechtenstein, Norway, and Switzerland, promoting free trade and economic integration.

      There are three main branches of the EFTA: the EFTA Secretariat, Surveillance Authority, and EFTA Court. Its function is to create a free trade area among its member states.

      European Monetary System (EMS): An exchange rate system based on cooperation between European Union central banks.

      European Option: An option that can be exercised only at expiration (contrast with American option).

      European Terms: A foreign exchange quotation that states the foreign currency price of one U.S. dollar (contrast with American terms).

      European Union (EU): An intergovernmental organization that coordinates foreign, economic, and judicial policy among its member nations.

      Exaction: Demanding or imposing various fees from a position of authority.

      Exchange Rate: The price of one currency in terms of another, i.e., the number of units of one currency that may be exchanged for one unit of another currency.

      Exchange Risk: The risk that losses may result from the changes in the relative values of different currencies.

      Excise Tax: A tax on the consumption of certain goods either made in or imported into a country. Exercise Price: The price at which an option can be exercised (also called the striking price).

      Ex-Im Bank: Export-Import Bank of the United States. Provides guarantees of working capital loans for U.S. exporters, guarantees the repayment of loans or makes loans to foreign purchasers of U.S. goods and services, and provides credit insurance against nonpayment by foreign buyers for political or commercial risk. Currently, the bank is focusing on critical areas such as emphasizing exports to developing countries, aggressively countering trade subsidies of other governments, stimulating small business transactions, promoting the export of environmentally beneficial goods and services, and expanding project finance capabilities. Ex-Im Bank is not an aid or development agency, but a government held corporation, managed by a board of directors.

      Exogenous Uncertainty: Price or input cost uncertainty that is outside the control of the firm.

      Expiry Date: The date when a letter of credit is no longer valid, i.e., the date beyond which it cannot be used.

      Explicit Tax: A tax that is explicitly collected by a government; includes income, withholding, property, sales, and value added taxes and tariffs.

      Export: Any resource, intermediate good, or final good or service that producers in one country sell to buyers in another country.

      Export Administration Regulations (EAR): EAR carry both civil and criminal penalties. The EAR are available by subscription from the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20401.

      Export Broker: An individual or firm that helps to locate and introduce buyers and sellers in international business for a commission but does not take part in actual sales transactions.

      Export Credit Insurance: Insurance provided to exporters in order to protect them against commercial and political risks.

      Export Financing Interest: In the U.S. tax code, interest income derived from goods manufactured in the United States and sold outside the United States as long as not more than 50 percent of the value is imported into the United States.

      Export License: A general export license covers the exportation of goods not restricted under the terms of a validated export license. No formal application or written authorization is needed to ship exports under a general export license.

      Export Restraints: Quantitative restrictions imposed by exporting countries to limit exports to specified foreign markets, usually as a follow-up to formal or informal agreements reached with importing countries.

      Export Subsidies: Any form of government payment that helps an exporter or manufacturing company to lower its export costs.

      Export Trading Company (ETC): A company that facilitates the export of goods and services. An ETC can either act as the export department for producers or take title to the product and export for its own account.

      Expropriation: A specific type of political risk in which a government seizes foreign assets.

      External Market: A market for financial securities that are placed outside the borders of the country issuing that currency.

      Extraterritoriality: A government practice that applies its laws outside its established territorial boundaries.


      Face Value: The value of a bond that appears on its face. Also referred to as par value or principal.

      Factoring: Sale of an accounts receivable balance to buyers (factors) that are willing and able to bear the costs and risks of credit and collections.

      Factor Model: A model that assumes a linear relation between an asset's expected return and one or more systematic risk factors.

      Fast Track Negotiating: Authority provided by the U.S. Congress to the Executive Branch to negotiate amendment-proof trade agreements.

      Federal Trade Commission (FTC): The FTC is an independent U.S. government agency established in 1914. Its main goals are consumer protection and the prevention of trust formations by companies.

      Financial Contagion: The spread of a financial crisis from a country or region to other countries or regions.

      Financial Engineering: The process of innovation by which new financial products are created.

      Financial Innovation: The process of designing new financial products, such as exotic currency options and swaps.

      Financial Market: The market for the exchange of credit and capital in an economy. It consists of the money market and the capital market.

      Financial Markets: Markets for financial assets and liabilities.

      Financial Policy: The corporation's choices regarding the debt-equity mix, currencies of denomination, maturity structure, method of financing investment projects, and hedging decisions with a goal of maximizing the value of the firm to some set of stakeholders.

      Financial Price Risk: The risk of unexpected changes in a financial price, including currency (foreign exchange) risk, interest rate risk, and commodity price risk.

      Financial Risk: Financial risk refers to unexpected events in a country's financial, economic, or business life.

      Financial Service Income: In the U.S. tax code, income derived from financial services such as banking, insurance, leasing, financial service management fees, and swap income.

      Financial Strategy: The way in which the firm pursues its financial objectives.

      Financial Structure: The proportion of debt and equity and the particular forms of debt and equity chosen to finance the assets of the firm. Also known as capital structure.

      First-to-Market Advantage: Also known as “first-mover advantage.” The idea of first-mover advantage is that the initial occupant of a strategic position or niche (market segment) gains access to resources and capabilities that a follower cannot match.

      Fixed Cost: A cost that is fixed in total for a given period of time and for given volume levels. It is not dependent on the amount of goods or services produced during the period.

      Fixed Exchange Rate System: An exchange rate system in which governments stand ready to buy and sell currency at official exchange rates. Fluctuations of this currency are not possible.

      Fixed Forward Contract: Currency is bought or sold at a given future date.

      Flight of Capital: The movement of capital from one place to another in order to avoid loss or increase gain.

      Floating Currency System: An exchange rate system under which a government is not obligated to declare that its currency is convertible into a fixed amount of another currency.

      Floating Exchange Rate: An exchange rate system in which currency values are allowed to fluctuate according to supply and demand forces in the market without direct interference by government authorities.

      Floor: In banking and finance, a floor can be negotiated and agreed upon when the interest rate is dependent on the market interest rate.

      FOB Endorsement: Used with FOB (Free on Board), FAS, C&F, or CFR (but not CIF) quotations, FOB sales endorsement to an open marine policy can cover transit risk from the point of origin until title transfers.

      Food and Drug Administration (FDA): A U.S. agency that has power to set standards for food, drugs, cosmetics, and devices. Before new drugs can be approved by the FDA and be released to the market, they must undergo extensive laboratory testing within the pharmaceutical company. The company must then file a formal and thorough application for approval with the FDA.

      Force Majeure: The title of a standard clause in marine and other contracts exempting the parties for nonfulfillment of their obligations as a result of conditions beyond their control, such as acts of God or war.

      Foreign Aid: A grant of money, technical assistance, capital equipment, or other assistance typically extended by richer nations to poorer nations.

      Foreign Base Company Income: In the U.S. tax code, a category of Subpart F income that includes foreign holding company income and foreign base company sales and service income.

      Foreign Bonds: Bonds that are issued in a domestic market by a foreign borrower, denominated in domestic currency, marketed to domestic residents, and regulated by the domestic authorities.

      Foreign Bottom: An ocean vessel built or registered in a foreign country.

      Foreign Branch: A foreign affiliate that is legally a part of the parent firm. In the U.S. tax code, foreign branch income is taxed as it is earned in the foreign country.

      Foreign Debt: The funds or money owed by one nation to foreign countries' investors, banks, or governments.

      Foreign Direct Investment (FDI): The act of building productive capacity directly in a foreign country.

      Foreign Equity Requirements: Investment rules that limit foreign ownership to a minority holding in a company.

      Foreign Exchange: Currency of another country, or a financial instrument that facilitates payment from one currency to another.

      Foreign Exchange Broker: Brokers serving as matchmakers in the foreign exchange market who do not put their own money at risk.

      Foreign Exchange Dealer: A financial institution making a market in foreign exchange.

      Foreign Exchange Markets: Networks of commercial banks, investment banks, and other financial institutions that convert, buy, and sell currencies in the global economy.

      Foreign Exchange Rate: The price of one nation's currency in terms of another nation's currency. The foreign exchange rate is specified as the amount of one currency that can be traded per unit of another.

      Foreign Exchange Risk: The risk of unexpected changes in foreign currency exchange rates. Also known as currency risk.

      Foreign Remittances: The transfer across national boundaries of any kind of funds.

      Foreign Sales Corporation (FSC): In the U.S. tax code, a specialized sales corporation whose income is lumped into the same income basket as that of a domestic international sales corporation.

      Foreign-Source Income: Income earned from foreign operations.

      Foreign Tax Credit (FTC): In the U.S. tax code, a credit against domestic U.S. income taxes up to the amount of foreign taxes paid on foreign-source income.

      Foreign Trade Zone: A physical area in which the government allows firms to delay or avoid paying tariffs on imports.

      Forfaiting: A form of factoring in which large, medium- to long-term receivables are sold to buyers (forfaiters) who are willing and able to bear the costs and risks of credit and collections.

      Forward Contract: A binding commitment to exchange a specified amount of one currency for a specified amount of another currency on a specified future date.

      Forward Discount: A currency whose nominal value in the forward market is lower than in the spot market (contrast with forward premium).

      Forward Foreign Exchange: An agreement to purchase or sell a defined amount of forward currency in the future at a certain fixed rate.

      Forward Market: A market for forward contracts in which trades are made for future delivery according to an agreed-upon delivery date, exchange rate, and amount.

      Forward Parity: When the forward rate is an unbiased predictor of future spot exchange rates.

      Forward Premium: A currency whose nominal value in the forward market is higher than in the spot market (contrast with forward discount).

      Foul Bill of Lading: A receipt issued by a carrier to the exporter making use of its services that, to reduce the carrier's liability, notes that the goods were in some way damaged, short in quantity, or improperly packaged.

      Franchise Agreement: An agreement in which a domestic company (the franchiser) licenses its trade name and/or business system to an independent company (the franchisee) in a foreign market.

      Franchising: A parent company grants another independent entity the privilege to do business in a prespecified manner, including manufacturing, selling products, marketing technology, and other business approach.

      Free Cash Flow: Cash flow after all positive-NPV (net present value) projects have been exhausted in the firm's main line of business.

      Freely Floating Exchange Rate System: An exchange rate system in which currency values are allowed to fluctuate according to supply and demand forces in the market without direct interference by government authorities.

      Free Market: The type of market in which goods and services cross national borders freely, unrestrained by tariffs or any other sort of government barrier to trade.

      Free On Board (FOB): A trade term requiring the seller to deliver goods via a method of transportation designated by the buyer. The seller fulfills its obligations to deliver when the goods have passed through the seller's ownership and prepared for delivery to the buyer.

      Free Port: An area such as a port city into which merchandise may legally be moved without payment of duties.

      Free Trade Area of the Americas (FTAA): A proposed hemispheric trade zone that would cover all of the countries in North, South, and Latin America. The FTAA is highly controversial.

      Free Trade Zone: An area designated by the government to which goods may be imported for processing and subsequent export on duty-free basis.

      Merchandise may be stored, used, or manufactured in the zone and reexported without duties being paid.

      Freight Forwarder: An independent business that handles export shipment on behalf of the shipper without vested interest in the products. A freight forwarder is a good source of information and assistance on export regulations and documentation, shipping methods, and foreign import regulations.

      Freight Shippers: Also known as freight forwarders. Freight shippers are agents used to coordinate the logistics of transportation.

      Frequency Distribution: The organization of data to show how often certain values or ranges of values occur.

      Full Payout Lease: A lease in which the lessor recovers, through the lease payments, all costs incurred in the lease plus an acceptable rate of return, without any reliance upon the leased equipment's future residual value.

      Fundamental Analysis: A method of predicting exchange rates using the relationships of exchange rates to fundamental economic variables such as GNP growth, money supply, and trade balances.

      Future Value: Value of a sum after investing it over multiple periods. Also called compound value.

      Futures Commission Merchant: A brokerage house that is authorized by a futures exchange to trade with retail clients.

      Futures Contract: A commitment to exchange a specified amount of one currency for a specified amount of another currency at a specified time in the future. Futures contracts are periodically marked-to-market, so that changes in value are settled throughout the life of the contract. Exchange-traded currency futures are marked-to-market on a daily basis.


      G8: The G7 countries plus Russia.

      General Agreement on Tariffs and Trade (GATT): A post-World War II agreement designed to promote freer international trade among the nations of the world. The General Agreement on Tariffs and Trade was replaced by the World Trade Organization (WTO) in 1994.

      Generalized Autoregressive Conditional Het-eroskedasticity: An economic time series model in which returns at each instant of time are normally distributed but volatility is a function of recent history of the series.

      Generalized System of Preferences (GSP): A program of tariff preferences designed to encourage the economic growth of certain developing countries. In accordance with the Generalized System of Preferences (GSP), developed countries let the manufactured and semimanufactured goods of eligible developing countries enter with either no duty or a lower rate than is applied to other countries.

      Generally Accepted Accounting Principles (GAAP): A common set of accounting concepts, standards, and procedures by which financial statements are prepared.

      Geocentric Multinational: A multinational in which the subsidiaries are neither satellites nor independent city-states, but parts of a whole whose focus is on worldwide objectives as well as local objectives, each part making its unique contribution with its unique competence.

      Global Bond: A bond that trades in the Eurobond market as well as in one or more national bond markets.

      Global Economy: The international network of individuals, businesses, governments, and multilateral organizations that collectively make production and consumption decisions.

      Globalization: A growing global movement to increase the flow of goods, services, people, real capital, and money across national borders in order to create a more integrated and interdependent world economy.

      Global Quota: An import quota set by a nation that specifies the allowed quantity of a product from all countries.

      Gold Exchange Standard: An exchange rate system used from 1925 to 1931 in which the United States and England were allowed to hold only gold reserves while other nations could hold gold, U.S. dollars, or pounds sterling as reserves.

      Gold Standard: An exchange rate system used prior to 1914 in which gold was used to settle national trade balances. Also called the “classical gold standard.”

      Goodwill: The accounting treatment of an intangible asset such as the takeover premium in a merger or acquisition.

      Gradualism: A steady and calculated approach to transforming an economy from communism to capitalism.

      Graduation: The point at which a developing country's eligibility for Generalized System of Preferences (GSP) is terminated for the reason of sufficient economic progression.

      Gray-Market Imports: Gray-market imports are parallel distribution of genuine goods by intermediaries other than authorized channel members.

      Greenfield: A greenfield investment is the investment in a manufacturing plant, office, or other physical company-related structure or group of structures in an area where no previous facilities exist.

      Greenmail: Buying shares on the open market in the hope that the target's business partners will buy back the shares at inflated prices.

      Gross Domestic Product (GDP): A measure of the market value of goods and services produced by a nation. Unlike gross national product, GDP excludes profits made by domestic firms overseas, as well as the share of reinvested earnings in domestic firms' foreign-based operations.

      Gross National Income (GNI): Previously known as gross national product, gross national income comprises the total value of goods and services produced within a country (i.e., its gross domestic product), together with its income received from other countries (notably interest and dividends), less similar payments made to other countries. For example, if a British-owned company operating in another country sends some of its income (profits) back to the UK, UK's GNI is enhanced. Similarly, a British production unit of a U.S. company sending profit to the United States will affect the British GNI but will not reduce it since it is not included in the first place.

      Gross National Product (GNP): GNP is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens who are working abroad, minus income of nonresidents located in that country. It is essentially the measurement of the value of all goods and services produced by a country's citizens regardless of their location. It differs from gross domestic product (GDP) in that GDP measures the total production within a country regardless of the citizenship of the producer.

      Growing Perpetuity: A constant stream of cash flows without end that is expected to rise indefinitely. For example, cash flows to the landlord of an apartment building might be expected to rise a certain percentage each year.

      Growth Options: The positive net present value opportunities in which the firm has not yet invested. The value of growth options reflects the time value of the firm's current investment in real assets as well as the option value of the firm's potential future investments.

      Growth Stocks: Stocks with high price/book or price/earnings ratios. Historically, growth stocks have had lower average returns than value stocks (stocks with low price/book or PE ratios) in a variety of countries.

      G7: A formal organization of seven highly industrialized democracies: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.

      Guideline Lease: A lease written under criteria established by the IRS to determine the availability of tax benefits to the lessor.

      Gulf Cooperation Council (GCC): A council created in 1981 and composed of Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, and the United Arab Emirates. It is a forum to coordinate and integrate economic policies between these six countries, which account for about 40 percent of oil in the international market.


      Harmonized Tariff Schedule (HTS): A method of classification used by many countries to determine tariffs on imports.

      Heavily Indebted Poor Countries (HIPC) Initiative: The HIPC Initiative is a major international response to the burdensome external debt held by the world's poorest, most indebted countries. It originated in 1996 as a joint undertaking of the World Bank and the International Monetary Fund (IMF).

      Hedge: A position or operation that offsets an underlying exposure. For example, a forward currency hedge uses a forward currency contract to offset the exposure of an underlying position in a foreign currency. Hedges reduce the total variability of the combined position.

      Hedge Funds: Private investment partnerships with a general manager and a small number of limited partners.

      Hedge Portfolio: The country-specific hedge portfolio in the International Asset Pricing Model serves as a store of value (like the risk-free asset in the CAPM) as well as a hedge against the currency risk of the market portfolio.

      Hedge Quality: Measured by the r-square in a regression of spot rate changes on futures price changes.

      Hedge Ratio: The ratio of derivatives contracts to the underlying risk exposure.

      Hedging: Reducing the risk of a cash position by using the futures instruments to offset the price movement of the cash asset.

      High-Withholding-Tax Interest Income: In the U.S. tax code, interest income that has been subject to a foreign gross withholding tax of five percent or more.

      Historical Volatility: Volatility estimated from a historical time series.

      Holding-Period Return: The rate of return over a given period.

      Home Asset Bias: The tendency of investors to over-invest in assets based in their own country.

      Homogeneous Expectations: Idea that all individuals have the same beliefs concerning future investments, profits, and dividends.

      Hyperinflation: An extremely high rate of inflation, often exceeding several hundred or several thousand percent.

      Hysteresis: The behavior of firms that fail to enter markets that appear attractive and, once invested, persist in operating at a loss. This behavior is characteristic of situations with high entry and exit costs along with high uncertainty.


      Implicit Tax: Lower (higher) before-tax required returns on assets that are subject to lower (higher) tax rates.

      Implied Volatility: The volatility that is implied by an option value given the other determinants of option value.

      Import: Any resource, intermediate good, or final good or service that buyers in one country purchase from sellers in another country.

      Import Licenses: Licenses required by some countries to bring in a foreign-made good. In many cases, import licenses are also used by the issuing country to control the quantity of imported items.

      Income Baskets: In the U.S. tax code, income is allocated to one of a number of separate income categories. Losses in one basket may not be used to offset gains in another basket.

      Income Statement: Financial report that summarizes a firm's performance over a specified time period.

      Incremental IRR: Internal Rate of Return (IRR) on the incremental investment from choosing a large project instead of a smaller project.

      Indemnity Clause: A clause in which one party indemnifies the other. In leasing, generally a clause whereby the lessee indemnifies the lessor from loss of tax benefits.

      Independent Project: A project that is independent of the acceptance or rejection of other projects.

      Index Futures: A futures contract that allows investors to buy or sell an index (such as a foreign stock index) in the futures market.

      Index Options: A call or put option contract on an index (such as a foreign stock market index).

      Index Swap: A swap of a market index for some other asset (such as a stock-for-stock or debt-for-stock swap).

      Indication Pricing Schedule: A schedule of rates for an interest rate or currency swap.

      Indirect Costs of Financial Distress: Costs of financial distress that are indirectly incurred prior to formal bankruptcy or liquidation.

      Indirect Customers: The end users (e.g., consumers) of the products and services purchased from the wholesalers, retailers, and consignees—the direct customers of the seller.

      Indirect Diversification Benefits: Diversification benefits provided by the multinational corporation that are not available to investors through their portfolio investment.

      Indirect Exporting: Exporting of products to foreign markets by using an intermediary, usually an export trading company based in the exporter's country.

      Indirect Terms: The price of a unit of domestic currency in foreign currency terms such as DM1.5272/$ for a U.S. resident (contrast with direct terms).

      Infant Industry Argument: The infant industry argument is a rationale for the government's “temporary protection” of a new industry or corporation in order to help it become established domestically and later become competitive worldwide. These protections consist of tariff and nontariff barriers to imports, preventing global competition from entering the market.

      Inflation Rate: The general increase in the price level herein measured by the growth rate in the GNP Implicit Price Index or the general price deflator.

      Informational Efficiency: Whether or not market prices reflect information and thus the true (or intrinsic) value of the underlying asset.

      Integrated Financial Market: A market in which there are no barriers to financial flows and purchasing power parity holds across equivalent assets.

      Intellectual Property: Material or communicable result in forms of discoveries, inventions, designs, and literary and art works of scientific, humanistic, literary, and artistic endeavor. It includes, but is not limited to, works in the form of scientific discoveries and inventions, designs, patents, trademarks, books, monographs, papers, paintings, drawings and sculptures, performances, computer software, and lecture and conference presentations.

      Intellectual Property Rights: Patents, copyrights, and proprietary technologies and processes that are the basis of the multinational corporation's competitive advantage over local firms.

      Inter-American Development Bank: A regional development bank designed to promote sustainable economic development in the Western Hemisphere. Its headquarters are located in Washington, D.C.

      Interbank Spread: The difference between a bank's offer and bid rates for deposits in the Eurocurrency market.

      Interest Rate Risk: The risk of unexpected changes in an interest rate.

      Interest Rate Swap: An agreement to exchange interest payments for a specific period of time on a given principal amount. The most common interest rate swap is a fixed-for-floating coupon swap. The notional principal is typically not exchanged.

      Intermediated Market: A financial market in which a financial institution (usually a commercial bank) stands between borrowers and savers.

      Intermodal: The use of two or more modes of transportation to complete a cargo move; truck/rail/ship, or truck/air, for example.

      Internal Market: A market for financial securities denominated in the currency of a host country and placed within that country.

      Internal Rate of Return (IRR): A discount rate at which the net present value of an investment is zero. The IRR is a method of evaluating capital expenditure proposals.

      International Accounting Standards Board (IASB): The International Accounting Standards Board (IASB) is an independent, privately funded organization that sets international accounting standards. The IASB is committed to developing a single set of high-quality, understandable, and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements.

      International Asset Pricing Model (IAPM): The international version of the CAPM in which investors in each country share the same consumption basket and purchasing power parity holds.

      International Bank for Reconstruction and Development: Also called the World Bank, an international organization created at Bretton Woods in 1944 to help in the reconstruction and development of its member nations.

      International Bonds: Bonds that are traded outside the country of the issuer. International bonds are either foreign bonds trading in a foreign national market or Eurobonds trading in the international market.

      International Chamber of Commerce (ICC): International nongovernmental body concerned with promotion of trade and harmonization of trading practice.

      International Energy Agency (IEA): The IEA is an autonomous agency linked with the Organisation for Economic Co-operation and Development (OECD). It is the authoritative source for energy statistics worldwide and an energy policy adviser for 26 member countries. It was founded during the oil crisis of 1973–74 and was initially focused on coordinating efforts between member countries in times of oil supply emergencies. Since then it has expanded its role to encompass climate change policies, market reform, energy technology collaboration, and outreach to the rest of the world.

      International Labour Organization (ILO): The International Labour Organization is the UN specialized agency that seeks the promotion of social justice and internationally recognized human and labor rights. The ILO formulates international labor standards in the form of conventions and recommendations setting minimum standards of labor rights.

      International Monetary Fund (IMF): An international organization designed to promote global economic stability and development. It compiles statistics on cross-border transactions and publishes a monthly summary of each country's balance of payments.

      International Monetary System: The global network of governmental and commercial institutions within which currency exchange rates are determined.

      International Organization for Standardization (ISO): ISO is a worldwide federation of national standardization bodies of more than 140 countries. Established as a nongovernment organization in 1947, it develops international standards and publishes them. All branches other than electrical engineering standards are within the scope of the ISO.

      Intervention: The efforts undertaken by a country or its central bank to affect the price of the country's currency on the exchange market. This can be done either through the government buying or selling large quantities of the currency to affect total supply, or by the central bank changing interest rates to affect the cash flow into the country.

      In-the-Money Option: An option that has value if exercised immediately.

      Intrinsic Value of an Option: The value of an option if exercised immediately.

      Investment Agreement: Agreement specifying the rights and responsibilities of a host government and a corporation in the structure and operation of an investment project.

      Investment Opportunity Set: The set of investments available to an individual or corporation.

      Investment Philosophy: The investment approach (active or passive) pursued by an investment fund and its managers.

      Invisible Barriers to Trade: Government regulations that do not directly restrict trade but have a hindering effect through the use of excessive and obscure requirements on goods before they can be sold, especially imported goods.

      While known to local business people, foreign investors are not aware of these conditions, making them “invisible.” Labeling requirements or other sorts of measurement or sanitary standards would be an example of this.


      Jeito: The way of somehow getting things done in Brazil; the jeito can help conquer seemingly insurmountable tasks (Portuguese).

      Joint Venture: An agreement of two or more companies to pool their resources to execute a well-defined mission. Resource commitments, responsibilities, and earnings are shared according to a predetermined contractual formula.

      Jurisdiction: The right of an authority to apply the law in a given territory.

      Just-in-Time (JIT): An organization-wide practice that keeps the inventory to the minimum and provides customers the right goods or service at the right time.


      Kanban System: A Japanese Just-in-Time inventory system that makes use of cards to signal the need for more raw materials or supplies.

      Keiretsu: Collaborative groups of vertically and horizontally integrated firms with extensive share cross-holdings and with a major Japanese bank or corporation at the center.

      Kyoto Protocol: A multilateral environmental agreement; its goal is to control global warming by reducing greenhouse gases emitted into the Earth's atmosphere.


      Laissez-Faire: A term associated with the free enterprise economic system that calls for minimal government intervention or regulation, except in maintenance of this economic freedom.

      Landed Cost: The quoted or invoiced cost of a commodity, plus any inbound transportation charges.

      Law of One Price: The principle that equivalent assets sell for the same price. The law of one price is enforced in the currency markets by financial market arbitrage. Also known as purchasing price parity (PPP).

      Lead Manager: The lead investment bank in a syndicate selling a public securities offering.

      Leading and Lagging: Reduction of transaction exposure through timing of cash flows within the corporation.

      Lease: A contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate.

      Lease Rate: The periodic rental payment to a lessor for the use of assets. Others may define lease rate as the implicit interest rate in minimum lease payments.

      Least Developed Countries: The poorest of the developing countries. They are characterized by a low gross national product per capita, a reliance on subsistence agriculture, rapid population growth, inadequate infrastructure, a weak safety net of social programs, and a low quality of life.

      Note: Many sources prefer LLDC to denote Least Developed Countries and LDC for Less Developed Countries.

      Less Developed Countries: This is a form of categorization in economic growth for the countries that are just beginning to industrialize.

      Less Than Truckload (LTL): Refers to shipments of relatively small amounts of freight, typically between 100 and 10,000 pounds. It usually involves slower freight times than full truckload shipping.

      Letter of Credit (L/C): A letter issued by an importer's bank guaranteeing payment upon presentation of specified trade documents (invoice, bill of lading, inspection and insurance certificates, etc.).

      Letter of Intent: A document describing the preliminary understanding between parties intending to join together in some sort of action or engage in a contract.

      Leveraged Lease: The lessor provides an equity portion (usually 20 to 40 percent) of the equipment cost and lenders provide the balance on a nonrecourse debt basis.

      Liberalization: The process by which certain business activities become more market driven.

      License Agreement: A sales agreement in which a domestic company (the licensor) allows a foreign company (the licensee) to market its products in a foreign country in return for royalties, fees, or other forms of compensation.

      Licensing: One firm gives another firm a permission, which allows the latter to engage in an activity otherwise legally forbidden to it. Such activities usually involve the transfer of intellectual and proprietary knowledge in return for royalty as revenue.

      Limited Flexibility Exchange Rate System: The International Monetary Fund's name for an exchange rate system with a managed float.

      Liquidity: The ease with which an asset can be exchanged for another asset of equal value.

      Liquid Market: A market in which traders can buy or sell large quantities of an asset when they want and with low transactions costs.

      Loanable Funds: The pool of funds from which borrowers can attract capital; typically categorized by currency and maturity.

      Location-Specific Advantages: Advantages (natural and created) that are available only or primarily in a single location.

      Lombard Rate: The rate of interest changed by the Bundesbank, Germany's central bank, to loans backed by movable, easily sold assets.

      London Interbank Bid Rate (LIBID): The bid rate that a Euromarket bank is willing to pay to attract a deposit from another Euromarket bank in London.

      London Interbank Offer Rate (LIBOR): The offer rate that a Euromarket bank demands in order to place a deposit at or make a loan to another Euromarket bank in London.

      Long Position: A position in which a particular asset (such as a spot or forward currency) has been purchased.

      Lump of Labor Fallacy: The fallacious argument that, working on the assumption that there is only a fixed amount of work in the world, says that an increasing population will inevitably lead to increasing unemployment. This argument is often used by governments as reasoning behind reducing the workweek to reduce unemployment.


      Maastricht Treaty: The treaty, formally known as the Treaty on European Union, signed in 1992, that led to the economic unification of many European countries. The treaty changed the name of the European Community (EC) to the European Union (EU) and led to the creation of a monetary union with a European Central bank, political and military integration, common foreign policy, and common citizenship among member countries.

      Macro Country Risks: Country (or political) risks that affect all foreign firms in a host country.

      Management Contract: An agreement by which one firm allows another to manage its foreign activities on behalf of it. The managing firm is forbidden to make capital investment or financing decisions.

      Managerial Flexibility: Flexibility in the timing and scale of investment provided by a real investment option.

      Manifest: Document that lists in detail all the bills of lading issued by a freight carrier of its agent or master (that is, a detailed summary of the total cargo of a vessel).

      Maquiladoras: Duty-free assembly plants located mainly in the developing world. Maquiladoras are one type of foreign direct investment.

      Margin Account: An account maintained by an investor with a brokerage firm in which securities may be purchased by borrowing a portion of the purchase price from the brokerage, or may be sold short by borrowing the securities from the brokerage firm.

      Margin Requirement: A performance bond paid upon purchase of a futures contract that ensures the exchange clearinghouse against loss.

      Market Access: The extent to which a domestic industry can penetrate a related market in a foreign country. Access can be limited by tariffs or other nontrade barriers.

      Market-Based Corporate Governance System: A system of corporate governance in which the supervisory board represents a dispersed set of largely equity shareholders.

      Market Economy: An economy in which resource allocations, prices, and other marketing decisions are primarily determined by the free market.

      Market Failure: A failure of arms-length markets to efficiently complete the production of a good or service.

      In the eclectic paradigm, the multinational corporation's market internalization advantages take advantage of market failure.

      Marketing Mix: The set of marketing tools that the firm uses to pursue its marketing objectives in the target market.

      Market Internalization Advantages: Advantages that allow the multinational corporation to internalize or exploit the failure of an arms-length market to efficiently accomplish a task.

      Market Maker: A financial institution that quotes bid (buy) and offer (sell) prices.

      Market Model: Also known as the one-factor market model. The empirical version of the security market line: Rj = aj + bjRM + ej.

      Market Portfolio: A portfolio of all assets weighted according to their market values.

      Market Risk Premium: The risk premium on an average stock; (E[RM]-RF).

      Market Timing: An investment strategy of shifting among asset classes in an attempt to anticipate which asset class(es) will appreciate or depreciate during the coming period.

      Marking to Market: The process by which changes in the value of futures contracts are settled on a daily basis.

      Matchmaker Program: A service organized by the United States International Trade Administration. This program aids firms that are new to exporting or new to the market to meet prescreened business prospects in foreign markets who are interested in their products or services.

      Maturity Date: The date on which the last payment on a bond is due.

      Mean-Variance Efficient: An asset that has higher mean return at a given level of risk (or lower risk at a given level of return) than other assets.

      Mercosur: The “common market of the South,” a customs union that includes Argentina, Brazil, Paraguay, Uruguay, and Venezuela in a regional trade pact that reduces tariffs on intrapact trade by up to 90 percent. Bolivia, Chile, Colombia, Ecuador, and Peru are associate members.

      Merger: A form of corporate acquisition in which one firm absorbs another and the assets and liabilities of the two firms are combined.

      Method of Payment: The way in which a merger or acquisition is financed.

      Micro Country Risks: Country risks that are specific to an industry, company, or project within a host country.

      Microcredit: Small loans, perhaps $50 or $100, that are extended to small businesses to finance a business start-up or other business activity.

      Middle Market: A market segment generally represented by financing under $2 million. In leasing, this sector is dominated by single investor leases.

      Miller and Modigliani's Irrelevance Proposition: If financial markets are perfect, then corporate financial policy (including hedging policy) is irrelevant.

      Mixed Tariff: A combination of specific and ad valorem tariffs.

      Monetary Assets and Liabilities: Assets and liabilities with contractual payoffs.

      Money Market Hedge: A hedge that replicates a currency forward contract through the spot currency and Eurocurrency markets.

      Money Markets: Financial markets for debt securities that pay off in the short term (often less than one year).

      Money Market Yield: A bond quotation convention based on a 360-day year and semiannual coupons (contrast with bond equivalent yield).

      Money Supply: The total amount of currency in circulation and peso deposits subject to check of the monetary system.

      Monopoly: Exclusive control or possession by one group of the means of producing or selling goods or services.

      More Flexible Exchange Rate System: The International Monetary Fund's name for a floating exchange rate system.

      Most Favored Nation (MFN): Most favored nation status is granted to one country by another; the granting country then accords the recipient's imports and exports the most favorable treatment that it accords any country.

      Multilateral Environmental Agreements (MEAs): Environmental agreements negotiated by a number of countries.

      Multilateral Investment Guarantee Agency (MIGA): One of the five institutions comprising the World Bank Group.

      MIGA's purpose is to help encourage equity investment and other kinds of direct investment flow into developing countries.

      Multinational Corporation (MNC): A corporation with operations in more than one country.

      Multinational Netting: Elimination of offsetting cash flows within the multinational corporation.

      Mutually Exclusive Investment Decisions: Investment decisions in which the acceptance of a project precludes the acceptance of one or more alternative projects.


      Nationalization: A process whereby privately owned companies are brought under state ownership and control (contrast with privatization).

      National Tax Policy: The way in which a nation chooses to allocate the burdens of tax collections across its residents.

      National Trade Data Bank (NTDB): Is the U.S. government's most comprehensive source of international trade data and export promotion information. Types of information on the NTDB include international market research, export opportunities; indices of foreign and domestic companies; how-to market guides; reports on demographic, political, and socioeconomic conditions for hundreds of countries; and much more.

      National Treatment: A country accords no less favorable treatment to imported goods than it does to domestic goods.

      Natural Advantage: Theory in economics that certain countries have a competitive advantage in certain products due to their access to specific natural resources, their climatic conditions, or their transportation system.

      Negative-NPV Tie-in Project: A negative net present value (NPV) infrastructure development project that a local government requires of a company pursuing a positive-NPV investment project elsewhere in the economy.

      Net Asset Value (NAV): The sum of the individual asset values in a closed-end mutual fund. Closed-end funds can sell at substantial premiums or discounts to their net asset values.

      Net Currency Exposure: Exposure to foreign exchange risk after netting all intracompany cash flows.

      Net Exposed Assets: Exposed assets minus exposed liabilities. The term is used with market values or, in translation accounting, with book values.

      Net Monetary Assets: Monetary assets minus monetary liabilities.

      Net Position: A currency position after aggregating and canceling all offsetting transactions in each currency, maturity, and security.

      Net Present Value (NPV): The present value of future cash returns, discounted at the appropriate market interest rate, minus the present value of the cost of the investment.

      Net Working Capital: Current assets minus current liabilities.

      Newly Industrializing Countries (NIC): A group of former LDC countries that, due to high levels of economic growth, have grown rapidly in recent years.

      New Protectionism: Recent efforts to pressure national governments to exercise greater control over foreign trade and foreign direct investment.

      New-to-Export (NTE): The name of the circumstances of a company that either engages in export activities for the first time, engages in exportation for first time in 24 months, or has only exported because of prior unsolicited orders.

      New-to-Market (NTM): The name of the circumstances under which a company exports to a foreign market to which it has either never exported, has not exported to for the past 24 months, or has only exported to because of prior unsolicited orders.

      Nominal Cash Flow: A cash flow expressed in nominal terms if the actual dollars to be received (or paid out) are given.

      Nominal Interest Rate: Interest rate unadjusted for inflation.

      Noncash Item: Expense against revenue that does not directly affect cash flow, such as depreciation and deferred taxes.

      Nongovernmental Organizations (NGOs): A variety of special interest groups that operate in the global community.

      Nonintermediated Debt Market: A financial market in which borrowers (governments and large corporations) appeal directly to savers for debt capital through the securities markets without using a financial institution as intermediary.

      Nonmarket Economy: An economy in which the government, through the use of central planning, makes most economic decisions to control economic activity.

      Nonmonetary Assets and Liabilities: Assets and liabilities with noncontractual payoffs.

      Nontariff Barrier: An indirect measure used to discriminate against foreign manufacturers, for example, extensive inspection procedures for foreign imports that create barriers to entering the specific market.

      Nordic Council: A regional alliance established in 1952 between Norway, Sweden, Finland, Denmark, and Iceland that is dedicated to cooperation among the Nordic countries. This has led to a common labor market, social security, and free movement of citizens across borders.

      Normal Distribution: Symmetric bell-shaped frequency distribution that can be defined by its mean and standard deviation.

      Normal Trade Relations (NTR): A new name for Most Favored Nation (MFN) trading status, in which the country that grants this status accords the recipient's imports and exports the most favorable treatment that it accords any country.

      North American Free Trade Agreement (NAFTA): NAFTA is a regional trade pact among the United States, Canada, and Mexico.

      North-South Trade: A name for trade between developed (northern) and less developed countries (southern).

      Notional Principal: In a swap agreement, a principal amount that is only “notional” and is not exchanged.


      Offering Statement: In the United States, a shortened registration statement required by the Securities and Exchange Commission on debt issues with less than a nine-month maturity.

      Offer Rates: The rate at which a market maker is willing to sell the quoted asset. Also known as ask rates.

      Official Settlements Balance: An overall measure of a country's private financial and economic transactions with the rest of the world. Also known as overall balance.

      Offshore Financial Centers (OFCs): The many types of financial institutions that operate without financial supervision by governments or other agencies.

      Oligopoly: A market dominated by so few sellers that action by any of them will impact both the price of the good and the competitors.

      Open Account: The seller delivers the goods to the buyer and then bills the buyer according to the terms of trade.

      Open and Reform Policy: An economic policy enacted by the Chinese government combining central planning with market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation, unemployment, and budget deficits, with the goal of moving from a centrally planned economy to a market-based one.

      Open-End Fund: A mutual fund in which the amount of money under management grows/shrinks as investors buy/sell the fund.

      Operating Cash Flow: Earnings before interest and depreciation minus taxes. It measures the cash flow generated from operations, not counting capital spending or working capital requirements.

      Operating Exposure: Changes in the value of real (nonmonetary) assets or operating cash flows as a result of changes in currency values.

      Operating Leverage: The trade-off between fixed and variable costs in the operation of the firm.

      Operational Efficiency: Market efficiency with respect to how large an influence transaction costs and other market frictions have on the operation of a market.

      Opportunity Cost: Most valuable alternative that is given up. The rate of return used in NPV computation is an opportunity interest rate.

      Orderly Marketing Agreements: Agreements between two or more governments to hold back the growth of trade for certain products by limiting exports and imposing import quotas.

      Organisation for Economic Co-operation and Development (OECD): A group of 30 countries that meets regularly to discuss global issues and make appropriate economic and social policies.

      Organization of American States (OAS): A regional organization created in 1948 promoting the economic and social development of Latin America. OAS members include the United States, Mexico, most of South and Central America, and most of the Caribbean nations.

      Organization of Petroleum Exporting Countries (OPEC): A producer cartel that produces and sells oil.

      Out-of-the-Money Option: An option that has no value if exercised immediately.

      Outright Quote: A quote in which all of the digits of the bid and offer prices are quoted (contrast with points quote).

      Outsourcing: A situation in which a firm's functions are performed or provided by a person or group from outside the company.

      Outward Swap: Purchasing foreign currency today and reselling it at a forward rate against the domestic currency.

      Overall Balance: (See Official Settlements Balance).

      Overall FTC Limitation: In the U.S. tax code, a limitation on the FTC equal to foreign-source income times U.S. tax on worldwide income divided by worldwide income.

      Overseas Private Investment Corporation (OPIC): A U.S. agency that assists U.S. companies protect their investment against risk in a particular country besides providing other services.

      Ownership-Specific Advantages: Property rights or intangible assets, including patents, trademarks, organizational and marketing expertise, production technology and management, and general organizational abilities, that form the basis for the multinational's advantage over local firms.


      Packing List: Document listing the contents of a consignment of goods.

      Parallel Loan: A loan arrangement in which a company borrows in its home currency and then trades this debt for the foreign currency debt of a foreign counterpart.

      Partnership: Form of business organization in which two or more co-owners form a business. In a general partnership each partner is liable for the debts of the partnership.

      Passive Income: In the U.S. tax code, income (such as investment income) that does not come from active participation in a business.

      Patent: A government grant that gives inventors exclusive right of making, using, or selling the invention.

      Payback Period Rule: An investment decision rule that states that all investment projects that have payback periods equal to or less than a particular cutoff period are accepted, and all those that pay off in more than the particular cutoff period are rejected. The payback period is the number of years required for a firm to recover its initial investment required by a project from the cash flow it generates.

      Payoff Profile: A graph with the value of an underlying asset on the x-axis and the value of a position taken to hedge against risk exposure on the y-axis. Also used with changes in value (contrast with risk profile).

      Payout Ratio: Proportion of net income paid out in cash dividends.

      Pegged Exchange Rate System: The IMF's name for a fixed exchange rate system.

      Pension Liabilities: A recognition of future liabilities resulting from pension commitments made by the corporation. Accounting for pension liabilities varies widely by country.

      Perfect Market Assumptions: A set of assumptions under which the law of one price holds. These assumptions include frictionless markets, rational investors, and equal access to market prices and information.

      Peril Point: The limit beyond which the reduction of tariff protection in a given industry would cause it serious injury.

      Periodic Call Auction: A trading system in which stocks are auctioned at intervals throughout the day.

      Perpetuity: A constant stream of cash flows without end. A British consol is an example.

      Phytosanitary Measure: A piece of legislation, regulation, or procedure with the purpose of preventing the introduction or spread of pests. Phytosanitary procedures often include the performance of inspections, tests, surveillance, or other treatments.

      Points Quote: An abbreviated form of the outright quote used by traders in the interbank market.

      Political Risk: The risk that a sovereign host government will unexpectedly change the rules of the game under which businesses operate. Political risk includes both macro and micro risks.

      Pooling: In logistics, pooling is when a group of carriers agree to share freight, customers, and revenues or profits. In the United States it is outlawed by the Interstate Commerce Act.

      Portfolio: The combined holding of more than one stock, bond, real estate asset, or other asset by an investor.

      Power Distance: The extent to which a society accepts hierarchical differences.

      Predatory Pricing: It is a form of price discrimination that requires selling below cost with the intention of destroying competition. However, predatory pricing is against the law.

      Premium: If a bond is selling above its face value, it is said to sell at a premium.

      Present Value: The value of a future cash stream discounted at the appropriate market interest rate.

      Present Value Factor (PVF): Factor used to calculate an estimate of the present value of an amount to be received in a future period.

      Price Elasticity of Demand: The sensitivity of quantity sold to a percentage change in price.

      Price Uncertainty: Uncertainty regarding the future price of an asset.

      Private Placement: A securities issue privately placed with a small group of investors rather than through a public offering.

      Privatization: A process whereby publicly owned enterprises are sold to private investors (contrast with nationalization).

      Product Cycle Theory: Product cycle theory views the products of the firm as evolving through 4 stages: (1) infancy, (2) growth, (3) maturity, and (4) decline.

      Production Possibilities Schedule: The maximum amount of goods (for example, food and clothing) that a country is able to produce given its labor supply.

      Production Sharing: Production sharing occurs when a producer chooses to make a product in stages—and in different countries—so that the firm can employ the lowest-cost resources in production.

      Product Life Cycle (PLC): The complete life of a product, from early planning through sales buildup, maximum sales, declining sales, and withdrawal of the product. Product life cycle lengths and types can vary depending on the type of product, the frequency of replacement, and other factors.

      Profitability Index: A method used to evaluate projects. It is the ratio of the present value of expected future cash flows after initial investment divided by the amount of the initial investment.

      Pro Forma Invoice: An invoice provided by a supplier prior to the shipment of merchandise describing the goods, their value, and other specifications.

      Progressive Taxation: A convex tax schedule that results in a higher effective tax rate on high income levels than on low-income levels.

      Project Financing: A way to raise nonrecourse financing for a specific project characterized by the following: (1) the project is a separate legal entity and relies heavily on debt financing, and (2) the debt is linked to the cash flow generated by the project.

      Promissory Note: Financial document in which the buyer agrees to make payment to the seller at a specified time.

      Proprietary Knowledge: Private or exclusive knowledge that cannot be legally used or duplicated by competitors.

      Prospectus: A brochure that describes a mutual fund's investment objectives, strategies, and position limits.

      Protectionism: Protection of local industries through tariffs, quotas, and regulations that discriminate against foreign businesses.

      Psychic Distance: The similarities or lack thereof between country markets. This concept takes into account geographic distance, cultural similarities, linguistic aspects, legal systems, and methods of conducting business.

      Public Relations (PR): A variety of programs designed to promote and/or protect a company's image or its individual products.

      Public Securities Offering: A securities issue placed with the public through an investment or commercial bank.

      Pull Strategy: In logistics, it is a strategy that uses actual customer demand to determine production and distribution schedules. In marketing, it is using intensive advertising to create customer demand for a product. In either case, the product is “pulled” through the system by the consumer.

      Purchasing Agent: Someone who buys goods in his or her country on behalf of foreign buyers.

      Purchasing Power Parity (PPP): The principle that equivalent assets sell for the same price. Purchasing power parity is a measurement of a currency's value based on the buying power within its own domestic economy.

      Pure Discount Bond: Bonds that pay no coupons and only pay back the face value at maturity. Also referred to as zero-coupon bond or a single-payment bond.

      Push Strategy: In logistics, it is a strategy that uses forecasts rather than customer demand to determine production and distribution schedules. In marketing, it is a wholesaler using promotion to create demand directly at the consumer level, bypassing retailers. In either case, the product is “pushed” through the system by the manufacturer to the customer.

      Put-Call Parity: The relation of the value of a long call, a short put, the exercise price, and the forward price at expiration.

      Put Option: The right to sell the underlying asset at a specified price and on a specified date.


      Quantitative Restrictions (QR): Restrictions on trade, generally in the form of quotas, that limit the quantity of a good or service that can be imported or exported. Another form of quantity restriction is a VER, or Voluntary Export Restraint.

      Quid Pro Quo: The English translation is “a favor for a favor.”

      Quota: The quantity of goods of a specific kind that a country permits to be imported without restriction or imposition of additional duties.


      Random Walk: A process in which instantaneous changes in exchange rates are normally distributed with a zero mean and constant variance.

      Real Appreciation/Depreciation: A change in the purchasing power of a currency.

      Real Cash Flow: A cash flow is expressed in real terms if the current, or date 0, purchasing power of the cash flow is given.

      Real Exchange Rate: A measure of the nominal exchange rate that has been adjusted for inflation differentials since an arbitrarily defined base period.

      Realignment: The coordinated revaluation and devaluation of the currencies of several countries.

      Real Interest Rate: Interest rate expressed in terms of real goods; that is, the nominal interest rate minus the expected inflation rate.

      Real Options: An option or option-like feature embedded in a real investment opportunity.

      Reciprocal Marketing Agreement: A strategic alliance in which two companies agree to comarket each other's products in their home market. Production rights may or may not be transferred.

      Reconsignment: In shipping, it is the change in either the name of the consignee, the place of delivery, or relinquishment of the shipment by the carrier at the point of origin.

      Recourse: The right to demand return of money paid. In negotiation of a letter of credit, payment by the negotiating bank will normally be with recourse.

      Red Clause: A banking term that refers to a special clause in a letter of credit allowing the seller of goods to obtain an unsecured advance from the issuing bank to finance the manufacture or purchase of the goods.

      Regional Development Banks (RDBs): Banks that are owned and operated by member nations; they are designed to extend development loans and provide other assistance to member nations. The world's four regional development banks are the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank.

      Registered Bonds: Bonds for which each issuer maintains a record of the owners of its bonds. Countries requiring that bonds be issued in registered form include the United States and Japan (contrast with bearer bonds).

      Registration Statement: In the United States, a statement filed with the Securities and Exchange Commission on securities issues that discloses relevant information to the public.

      Re-invoicing Centers: An offshore financial affiliate that is used to channel funds to and from the multinational's foreign operations.

      Remittance: The forwarding of funds from one party to another as payment for goods or services.

      Repatriation: The act of remitting cash flows from a foreign affiliate to the parent firm.

      Replevin: A legal action that entitles the rightful owner of property that has been wrongfully kept from him or her to recover it.

      Rescind: To void or cancel a contract.

      Reservation Price: The price below (above) which a seller (purchaser) is unwilling to go.

      Residual Value: The value of an asset at the conclusion of a lease.

      Restitution: In the case of a breach of contract, restitution is the restoration of the involved parties to their original positions prior to the contract.

      Restrictive Endorsement: Endorsement transferring title or right to a named party.

      Retention Ratio: Retained earnings divided by net income.

      Return on Equity (ROE): Net income after interest and taxes divided by average common stockholder's equity.

      Revaluation: An increase in a currency value relative to other currencies in a fixed exchange rate system.

      Right of Priority: In patent, industrial design, and trademark laws, a priority right or right of priority is a time-limited right, triggered by the first filing of an application for a patent, an industrial design, or a trademark, respectively. The priority right belongs to the applicant or his successor in title and allows him to file a subsequent application for the same invention, design, or trademark and benefit, for this subsequent application, from the date of filing of the first application for the examination of certain requirements.

      Rights of Set-Off: An agreement defining each party's rights should one party default on its obligation. Rights of set-off were common in parallel loan arrangements.

      Risk Averse: Seeking stability rather than risk.

      Risk Premium: The excess return on the risky asset that is the difference between expected return on risky assets and the return of risk-free assets.

      Risk Profile: A graph with the value of an underlying asset on the x-axis and the value of a position exposed to risk in the underlying asset on the y-axis. Also used with changes in value (contrast with payoff profile).

      Roll's Critique: The CAPM holds by construction when performance is measured against a mean-variance efficient index. Otherwise, it holds not at all.

      Royalty: Payment made for the use of a person's or business's property based on an agreed percentage of the income arising from its use.

      R-Square: The percent of the variation in a dependent variable (a y-variable) that is “explained by” variation in an independent variable (an x-vari-able). The concept is also known as the coefficient of determination.

      Rules of Origin: Rules used to determine in what country a good will be considered as actually made for tariff and other trade purposes.


      Safety Stock (SS): The materials in an inventory in anticipation of unforeseen shortages of materials or abnormal demand for the final product.

      Scenario Analysis: A process of asking “What if?” using scenarios that capture key elements of possible future realities.

      Section 201: Also known as the “escape clause” of the U.S. Trade Act of 1971, section 201 is a provision that permits imports to be restricted in a certain industry, for a limited time, if those imports have caused injury to U.S. firms.

      Section 301: In U.S. trade law, section 301 is a provision that allows private parties to seek compensation through the U.S. government if they have experienced injury to their business because of the illegal or unfair actions of foreign governments.

      Security Market Line (SML): In the CAPM, the relation between required return and systematic risk (or beta): Rj – RF + bj (E[RM] – RF).

      Security Selection: An investment strategy that attempts to identify individual securities that are underpriced relative to other securities in a particular market or industry.

      Seeking Stability Rather Than Risk: An element of the Paris Convention for the Protection of Industrial Property that gives an inventor 12 months from the date of the first application filed in a Paris Convention country in which to file in other Paris Convention countries.

      This relieves companies of the burden of filing applications in many countries simultaneously. Approximately 100 countries, including the United States, signed the Paris Convention.

      Segmented Market: A market that is partially or wholly isolated from other markets by one or more market imperfections.

      Seller's Market: A seller's market exists when the demand for a good outweighs the supply, and so the economic forces of business cause the goods to be priced at or closer to the vendor's estimate of their value.

      Semi-Strong Form Efficient Market: A market in which prices fully reflect all publicly available information.

      Sensitivity Analysis: Analysis of the effect on the project when there is some change in critical variables such as sales and costs.

      Separation Principle: The principle that portfolio choice can be separated into two independent tasks: (1) determination of the optimal risky portfolio, which is purely a technical problem, and (2) the personal choice of the best mix of the risky portfolio and the risk-free asset.

      Set-of-Contracts Perspective: A view of the corporation as the nexus of a set of legal contracts linking the various stakeholders. Important contracts include those with customers, suppliers, labor, management, debt, and equity.

      Settlement of Disputes: The Settlement of Disputes was a declaration made by the UN stating that any water-based international disagreement must be settled in a peaceful and diplomatic manner.

      Sharpe Index: A measure of risk-adjusted investment performance in excess return per unit of total risk: SI = (RP – RF)/(sP).

      Shipper: Usually the supplier or owner of commodities shipped.

      Short Position: A position in which a particular asset (such as a spot or forward currency) has been sold.

      Short Selling: Selling an asset that you do not own, or taking a short position.

      Side Effect: Any aspect of an investment project that can be valued separately from the project itself.

      Sight Draft: A draft that is payable on demand.

      Signaling: The use of observable managerial actions in the marketplace as an indication of management's beliefs concerning the prospects of the company.

      Simple Interest: Interest calculated by considering only the original principal amount.

      Small Business Administration (SBA): An independent agency of the U.S. federal government that aids, counsels, assists, and protects the interests of small business concerns to preserve free competitive enterprise and to maintain and strengthen the overall economy of the United States.

      Smoot-Hawley Act: Passed in 1930, this protectionist act increased import duties to the highest rate ever imposed by the United States, resulting in the downfall of the world trade system at the time, during the Great Depression.

      Social Capital: Physical or real capital that is owned by the public sector rather than by private firms.

      Society for Worldwide Interbank Financial Transactions (SWIFT): Network through which international banks conduct their financial transactions.

      Soft Clause: In a letter of credit, a soft clause is a clause that renders it impossible for the beneficiary, or seller, to fulfill the conditions of the letter separately and independently of the purchaser.

      Soft Currency: A currency that is not readily accepted in exchange for other currencies or convertible to gold.

      Soft Loan: A loan with generous terms such as lower than usual or no interest, and/or a long payback period.

      Sogo Sosha: A term referring to general trading companies that import and export merchandise.

      Sole Proprietorship: A business owned by a single individual. The sole proprietorship pays no corporate income tax but has unlimited liability for business debts and obligations.

      South Asian Association for Regional Cooperation (SAARC): The South Asian Association for Regional Cooperation (SAARC) was established on December 8, 1985.

      Its member states consist of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Its main areas of cooperation are Agriculture and Rural Development; Health and Population Activities; Women, Youth, and Children; Environment and Forestry; Science and Technology and Meteorology; Human Resources Development; and Transport.

      Southern African Customs Union (SACU): Established in 1910, the SACU is the oldest customs union in the world and is composed of South Africa, Swaziland, Botswana, Namibia, and Lesotho.

      The countries engage in the free exchange of goods across their borders, and share a common external tariff and excise duties, as well as the revenues generated by them.

      Southern African Development Community (SADC): The Southern African Development Community (SADC) was first established in 1992. It is the successor to the Southern African Development Coordination Conference (SADCC). The member states are Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, United Republic of Tanzania, Zambia, and Zimbabwe.

      Southern Cone: The geographic region including Argentina, Brazil, Chile, Paraguay, and Uruguay.

      Sovereignty: The rights of a country to rule itself, to manage its own affairs, and to jurisdiction over land, airspace, and maritime matters.

      Special Drawing Right (SDR): An international reserve created by the International Monetary Fund and allocated to member countries to supplement foreign exchange reserves.

      Specific Tariff: A tariff assessed at a specific amount per unit of weight.

      Spot Exchange Rate: Exchange rate today for settlement in two days.

      Spot Market: A market in which trades are made for immediate delivery (within two business days for most spot currencies).

      Stabilization Policies: Government policies designed to promote economic growth, steady employment, and stable prices.

      Stakeholders: Those with an interest in the firm. A narrow definition includes the corporation's debt and equity holders. A broader definition includes labor, management, and other interested parties.

      Stamp Tax: A tax on a financial transaction.

      Standard Deviation: The positive square root of the variance. This is the standard statistical measure of the spread of a sample.

      Standard Industrial Classification (SIC): A standard numerical code system used by the U.S. government to classify products and services.

      Stated Annual Interest Rate: The interest rate expressed as a percentage per annum, by which interest payment is determined.

      Stationary Time Series: A time series in which the process generating returns is identical at every instant of time.

      Stock Index Futures: A futures contract on a stock index.

      Stock Index Swap: A swap involving a stock index. The other asset involved in a stock index swap can be another stock index (a stock-for-stock swap), a debt index (a debt-for-stock swap), or any other financial asset or financial price index.

      Stock Market: An institution that facilitates the buying and selling of stocks.

      Strategic Alliance: A collaborative agreement between two companies designed to achieve some strategic goal. Strategic alliances include international licensing agreements, management contracts, and joint ventures as special cases.

      Striking Price: The price at which an option can be exercised (also called the exercise price).

      Subpart F Income: In the U.S. tax code, income from foreign subsidiaries owned more than 10 percent and controlled foreign corporations that is taxed on a pro rata basis as it is earned.

      Subsidiary: Any organization controlled by another with more than 50 percent of its voting capital held by the latter.

      Subsidized Financing: Financing that is provided by a host government and that is issued at a below-mar-ket interest rate.

      Subsidy: Monetary assistance granted by the government to an individual or other entity in support of an activity that is regarded as being in the public interest.

      Subsistence Agriculture: Small-scale agriculture designed to meet the consumption needs of individual households.

      Sunk Cost: A cost that has already occurred and cannot be removed. Because sunk costs are in the past, such costs should be ignored when deciding whether to accept or reject a project.

      Sunk Costs: Expenditures that are at least partially lost once an investment is made.

      Supervisory Board: The board of directors that represents stakeholders in the governance of the corporation.

      Swap: An agreement to exchange two liabilities (or assets) and, after a prearranged length of time, to reexchange the liabilities (or assets).

      Swap Book: A swap bank's portfolio of swaps, usually arranged by currency and by maturity.

      Swaption: A swap with option(s) attached.

      Switching Options: A sequence of options in which exercise of one option creates one or more additional options. Investment-disinvestment, entry-exit, expansion-contraction, and suspension-reactivation decisions are examples of switching options.

      Syndicate: The selling group of investment banks in a public securities offering.

      Synergy: In an acquisition or merger, when the value of the combination is greater than the sum of the individual parts: Synergy = VAT – (VA + VT).

      Synthetic Forward Position: A forward position constructed through borrowing in one currency, lending in another currency, and offsetting these transactions in the spot exchange market.

      Systematic Risk: Risk that is common to all assets and cannot be diversified away (measured by beta).


      Tangibility: Tangible assets are real assets that can be used as collateral to secure debt.

      Tare Weight: The weight of a container and packing materials that excludes the weight of the goods it contains.

      Targeted Registered Offerings: Securities issues sold to “targeted” foreign financial institutions according to U.S. SEC guidelines. These foreign institutions then maintain a secondary market in the foreign market.

      Tariff Anomaly: The state of having a tariff on raw materials or semiprocessed products be higher than the tariff on the corresponding finished product.

      Tariff Escalation: The situation in which duties are low or nonexistent for raw materials, moderate for semi-manufactured goods and relatively high for finished products.

      Tariff-Quota: A tariff that is set at a lower rate until a specified quantity (the quota) of goods has been imported, at which point the tariff increases for additional imports.

      Tariffs: Taxes on imported goods and services, levied by governments to raise revenues and create barriers to trade.

      Tax Arbitrage: Arbitrage using a difference in tax rates or tax systems as the basis for profit.

      Tax Clienteles: Clienteles of investors with specific preferences for debt or equity that are driven by differences in investors' personal tax rates.

      Tax Haven: A country or region imposing low or no taxes on foreign source income.

      Tax Haven Affiliate: A wholly owned affiliate that is in a low-tax jurisdiction and that is used to channel funds to and from the multinational's foreign operations. The tax benefits of tax-haven affiliates were largely removed in the United States by the Tax Reform Act of 1986.

      Tax Holiday: A reduced tax rate provided by a government as an inducement to foreign direct investment.

      Tax Neutrality: Taxes that do not interfere with the natural flow of capital toward its most productive use.

      Tax Preference Items: Items such as tax-loss carryforwards and carrybacks and investment tax credits that shield corporate taxable income from taxes.

      Technical Analysis: Method of forecasting future exchange rates based on the history of rates.

      Temporal Method: A translation accounting method (such as FAS #8 in the United States) that translates monetary assets and liabilities at current exchange rates and all other balance sheet accounts at historical exchange rates.

      Territorial Tax System: A tax system that taxes domestic income but not foreign income. This tax regime is found in Hong Kong, France, Belgium, and the Netherlands.

      Tied Loan: A loan issued by a government requiring the borrower to spend the funds in the lending country.

      Time Draft: A draft that is payable on a specified future date.

      Time Value of an Option: The difference between the value of an option and the option's intrinsic value.

      Timing Option: The ability of the firm to postpone investment (or disinvestment) and to reconsider the decision at a future date.

      Total Cash Flow of the Firm: Total cash inflow minus total cash outflow.

      Total Quality Management (TQM): An organization-wide approach to continuously improving the overall quality of its process, products, and service.

      Total Risk: The sum of systematic and unsystematic risk (measured by the standard deviation or variance of return).

      Trade Acceptance: A time draft that is drawn on and accepted by an importer.

      Trade Balance: A country's net balance (exports minus imports) on merchandise trade.

      Trade Barrier: A governmental policy, action, or practice that intentionally interrupts the free flow of goods or services between countries.

      Trade Deficit: A trade deficit occurs when the value of a country's exports is less than the value of its imports.

      Trade-in Allowance: Price discount granted for a new item by turning in an old item at the time of purchase.

      Trademark: A registration process under which a name, logo, or characteristic can be identified as exclusive.

      Trade-Offs: A kind of interaction involving the offsetting of high costs in one section with lower or diminished costs in another.

      Trade Surplus: A trade surplus occurs when the value of a country's exports is greater than the value of its imports.

      Trading Desk: The desk at an international bank that trades spot and forward foreign exchange. Also known as dealing desk.

      Transaction Exposure: Changes in the value of contractual (monetary) cash flows as a result of changes in currency values.

      Transaction Statement: A document that clearly outlines the terms and conditions agreed upon between an importer and an exporter.

      Transfer Prices: Prices on intracompany sales.

      Transfer Pricing: The price one unit of a company charges to another unit of the same company for goods or services exchanged between the two.

      Translation Exposure: Changes in a corporation's financial statements as a result of changes in currency values. Also known as accounting exposure.

      Transparency: The observed degree of clarity, openness, measurability, and verifiability in a law, regulation, agreement, or trade practice.

      Treaty of Tordesillas: Treaty between Spain and Portugal that divided the South American continent (among other lands) between the two countries. Ratified in 1494, it originally gave Spain much more land than Portugal.

      Trustee: A bank or trust company that holds title to or a security interest in leased property for the benefit of the lessee, lessor, and/or creditors of the lessor.

      Turnkey Contract: An agreement in which a contractor is responsible for setting up a facility from start to finish for another firm.

      Tying Arrangement: The condition imposed by a seller that obliges a buyer to agree to purchase an additional product (tied product) if they wish to purchase their desired product (tying product).


      Umbrella Rate: In shipping, the umbrella rate is a rate system designed to protect less competitive carriers by setting artificially high minimum rates.

      Unbiased Expectations Hypothesis: The hypothesis that forward exchange rates are unbiased predictors of future spot rates (see forward parity).

      Uncertainty Avoidance: The extent to which a society tolerates uncertainty and ambiguity.

      Unemployment Rate: The ratio of the total number of unemployed persons to the total number of persons in the labor force.

      United Nations Conference on Trade and Development (UNCTAD): UNCTAD was established in 1964 with the goal of promoting sustainable development while integrating developing countries into the world economy. It acts as a forum for intergovernmental deliberations with an aim at building consensus; conducting research, policy analysis, and data collection; and providing technical assistance tailored to the specific needs of different developing countries.

      United Nations Industrial Development Organization (UNIDO): UNIDO helps developing countries and countries with economies in transition in their fight against marginalization in today's globalized world. It mobilizes knowledge, skills, information, and technology to promote productive employment, a competitive economy, and a sound environment.

      Unlevered Beta: The beta (or systematic risk) of a project as if it were financed with 100 percent equity.

      Unlevered Cost of Equity: The discount rate appropriate for an investment assuming it is financed with 100 percent equity.

      Unsustainable Debt: A financial condition in which a country is unable to service its foreign (external) debt without decimating its economy.

      Unsystematic Risk: Risk that is specific to a particular security or country and that can be eliminated through diversification.

      Usury: The practice of charging or paying exorbitant interest on a loan or other transaction. Note: in Islamic societies, charging or receiving any amount of interest is considered usury.


      Value-Added Reseller: A company that purchases products from a variety of sources to produce a new finished product for sale.

      Value Added Tax (VAT): A sales tax collected at each stage of production in proportion to the value added during that stage.

      Value Chain: A value-added process in a firm to transform raw materials and other inputs to finished goods, which creates value to customers.

      Value Date: Date on which a foreign exchange contract is executed, i.e., seller delivers.

      Value Stocks: Stocks with low price/book ratios or price/earnings ratios. Historically, value stocks have enjoyed higher average returns than growth stocks (stocks with high price/book or PE ratios) in a variety of countries.

      Variable Cost: A cost that varies directly with volume and is zero when production is zero.

      Venture Capital: An investment in a start-up business that is perceived to have excellent growth prospects but that does not have access to capital markets.

      Virtual Corporation: Partnerships so close that those partners become a single firm for all operational purposes.

      Voluntary Export Restraint (VER): One country promises another country to limit its imports; this is often done when the promising country fears increased tariffs or quotas if it does not self-regulate.


      Warehouse Receipt: A receipt issued by a warehouse listing the goods received.

      Warehouse-to-Warehouse: An insurance policy that covers goods over the entire journey from the seller's to the buyer's premises.

      Warrant: An option issued by a company that allows the holder to purchase equity from the company at a predetermined price prior to an expiration date. Warrants are frequently attached to Eurobonds.

      Weak Form Efficient Market: It is a market in which prices fully reflect the information in past prices.

      Weighted Average Cost of Capital (WACC): A discount rate that reflects the after-tax required returns on debt and equity capital.

      Weight Note: A document issued by either the exporter or a third party declaring the weight of goods in a consignment.

      West African Economic and Monetary Union(UEMOA): A regional alliance of francophone West African countries that promotes economic integration among the seven member countries. The country members are Benin, Burkina Faso, Cote d'lvoire, Mali, Niger, Senegal, and Togo. They all share a common currency and have a central bank to oversee it.

      Wharfage Charge: A charge assessed by a pier or dock owner for handling incoming or outgoing cargo.

      Withholding Tax: A tax on dividend or interest income that is withheld for payment of taxes in a host country. Payment is typically withheld by the financial institution distributing the payment.

      Without Reserve: In shipping this indicates that a shipper's agent has the power to make important decisions abroad without the consent of those the agent represents.

      Working Capital: An accounting term that indicates the difference between current assets and current liabilities.

      World Bank: An international organization created at Bretton Woods in 1944 to help in the reconstruction and development of its member nations. Its goal is to improve the quality of life for people in the poorer regions of the world by promoting sustainable economic development. See also International Bank for Reconstruction and Development.

      World Customs Organization (WCO): The WCO is an international organization whose function is the facilitation of trade between member states through the simplification and standardization of customs practices. The WCO was established in 1952 as the Customs Cooperation Council. Today, WCO provides regulations and standards to 169 customs administrations worldwide.

      World Intellectual Property Organization (WIPO): The World Intellectual Property Organization (WIPO) is an international organization focused on the protection of intellectual property. WIPO administers 23 international treaties and is one of 16 specialized agencies of the United Nations. WIPO members include 183 nations around the world.

      World Trade Organization (WTO): The WTO is a multilateral organization that promotes free and fair trade among the nations of the world. The WTO was created in 1994 by 121 nations at the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The WTO is responsible for implementation and administration of the trade agreement.

      Worldwide Tax System: A tax system that taxes worldwide income as it is repatriated to the parent company. It is utilized in Japan, the United Kingdom, and the United States.

      Writ: A judicial order to an officer of the law, such as a judge or a sheriff, to perform or have performed a specified act.

      WTO Committee on Trade and Development (CTD): The WTO Committee on Trade and Development is a forum for discussion on all multi-interest issues of special interest to developing countries.


      Yield to Maturity: The discount rate that equates the present value of interest payments and redemption value with the present price of the bond.

      Y2K: The abbreviation used to refer to the year 2000 computer problems resulting from the use of two-digit year inputs. Left uncorrected, computers would have recognized the input 00 to mean 1900 and not 2000.


      Zaibatsu: Large family-owned conglomerates that controlled much of the economy of Japan prior to World War II. The four most historically significant zaibatsu, the Big Four, are Mitsubishi, Mitsui, Yasuda, and Sumitomo, whose roots date back to the Japanese Edo period.

      Zeitgeist: A German expression that can be interpreted to mean “the spirit of time.” It indicates the general intellectual state and outlook of an era or generation.

      globalEDGE Michigan State University

      Resource Guide


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      Academy of Management Journal

      Asia Pacific Business Review

      Asia Pacific Journal of Human Resources

      Asia Pacific Journal of Management

      Asian Journal of Management Cases

      Business and Society

      Business History

      Business Week

      California Management Review

      Columbia Journal of World Business

      Culture and Organization

      Economic Development Quarterly

      Economist, The

      Education, Business and Society: Contemporary Middle Eastern Issues

      European Journal of Industrial Relations

      European Journal of International Management

      European Journal of Marketing

      Far Eastern Economic Review

      Financial Times


      Global Business Review

      Harvard Business Review

      Indian Economic and Social History Review

      International Journal of Cross Cultural Management

      International Journal of Leadership Studies

      International Journal of Management

      International Journal of Research in Marketing

      International Marketing Review

      International Small Business Journal

      International Studies of Management and Organization

      The International Trade Journal: Western Hemispheric Studies

      Journal of Business

      Journal of Business Communication

      Journal of Chinese Economic and Business Studies

      Journal of Emerging Market Finance

      Journal of International Business Studies

      Journal of International Management

      Journal of Leadership and Organization Studies

      Journal of Macromarketing

      Journal of Management

      Journal of Marketing Communications

      Journal of Multinational Financial Management

      Journal of Public Relations Research

      Journal of Strategic Marketing

      Macroeconomics and Finance in Emerging Market Economies

      Management and Organizational History

      Management Communication Quarterly

      Management International Review

      Review of International Political Economy

      South Asia Economic Journal

      Strategic Management Journal

      Thunderbird International Business Review


      Wall Street Journal


      Academy of Management http://www.aomonline.org

      American Marketing Association http://www.marketingpower.com

      Asian Development Bank http://www.adb.org

      Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC) http://www.attac.org

      Association of Management/International Association of Management http://www.aom-iaom.org

      Association of Southeast Asian Nations (ASEAN) http://www.aseansec.org

      Corporate Watch http://www.corporatewatch.org

      European International Business Academy http://www.eiba-online.org

      European Union (EU) http://www.europe.eu

      Food and Agriculture Organization (FAO) http://www.fao.org

      Free Trade Area of the Americas (FTAA) http://www.ftaa-alca.org

      General Agreement on Tariffs and Trade (GATT) http://www.gatt.org

      Global Academy of Business and Economic Research http://www.gaberic.org

      Independent Media Center http://www.indymedia.org

      International Association for Business and Society http://www.iabs.net

      International Chamber of Commerce http://www.iccwbo.org

      International Monetary Fund (IMF) http://www.imf.org

      North American Free Trade Agreement (NAFTA) http://www.nafta-sec-alena.org

      Organisation for Economic Co-operation and Development (OECD) http://www.oecd.org

      Securities and Exchange Commission (SEC) http://www.sec.gov

      Trans-European Networks http://ec.europe.eu/ten

      United Nations Centre on Transnational Corporations (UNCTC) http://unctc.unctad.org

      United Nations Industrial Development

      Organization (UNIDO) http://www.unido.org

      United States of America Department of Commerce http://www.commerce.gov

      World Investment Report http://www.unctad.org/WIR

      World Trade Organization http://www.wto.org

      Sabine H.Hoffmann American University of the Middle East

      Appendix: World Trade in Merchandise by Product (World Trade Organization)

      1. Overview

      2. Trade by region

      3. Leading traders

      4. Bilateral trade of leading traders

      5. Regional Trade Agreements

      6. Least-developed countries

      7. Foreign affiliates trade in services

      1. Overview

      2. Agriculture products

      2.1 Food

      3. Fuels and mining products

      3.1. Fuels

      4. Manufactures

      4.1. Iron and steel

      4.2. Chemicals

      4.3. Office and telecom equipment

      4.3.1. EDP equipment

      4.3.2. Telecommunications equipment

      4.3.3. Integrated circuits and electronic components

      4.4. Automotive products

      4.5. Textiles

      4.6. Clothing

      1. Overview

      2. Transportation services

      3. Travel

      4. Other commercial services

      4.1. Communications services

      4.1.1 Telecommunications services

      4.2. Construction

      4.3. Insurance services

      4.4. Financial services

      4.5. Computer and information services

      4.5.1 Computer services

      4.6. Royalties and licence fees

      4.7. Other business services

      4.8. Personal, cultural and recreational services

      4.8.1 Audiovisual services


      Photo Credits

      African Development Bank: 575, 1347; Altria Group: 48; Apple Inc.: 336; BP plc: 176; http://Brandsoftheworld.com: 31, 97, 111, 123, 219, 544, 595, 715, 729, 736, 739, 756, 822, 1005, 1136, 1480, 1520, 1679; Credit Suisse: 436; Loretta Carlisle Photography: 141, 655, 692, 742, 1033, 1220, 1693, 1700; Library of Congress: 199, 866, 1698; McDonalds: 145; NASA: 76, 293, 1031, 1304, 1382, 1601; Nestlé: 1199; http://Photos.com: 4, 16, 33, 37, 44, 93, 103, 133, 182, 211, 231, 239, 271, 273, 279, 286, 306, 346, 365, 367, 371, 431, 454, 486, 495, 517, 520, 524, 530, 535, 549, 578, 588, 607, 618, 627, 635, 647, 663, 681, 687, 707, 784, 798, 826, 840, 847, 876, 893, 898, 904, 935, 944, 954, 962, 967, 974, 1012, 1055, 1089, 1097, 1105, 1118, 1163, 1191, 1206, 1242, 1254, 1259, 1263, 1272, 1301, 1314, 1343, 1392, 1411, 1430, 1472, 1476, 1504, 1511, 1550, 1557, 1565, 1659, 1715, 1722; Repsol: 1359; USAID: 153, 248, 319, 389, 571, 586, 690, 696, 752, 768, 856, 1002, 1122, 1129, 1142, 1182, 1256, 1283, 1320, 1364, 1526, 1631; USCG: 1454; U.S. Customs and Border Protection: 439, 562, 884, 1596; USDA Agricultural Research Service: 790 (photo by Kay Simmons); USN: 1417, 1571 (photo by Eric J. Tilford); Wikipedia: 56 (photo by Steve Kaiser), 64 (photo by William Grimes), 158, 163 (photo by David Monniaux), 241 (photo by Alina Zienowicz), 244, 258, 265, 321, 330 (photo by Joi Ito), 417, 474, 506, 598, 661, 666, 710, 797, 804, 815, 835, 1024, 1372, 1396, 1435, 1689; Stock.xchng: 1641, 1652; Thyssenkrupp photo: 1617; World Bank: 26, 108, 421, 917, 924, 931, 985, 990, 999, 1047, 1064, 1079, 1114, 1155, 1212, 1229, 1232, 1286, 1289, 1385, 1444, 1467, 1482, 1516, 1534, 1539 (Scott Wallace/The World Bank), 1575 (photo by Curt Carnemark), 1584 (photo by Josef Thiel), 1624, 1637, 1661 (photo by Francis Dobbs), 1666 (photo by Michael Hicks), 1682, 1725.

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