absolute advantage. An advantage one country has over another to produce a certain good; example: Spain’s climate gives it an absolute advantage over Great Britain in the production of wine.
act of God. A violent act of nature over which humans have no control; an act of God can absolve one participant in an agreement from fulfilling a contract.
admiralty court. A court that has jurisdiction over maritime affairs.
ASEAN. See Association of Southeast Asian Nations. Association of Southeast Asian Nations. A trade group established in 1967; today the group includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), Philippines, Singapore, Thailand, and Vietnam.
balance of trade. The difference between a country’s imports and exports over a specific time period. barter. The trade of goods or services without the use of money as an exchange.
black market. The buying and selling of goods and services outside legal channels.
capital flight. The flight of capital from a given country, usually in response to financial panics. capital market. The market for long-term investment funds in the form of stocks, bonds, and commercial paper.
central bank. A national bank with the power to issue currency.
command economy. An economy in which prices are largely established by government edict.
commercial paper. Negotiable instruments used in trade and commerce, usually in the form of unse-cured, short-term promissory notes.
consignment. The temporary possession of goods belonging to another, usually for the purposes of sale.
copyright. The legal right to exclusive use of intellectual property, granted to the creator or distributor of such property.
corporation. A body that is granted a charter by a political jurisdiction giving that body a legal entity with rights, privileges, and responsibilities, usually for the purposes of conducting business.
customs. The government service charged with the task of collecting duties and taxes on imports and exports; also a term for those duties and taxes.
deflation. The reduction in the price of goods and services.
developing countries. Nations, primarily in Africa, Asia, and Latin America, that are currently in the process of industrialization.
dual exchange rates. Concurrent exchange rates on a specific currency, established for different economic circumstances by the government issuing the currency.
dumping. The practice, often illegal, of selling goods abroad below the cost of production.
durable goods. Goods that are not consumed in their use; examples: appliances, cars.
duties. Taxes on imports.
embargo. A government prohibition on imports from or exports to another nation.
European Union. An organization of twenty-two European nations that coordinate trade and other policies.
exchange rate. The rate, established either by governments or the markets, at which currencies trade against one another.
export controls. Limits established by the government on the export of certain goods and services, usually for strategic purposes.
export license. A license granted by a government to a certain individual or firm to export certain goods, usually given in cases where the goods are strategic or in short supply.
export-processing zones. Areas of a country designated by a government for the production of export goods; usually such areas have exemptions or limitations on export duties and taxes (see free zone).
factor. An agent who receives goods on consignment who sells them on behalf of the individual or company that actually owns the goods.
First World. See industrialized countries.
fixed exchange. A rate of exchange for currencies set by the government as opposed to the market.
flag of convenience. The national flag flown by a ship that does not reflect the nationality of the ship’s owners; usually used to avoid taxes or regulations.
force majeure. French for “major force,” an act of God beyond the power of humans that frees one or both participants from the obligations of a contract (see act of God).
foreign exchange. Currency of one country exchangeable for that of another, usually at a rate established by the market.
free market. A market in goods and services free of all government interference.
free zone. An area of a country in which no taxes and duties are applicable (see export-processing zones).
futures. The market for goods to be delivered at a future date.
GATT. See General Agreement on Tariffs and Trade.
General Agreement on Tariffs and Trade. A multilateral agreement aimed at reducing tariffs and duties (see World Trade Organization).
globalization. The process by which international trade and exchange become ever-more integrated.
gold standard. A monetary system in which currency is exchangeable for gold at a rate fixed by the government.
gross domestic product. The measure of goods and services produced within the boundaries of a country.
gross national product. The measure of goods and services of a country produced both within the borders and through overseas investments of that country’s individuals and businesses.
hard money. A currency with a reputation for exchange-rate stability (see soft money).
hedge. An second investment designed to reduce the risk of a first.
IMF. See International Monetary Fund.
import quota. A government-established limit on the import of a specific good, usually to protect domestic producers.
import restrictions. A tariff or other restriction placed on certain goods to reduce their importation.
industrial policy. A government policy to develop certain types of industries.
industrialized countries. Those countries that have fully developed their manufacturing base.
inflation. The increase in the price of goods and services.
infrastructure. The built-up facilities in a region or country, including transportation and communications systems.
intellectual property. Nontangible goods that are the product of creativity, such as literature, film, and music.
International Monetary Fund. An international institution that lends and grants money to developing countries, usually for emergency financial reasons (see World Bank).
interstate commerce. Commerce between the states of the United States.
invisible hand. A term used to explain the laws of supply and demand.
joint-stock company. An unincorporated business owned by those who hold shares in the company.
just-in-time delivery. The practice of providing parts or services as immediately required by businesses.
laissez faire. French for “leave it be,” the economic philosophy that says governments should stay out of business affairs.
legal tender. Any money that is widely recognized as usable for the purchase of goods and services or the payment of debts.
letter of credit. A commitment made by a financial institution on behalf of a client to pay someone an amount of money under specified circumstances.
licensing agreement. An agreement permitting the use of trademarks, patents, or technologies.
limited partnership. A business form in which the general partner runs the business and has personal responsibility for the debts of that business while other partners are liable for only the amount of money they invested in that business.
liquidation. The act by which a person’s or company’s total property and debts are terminated.
liquidity. The degree to which a person’s or company’s assets can be immediately exchanged for money.
Lloyds of London. An English association of insurance underwriters.
Lloyds Registry. Independent of Lloyds of London, an English society that surveys and classifies the ships of the world for their seaworthiness and compliance with national and international codes.
macroeconomics. The study of national and international economies (see microeconomics).
maquiladora. Spanish for manufacturing plant; a Mexican factory, usually located near the U.S. border, with special privileges to trade in the United States.
margin. The difference between the total cost of goods and their net sales price.
market economy. An economy in which prices are set by forces of supply and demand rather than by governmental edict.
market price. The price established between buyers and sellers.
market revolution. The period of the modern age— sometime between the 1700s and 1900s, depending on the country—in which goods and services are increasingly exchanged for money at a value determined by supply and demand.
MERCOSUR. Spanish abbreviation for Mercado del Sur (Market of the South), a trade association of South American nations, including Argentina, Brazil, Paraguay, and Uruguay; Bolivia and Chile have special relations with MERCOSUR.
microeconomics. The study of the economics of individuals, families, firms, and other entities (see macroeconomics).
money market. The market for short-term financial instruments, including commercial paper and treasury bills.
most favored nation. A status granted by one nation to another giving that nation special trading advantages.
multilateral agreement. An agreement reached by more than two nations.
multinational corporation. A corporation that owns subsidiaries abroad.
NAFTA. See North American Free Trade Agreement. nationalization. The process whereby a government takes over a company or an entire industry.
North American Free Trade Agreement. A trading community composed of Canada, Mexico, and the United States.
offshore bank. A foreign subsidiary of a bank, usually established for the purposes of avoiding taxes or legal scrutiny of clients’ accounts.
outsourcing. Sending manufacturing overseas, usually for the purpose of finding cheaper labor.
patent. A grant issued by a government allowing for the exclusive use of an invention by its creator.
petrodollars. U.S. currency earned by countries through the production and overseas sale of petroleum.
price fixing. Establishing of price by a firm or group of firms through illegal, nonmarket means.
protectionism. A government policy calling for the restriction of imports.
quarantine. The temporary holding of individuals, usually in ports of entry, in order to prevent the spread of disease.
rate of exchange. The rate at which the currency of one country is traded for the currency of another.
reciprocity. The process by which governments offer similar trading concessions to each other.
redistribution. Government policy, usually achieved through taxation, whereby wealth is distributed from one class of people to another, usually from rich to poor.
remittance. Funds forwarded from one company or individual to another.
retaliation. The imposition of taxes, restrictions, or quotas on the imports of one country in response to a perceived violation of trade laws or agreements.
royalty. Fee paid to the creator of intellectual property for the sale of that property.
sales tax. A percentage tax on the sale of goods and occasionally services.
security. Property pledged as collateral for a debt.
soft money. A currency with a reputation for exchange-rate instability (see hard money).
spot price. The selling of goods for immediate delivery.
subsidiary. A company owned by another enterprise and located in another jurisdiction, often another country.
surcharge. A special tax or fee added to the regular tax or fee.
surety. A bond or other security that protects a creditor from default by the debtor.
tariff. A schedule of duties to be paid on imports and exports.
tariff war. A trade conflict in which two or more nations raise their tariffs in response to each other’s actions.
tax haven. A nation offering low or no taxes as a means to attract investment.
Third World. See developing countries.
trade deficit. The gap by which the value of a nation’s imports exceeds the value of its exports (see trade surplus).
trade surplus. The gap by which the value of a nation’s exports exceeds the value of its imports (see trade deficit).
transparency. The degree to which laws, taxes, regulations, and government policy are clear, measurable, and verifiable.
Treasury bills. Government debt offered as interest-bearing investments.
triangle trade. Trans-Atlantic trade between Africa, the Americas, and Europe during the first centuries of the modern era, roughly between the 1500s and the 1800s.
turnkey contract. An agreement in which one party agrees to provide a product ready for use by the other.
unfair trade practices. Advantages offered to national industries and companies by a government that violate trade law or custom.
Uniform Commercial Code. The U.S. law governing all commercial transactions.
Universal Copyright Convention. An international agreement that honors copyrights to individuals and companies in signatory nations.
valuation. The worth of a good or service.
value-added tax. An indirect consumption tax based on the amount of labor and investment required to turn a raw material into a finished good.
VAT. See value-added tax.
voluntary restraint agreements. An informal agreement reached by two or more nations to limit their imports or exports.
warranty. A guarantee whereby one party to a contract can rely on the facts and representations provided by the other party.
World Bank. An international financial institution that provides loans or funds to developing countries, usually for long-term capital projects (see International Monetary Fund).
World Trade Organization. Developed out of the Gen eral Agreement on Tariffs and Trade, an organization established to regulate international trade and lower trade barriers between countries (see General Agreement on Tariffs and Trade).
WTO. See World Trade Organization.