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IIA IIA-CIA-PART4 Certified Internal Auditor - Part 4 Business Management Skills
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Question 1 Which of the following is the most signifcant reason that domestc governments and internatonal organizatons seek to eliminate cartels? A. The increased sales price reduces the amount of corporate tax revenues payable to the government. B. True competton keeps prices as low as possible, thus increasing efciency in the marketplace. C. Small businesses cannot survive or grow without government protecton. D. The economic stability of developing countries depends on a global free market.
Aoswern B Explanatonn A cartel is an organizaton of sellers (e.g., the oil cartel OPEC) who undertake joint acton to maximize members' profts by controlling the supply, and therefore the price, of their product. Under the laws of many natons, such collusive conduct is illegal when engaged in by frms subject to those laws. The reason is that, as a result of the monopolistc and antcompettve practces of cartels, supply is lower, prices are high, competton is restrained, and the relevant industry is less efcient. Accordingly, governmental and internatonal organizatons seek to protect consumers and the health of the domestc and global economy through ant-cartel eforts.
Question 2 When a multnatonal frm decides to sell its products abroad, one of the risks the frm faces is that the government of the foreign market charges the frm with dumping. Dumping occurs when A. The same product sells at diferent prices in diferent countries. B. A frm charges less than the cost to make the product so as to enter or win a market. C. Lower quality versions of the product are sold abroad so as to be afordable. D. Transfer prices are set artfcially high so as to minimize tax payments.
Aoswern B Explanatonn Dumping is an unfair trade practce that violates internatonal agreements. It occurs when a frm charges a price (1) lower than that in its home market or (2) less than the cost to make the product. Dumping may be done to penetrate a market or as a result of export subsidies.
Question 3 A global frm A. Has achieved economies of scale in the frm's domestc market. B. Plans, operates, and coordinates business globally. C. Relies on indirect export. D. Tends to rely more on one product market.
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Aoswern B Explanatonn According to Kotler, "Global frms plan, operate, and coordinate their actvites on a worldwide basis." Thus, a global frm secures cost or product diferentaton advantages not available to domestc frms.
Question 4 A frm expands into internatonal markets to A. Be in foreign markets. B. Eliminate foreign competton C. Pursue new, higher-proft opportunites. D. Preclude piracy of the frm's products.
Aoswern C Explanatonn A frm may decide to go abroad for many reasons, for example, to respond to a compettve challenge in its home country by another global frm, to pursue opportunites yielding greater profts, to achieve economies of scale, to diversify, or to follow customers who need internatonal service.
Question 5 A frm wishing to become global must consider how many natonal markets to enter. A frm should enter fewer natonal markets when A. Communicaton adaptaton costs are low. B. The product need not be adapted. C. Entry costs are low. D. The frst countries chosen are heavily populated and have high incomes.
Aoswern D Explanatonn According to Ayal and Zif, the following are factors indicatng that few natonal markets should be enteredn (1) entry costs are high; (2) market control costs are high; (3) product adaptaton costs are high; (4) communicaton adaptaton costs are high; (5) the frst countries selected have large populatons, high incomes, and high income growth; (6) a dominant frm can erect high entry barriers.
Question 6 The least risky method of entering a market in a foreign country is by
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A. Indirect exports. B. Licensing. C. Direct exports. D. Direct investments.
Aoswern A Explanatonn An indirect export strategy operates through intermediaries, such as home-country merchants who buy and resell the product, home-country agents who negotate transactons with foreign buyers fora commission, cooperatves that represent groups of sellers, and export-management frms that receive fees for administering the frm's export eforts. Indirect export requires lower investment than direct export and is less risky because of the intermediaries' expertse.
Question 7 An advantage of a direct investment strategy when entering a foreign market is A. Reducton in the capital at risk. B. Shared control and responsibility. C. Assurance of access when the foreign country imposes domestc content rules. D. Avoidance of interacton with the local bureaucracy.
Aoswern C Explanatonn Direct investment has many advantagesn (1) cheaper materials or labor, (2) receipt of investment incentves from the host government, (3) a strong relatonship with interested partes in the host country, (4) control of the investment, (5) a beter image in the host country, (6) market access when domestc contest rules are in efect. However, direct investment is risky because of exposure to currency fuctuatons, expropriaton, potentally high exit barriers, and restraints on sending profts out of the country.
Question 8 A frm that moves from not exportng on a regular basis to establishing plants in foreign countries has A. Globalized. B. Natonalized. C. Glocalized. D. Internatonalized.
Aoswern D Explanatonn The internatonalizaton process is of crucial interest to natons that wish to encourage local frms to grow and to operate globally. According to Swedish researchers, it involves the following stepsn
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(1) Lack of regular exports; (2) export via independent agents with a few markets, with later expansion to more countries; (3) creaton of sales subsidiaries in larger markets; (4) establishment of plants in foreign countries.
Question 9 Which strategy for a global marketng organizaton is based on a portolio of natonal markets? A. reaton of a division to manage internatonal marketng. B. A multnatonal strategy. C. A glocal strategy. D. Creaton of an export department
Aoswern B Explanatonn Internatonal marketng eforts take three basic formsn creaton of an export department, creaton of a division to manage internatonal marketng, or global organizaton. The later encompasses genuinely worldwide functons, e.g., manufacturing, marketng, fnance, and logistcs. Thus, worldwide operatons are the organizaton's focus, not merely that of a department or division of a natonal frm. A global organizaton may follow a multnatonal, global, or glocal strategy. A multnatonal strategy adopts a portolio approach. Its emphasis is on natonal markets because the need for global integraton is not strong. The product is customized for each market and therefore incurs higher producton costs. Decision making is primarily local with a minimum of central control. This strategy is most efectve given large diferences between countries. Also, exchange rate risk is reduced when conductng business in this manner.
Question 10 Which strategy for a global marketng organizaton balances local responsiveness and global integraton? A. Global. B. Multnatonal. C. Glocal. D. Transnatonal.
Aoswern C Explanatonn A glocal strategy combines some elements of local responsiveness or adaptaton with some elements of global integraton. Successful telecommunicatons frms are examples of balancing these elements. Local responsiveness is indicated when local product tastes and preferences, regulatons, and barriers are signifcant. Global integraton is indicated when demand is homogeneous and economies of productve scale are large.
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