Test Bank for Global Business Today 12th Edition Charles Hill by Ace Test Banks

Test Bank for Global Business Today 12th Edition Charles Hill

richard@qwconsultancy.com

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) In the past ten years, increasing barriers to cross-border trade have made it harder for businesses to sell internationally. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-01 Understand what is meant by the term globalization. Topic : What is Globalization? Gradable : automatic

2) To truly benefit from globalization, a firm needs to be a multinational conglomerate rather than a small or mid-size company. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-01 Understand what is meant by the term globalization. Topic : What is Globalization? Gradable : automatic

In today’s marketplace, outsourcing efforts are confined to manufacturing activities. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 01-01 Understand what is meant by the term globalization. Topic : What is Globalization? Bloom's : Remember Difficulty : 1 Easy Gradable : automatic

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4) Transportation costs and the managerial challenge of coordinating a globally dispersed supply chain are just two of the impediments companies face when trying to achieve optimal dispersion of their products between countries. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 01-01 Understand what is meant by the term globalization. Bloom's : Remember Difficulty : 1 Easy Topic : Various Types of Institutions in Global Business Gradable : automatic

5) The WTO polices the world trading system and without this organization, the globalization of markets might not be where it is today. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Learning Objective : 01-01 Understand what is meant by the term globalization. Bloom's : Remember Difficulty : 1 Easy Topic : Various Types of Institutions in Global Business AACSB : Reflective Thinking Gradable : automatic

6) Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization Gradable : automatic

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The retaliatory trade policies of the 1920s and 1930s contributed to the Great Depression. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization Gradable : automatic

The Uruguay Round extended GATT to cover services as well as manufactured goods. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization Gradable : automatic

Enhanced protection for patents and trademarks was one focus of the Uruguay Round. ⊚ true ⊚ false

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10) The lowering of trade and investment barriers creates fewer opportunities for companies to have the world as their market. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization Gradable : automatic

11) In recent years, the economies of the world's nation-states have become less intertwined as a result of international trade. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization Gradable : automatic

12)

The COVID-19 global pandemic has had minimal impact on global supply chains. ⊚ true ⊚ false

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13) Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization Gradable : automatic

14) Moore's law helps determine the most appropriate transportation method for a produced good. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization Gradable : automatic

15) Fifty years ago, the U.S. was struggling to find its place in the world economy and world trade picture. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Gradable : automatic

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16) The outward stock of foreign direct investment refers to the total cumulative value of foreign investments by firms domiciled in a nation outside of that nation’s borders. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Gradable : automatic

17) Throughout the 1990s, the amount of investment directed at both developed and developing nations increased dramatically. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Gradable : automatic

18) A domestic enterprise is any business that has productive activities in at least two countries. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Gradable : automatic

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19) Today, many of the former communist nations of Europe and Asia seem to share a commitment to democratic policies and free market economies. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Gradable : automatic

20)

The amount of foreign direct investment in China has been increasing since the 1980s. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 2 Medium Bloom's : Remember Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Gradable : automatic

21) According to many influential economists, the increase in international trade and crossborder investment will result in an increase in the prices of goods and services. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-04 Explain the main arguments in the debate over the impact of globalization. Topic : The Globalization Debate Gradable : automatic

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22) One criticism of globalization is that falling trade barriers encourage companies to locate manufacturing activities in another country to take advantage of lower wage rates. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 01-04 Explain the main arguments in the debate over the impact of globalization. Topic : The Globalization Debate Gradable : automatic

23)

A firm has to become a multinational enterprise to engage in international business. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 1 Easy Learning Objective : 01-05 Understand how the process of globalization is creating opportunities and Topic : Challenges and Opportunities Created by Globalization Gradable : automatic

24) The range of problems that a manager in an international business faces is typically more complex than those faced by a manager in a domestic business. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 01-05 Understand how the process of globalization is creating opportunities and Topic : Challenges and Opportunities Created by Globalization Gradable : automatic

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25) As a result of globalization, international businesses can avoid the haggle of currency exchanges during cross-border transactions. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 01-05 Understand how the process of globalization is creating opportunities and Topic : Challenges and Opportunities Created by Globalization Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Many believe that globalization has created a convergence in A) the volume of goods and services produced. B) foreign exchange transaction law. C) environmental and labor laws. D) consumer taste preferences. E) the regulation of markets.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-01 Understand what is meant by the term globalization. Topic : What is Globalization? Gradable : automatic

27)

What is the shift toward a more integrated and interdependent world economy called?

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A) international trade B) foreign direct investment C) globalization D) Moore's Law E) containerization

28) Fast food chain restaurants promote different menu choices in different countries depending on a range of factors such as demographics, local taste, income levels, and cultural values. This demonstrates that A) significant differences still exist among national markets. B) cultural diversity has been replaced by global uniformity. C) the global market is less complex than national markets. D) only multinational giants can benefit from the globalization of markets. E) the social norms in a country do not affect purchase decisions of consumers.

Question Details Accessibility : Keyboard Navigation Learning Objective : 01-01 Understand what is meant by the term globalization. Topic : What is Globalization? AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

29) Which statement best supports the claim that greater uniformity replaces diversity in the context of global markets?

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A) Differences in business systems and legal regulations lead companies to customize their marketing strategies, product features, and operating practices to best match conditions in a particular country. B) As rival global firms follow each other across countries, they bring with them their brand names, products, and marketing strategies from other national markets, thus creating some homogeneity across markets. C) Truly innovative companies succeed by developing products that serve specific needs of the local markets. D) The volume of goods, services, and investment crossing national borders has expanded at a slower rate than world output for more than half a century. E) The most global of markets are not typically markets for consumer products, as significant differences in consumer tastes and preferences still exist among national markets.

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-01 Understand what is meant by the term globalization. Topic : What is Globalization? AACSB : Reflective Thinking Gradable : automatic

30) Simpson Manufacturing produces high-end kitchen appliances and currently sources component parts for these machines from fifteen different companies around globe. They use these sources to take advantage of lower costs. This demonstrates the idea of A) globalization of markets. B) containerization of production. C) dispersal of production. D) globalization of production. E) industrialization of markets.

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31)

Which of these companies is taking advantage of the globalization of production?

A) Seamless Fabrics, an American textile manufacturer, buys fabric from France and exports it to India for garment production. B) Tylor Group, a U.S.-based fashion designer, is planning to open a flagship store in China to serve the Asian market. C) Miss T. Waters, a U.K. facial products company, serves customers worldwide through its local franchises. D) Golden Pony Inc. uses sales personnel from the respective host country to sell its products and services. E) Lotza Pie, an Italian pizza chain, customizes its pizzas and pastas to suit the tastes of its American and Australian customers.

32) Kettle Moraine Corporation sources goods and services for its gardening products from different locations around the globe in an attempt to take advantage of differences in the cost and quality of labor and land. This practice is an example of the

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A) globalization of production. B) globalization of markets. C) dislocation of a developing nation's economy. D) restriction on foreign direct investment. E) regulation of the environment.

33) The labor, energy, land, and capital a country relies on to source goods and services are known as A) trade tariffs. B) the globalization of markets. C) the marketing mix. D) the globalization of production. E) factors of production.

34) During early globalization efforts, outsourcing was typically confined to __________ activities.

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A) agricultural B) financial C) legal D) manufacturing E) service

35) Which global institution do nation-states whose economies are in turmoil turn to as the lender of last resort? A) World Trade Organization B) World Bank C) Peace Corps D) International Monetary Fund E) United Nations

36)

Countries that receive loans from the IMF are required to

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A) become a member of the United Nations. B) allow developed nations to create businesses in their country. C) enforce a democratic government. D) use the funds to help individual citizens. E) adopt specific economic policies to attain stabilization.

37)

According to the UN Charter, one of the four purposes of the UN is to A) develop friendly relations among nations. B) encourage high tariffs on imports of manufactured goods. C) provide enhanced protection for patents. D) promote the establishment of multinational treaties. E) facilitate globalization of production.

38)

A macro factor underlying the trend toward greater globalization is the

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A) rise of communism across the globe. B) increase in nationalization of private organizations. C) increase in diversity in consumer tastes and preferences. D) increase in trade regulations across the globe. E) dramatic developments in information processing and other technologies.

39)

Which scenario best demonstrates foreign direct investment?

A) Lux Linens, a fabric conglomerate in the United States, imports raw silk from China and Italy. B) Domesticity, a U.S.-based office furniture company, has set up its own assembly plant in Japan to cater to the needs of the Asian market. C) Super Blooms, a reputable vegetable plant company in Holland, exports tomato, pepper, and potato garden plants across the globe. D) Salia started a Polish restaurant in her home country, the United States, after she took cooking lessons from a well-known chef in Poland. E) Ups n Downs Inc., a Chinese firm, supplies roller coaster components in the United States.

Question Details Accessibility : Keyboard Navigation Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

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40) Morning Fresh Skin Care, a U.S.-based beauty products manufacturer, has set up a manufacturing plant in Hong Kong. This is an example of A) foreign direct investment. B) international trade. C) exporting. D) global rivalry. E) the globalization of markets.

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization Gradable : automatic

41) Monique, a French fashion designer, sells her merchandise by exporting it to retail stores in the United States, United Kingdom, and Brazil. According to this information, Monique is participating in A) foreign direct investment. B) globalization of production. C) international trade. D) multinational enterprise. E) outsourcing.

42)

For foreign direct investment (FDI) to occur, a firm should primarily

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A) conduct cross-border bartering with neighboring countries. B) invest resources in business activities outside its home country. C) export goods or services to consumers in another country. D) import goods or services from producers in another country. E) support strong barriers to international trade.

43) Why did many nations impose high tariffs on imports of manufactured goods prior to World War II? A) to protect domestic industries from foreign competition B) to prevent the occurrence of the Great Depression C) to safeguard patents, copyrights, and trademarks D) to promote the trade of services over the trade of manufactured goods E) to deter any possible attempts to promote communism

44)

The main goal of GATT was to

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A) limit foreign competition. B) make loans to struggling nations. C) increase domestic competition. D) privatize state-owned organizations. E) reduce trade barriers.

45)

One result of the Uruguay Round was A) increased trade and investment barriers. B) excluding the trade of services from international trade. C) transforming the World Trade Organization into GATT. D) enhanced protection for patents, trademarks, and copyrights. E) promoting the worldwide rise of communism.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 2 Medium Bloom's : Remember Learning Objective : 01-02 Recognize the main drivers of globalization. Topic : Drivers of Globalization Gradable : automatic

46) What is implied by the fact that in today’s marketplace, the volume of world trade has been growing faster than world GDP?

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A) More companies are relying on domestic firms to obtain parts of their production process. B) The economies of the world’s nation-states are becoming more intertwined. C) Fewer companies are dispersing parts of their production process to locations around the globe. D) The world has experienced a loss of overall wealth in the last two decades. E) More countries are imposing trade barriers to minimize competition.

47) While the lowering of trade barriers made globalization of markets and production a theoretical possibility, what has made it a tangible reality? A) the advances in communication, information processing, and transportation technologies B) the rise of communism and the need for independent economies on a global scale C) the increasing diversity in consumer tastes and preferences worldwide D) the increasing differences in the material culture the world over E) the decreasing significance of the World Trade Organization

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48) Christian bought his son, Eric, a computer two years ago. Recently, he decided to buy his daughter, Brigette, a computer of her own. When applying Moore’s Law to the two-year gap between the purchase of the computers, it is most likely that A) Christian paid a higher price for Brigette’s computer. B) Eric’s computer would have a microprocessor with better power than that of Brigette’s. C) both Eric’s and Brigette’s computers would cost Christian the same price. D) the microprocessor in Brigette’s computer would be more advanced in terms of power than that of Eric’s. E) the power of the microprocessors, in both Eric and Brigette’s computers, would be the same.

49) Sanjay purchased a computer for $500 in 2018. Compared to the $900 computer that he purchased in 2011, the new one seems better in terms of the price he has paid and the power of the microprocessor technology. This is best explained by A) product liability. B) property rights. C) Moore's law. D) purchasing power parity. E) sustainable strategies.

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50) Bethany has been assigned the task of shipping all of the exhibit parts for the trade show her company is participating in to Germany. She works with a shipping company and has all the parts packaged together in a crate that will be lifted directly from the company truck to the airplane. When the crate arrives in Germany it will go directly onto another truck and will be delivered to the convention center. What innovation in transportation is Bethany using? A) exporting B) communication C) containerization D) sustainability E) customization

51) What country has seen a relative decline in its share of world output between 1960 and 2018? A) United States B) Brazil C) Thailand D) China E) South Korea

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Gradable : automatic

52)

Which statement reflects the changing demographics of the global economy?

A) U.S. dominance in export markets has waned as Japan, Germany, and a number of newly industrialized countries have taken a larger share of world exports. B) The change in the position of the United States in terms of the share of world output is the result of the absolute decline in the health of the global economy. C) From 1960 to 2010, countries that experienced a large decrease in their share of world output include Japan, Thailand, Malaysia, Taiwan, and South Korea. D) The United States is the only developed nation to see its relative standing in the share of world output slip. E) Today, roughly half the globe—the centrally planned economies of the communist world—is off-limits to Western international businesses.

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Gradable : automatic

53) The change in the United States’ position as a dominant industrial power is characterized as a relative decline because it

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A) is the direct result of an isolationism policy. B) doesn’t account for entrepreneurial activity. C) actually increased compared to some other developed nations. D) accounts for the production of goods and services. E) reflects the faster economic growth of several other economies.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Gradable : automatic

54) Due to the changing economic geography, many of tomorrow's economic opportunities are most likely to be found in the A) rich industrialized nations of the world like Great Britain and Germany. B) centrally planned economies of the communist world. C) United States. D) developing nations of the world such as China, India, and Brazil. E) countries that are currently not members of the World Trade Organization.

55) When trade barriers began to fall, what was the motivation for much of the foreign direct investment by non-U.S. firms?

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A) desire to disperse production activities to optimal locations B) need to suppress emerging economies such as China, India, and Brazil C) demand for skilled workers in foreign nations D) lack of adequate environmental regulations E) establishment of multinational treaties

56)

The outward stock of foreign direct investment refers to

A) the purchasing power associated with current investments. B) the ability to leverage FDI when negotiating with a foreign entity. C) the total cumulative value of foreign investments by firms domiciled in a nation outside of that nation’s borders. D) the value of foreign investment when accounting for tariffs and other governmentimposed costs. E) the number of foreign investments a company has compared to the number of domestic investments.

57) Tomorrow’s Tech Inc., a U.S.-based company, has productive activities in more than two countries. Tomorrow’s Tech is what type of enterprise?

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A) state-owned B) universal C) private D) multinational E) public

58) Ivory Piano is headquartered in Michigan and has production plants in Mexico and Indonesia. Ivory Piano is an example of A) an acquisition. B) a multinational enterprise. C) a factor endowment. D) a global trader. E) a domestic company.

59)

What are mini-multinationals?

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A) multinational firms from relatively small countries in terms of area B) multinationals from the developing nations of the world C) multinational firms that operate in only one foreign country D) medium- and small-size multinationals E) subsidiaries of large multinationals in foreign countries

60) One advancement that has lowered the barriers many small firms face when building international sales is A) containerization. B) JIT inventory systems. C) government-imposed quotas. D) air and railway systems. E) the Internet.

61) Organic Cookies, a U.K.-based company employing just 30 people worldwide, generates $1.5 million in revenues of which 60 percent comes from exports to Asian countries. Organic Cookies is most likely classified as a

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A) large domestic firm. B) mini-multinational firm. C) greenfield firm. D) foreign firm. E) multinational giant.

Question Details Accessibility : Keyboard Navigation Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

62) What is acting as a deterrent for foreign firms willing to do business with former communist nations of Eastern Europe and Central Asia? A) high levels of economic development in these countries B) signs of growing unrest and totalitarian tendencies seen in these countries C) strong commitment to market-based economic systems seen in these countries D) collapse of communism in these countries E) low returns involved in doing business in these countries

63) What is an accurate characterization of the role of international business investments in Latin America today?

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A) Foreign investment by Western international business is frowned upon. B) Debt and inflation are down and foreign investment is welcomed. C) Latin America is plagued with low growth, high debt, and hyperinflation that discourages investment. D) Latin American governments are purchasing businesses from private investors. E) There are fewer opportunities for investment because of communist rule.

64) What country in Latin America has seen a significant expansion in their economy in the past two decades? A) Argentina B) Peru C) Chile D) Paraguay E) Panama

65)

Which statement reflects a general implication of globalization?

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A) Globalization is inevitable. B) Fewer nations are joining the ranks of the developed world. C) Globalization has no negative impacts on the economies of the developed world. D) Globalization has reduced the risks associated with global financial contagion. E) The COVID-19 pandemic called into question the wisdom of relying on globally dispersed production systems.

66) An argument in support of the falling barriers to international trade and investment is that the falling barriers A) prohibit countries from specializing in the production of goods and services. B) drive the global economy toward greater prosperity. C) reduce the need to export jobs overseas. D) increase the bargaining power of business firms by decreasing the incomes of consumers. E) reduce attacks from foreign competitors.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-04 Explain the main arguments in the debate over the impact of globalization. Topic : The Globalization Debate Gradable : automatic

67) Opponents to globalization believe that when U.S. companies outsource service activities, such as call centers, to a lower-cost foreign supplier, it results in

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A) higher living standards in those countries that "export" the jobs. B) higher unemployment in wealthy advanced economies such as the United States. C) an increase in the income levels in those nations that "export" the jobs. D) lower standards of living in those countries to which the jobs are exported. E) reduced specialization in the production of goods and services.

68) According to globalization opponents, what has increased in wealthy advanced economies as a result of globalization? A) unemployment B) price of goods and services C) demand for unskilled workers D) standard of living E) job opportunities

69) Those who support globalization recognize that while some concessions occur during the process of globalization, ultimately, it still works because

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A) all retaliatory trade policies have been eliminated. B) the benefits outweigh the costs. C) democratic governments follow this pattern. D) the costs affect very few people. E) nations need to import goods they are efficient at producing.

70) Globalization critics argue that the decline in unskilled wage rates in advanced economies is due to the A) migration of low-wage manufacturing jobs offshore. B) technology-induced shift toward jobs that require significant education and skills. C) increased supply of highly skilled workers. D) increasing demand for unskilled workers. E) reducing national differences in the cost of labor between developed and developing nations.

71) Growing income inequality between the skilled and unskilled workers in advanced nations, such as the United States, is a result of the

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A) wages for skilled workers being bid up by the labor market and the wages for unskilled workers being discounted. B) decrease in the outsourcing of low-wage manufacturing jobs offshore and a corresponding increase in demand for unskilled workers. C) shift within advanced economies toward jobs where the only qualification is the willingness to turn up for work every day. D) increasing wage gap between developing and developed nations. E) shortage of unskilled workers and an excess supply of highly skilled workers.

72) Sun Petroleum Corp. recently moved its operations from Galveston, Texas, to Somalia. The decision to move was the result of new federal regulations regarding clean air standards that all petroleum corporations are subjected to. A critic of globalization would say this example demonstrates what concern? A) Free trade discourages firms from advanced nations to move manufacturing facilities to less developed countries. B) Facilities in advanced nations are moving to less developed countries that have lower environmental regulations. C) Manufacturing enterprises are put at a competitive disadvantage by moving their production facilities to nations that do not have burdensome regulations. D) As countries get richer, they relax their environmental and labor regulations. E) More countries are working to meet the strict environmental standards set by the U.S. government.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 01-04 Explain the main arguments in the debate over the impact of globalization. Topic : The Globalization Debate AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

73)

The North American Free Trade Agreement (NAFTA) was formed in 1994 among A) Canada, Mexico, and the United States. B) the United States, Brazil, and Argentina. C) Canada, Argentina, and Mexico. D) Colombia, Venezuela, and Brazil. E) Uruguay, Colombia, and Costa Rica.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 01-04 Explain the main arguments in the debate over the impact of globalization. Topic : The Globalization Debate Gradable : automatic

74)

A supporter of globalization would agree that

A) environmental regulations need to be standardized around the world to equalize the economy. B) free trade agreements should be tied to higher environmental standards. C) tougher environmental regulations ultimately result in economic progress. D) a lack of environmental standards results in more job opportunities in developed nations. E) stricter labor standards eventually result in an economic downturn.

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75) Econometric studies show a hump-shaped relationship between income levels and pollution levels. Which of these statements reflects that relationship? A) As an economy grows and income levels rise, initially pollution levels also rise. B) Decreasing income levels lead to an increase in pollution levels. C) As an economy grows, pollution levels show a constant increase. D) Economies that are in turmoil reflect pollution levels that are diminishing. E) Income levels do not have any correlation with pollution levels.

76)

UN-sponsored talks concerning the reduction of carbon dioxide emissions has resulted in

A) little success in achieving goals for reducing carbon emissions. B) an equalized distribution of emission standards across the world rather than a centralized distribution in westernized nations. C) complete eradication of all carbon dioxide emissions. D) a nearly 50% reduction in carbon dioxide emissions. E) tighter pollution controls in both China and the United States.

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77) The WTO arbitrates trade disputes between its member states. What is one power of particular interest that the WTO can use? A) It can restrict the membership of nations in other supranational organizations such as the United Nations. B) It can grant loans to cash-strapped governments in poor nations. C) It supersedes IMF and has complete authority over IMF's actions. D) It can issue a ruling instructing a member-state to change trade policies that violate GATT regulations. E) It can make decisions related to international trade without considering the collective interests of member-states.

78)

When compared to the past, the gap between rich and poor nations today has A) shown no significant change B) gotten bigger. C) become inexistent. D) become balanced. E) gotten smaller.

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79) Free trade alone, some argue, is a necessary but not sufficient prerequisite to help "highly indebted poorer countries" (HIPCs) bootstrap themselves out of poverty. They also recommend implementing A) a highly regulated command economy. B) weaker property rights laws. C) weaker labor regulations. D) large-scale debt relief. E) rapid expansion in population.

80) One suggestion for helping poor countries enjoy the benefits of free trade is for richer nations to reduce barriers to importing products from those nations particularly for __________ and agricultural products. A) electronic B) textiles C) service D) financial E) manufacturing

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81)

The minimum that a firm has to do to engage in international business is to A) export or import products from other countries. B) invest directly in operations in another country. C) establish joint ventures or strategic alliances with companies in other countries. D) export low-wage manufacturing jobs to companies in other countries. E) develop franchises and subsidiaries in other countries.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-05 Understand how the process of globalization is creating opportunities and Topic : Challenges and Opportunities Created by Globalization Gradable : automatic

82) Xavier is the executive general manager of a U.S.-based multinational corporation. Midge is a manager in a similar position but works for an American company that operates only in the U.S. and does not engage in international business. In this context, which business function will be most typically exclusive to Xavier? A) marketing a product or service B) maintaining healthy relations with the U.S. government C) developing a business strategy D) adhering to labor and environmental standards E) choosing an appropriate mode for entering a particular foreign country

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Question Details Accessibility : Keyboard Navigation Learning Objective : 01-05 Understand how the process of globalization is creating opportunities and AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : Understanding the Differences Between International and Domestic Business Gradable : automatic

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 83) What is globalization? Explain, with examples, how global companies can facilitate the creation of a global market.

84) Discuss what types of markets are reflected in the most global of markets. Describe what types of products these markets include.

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85) What are the roles of the International Monetary Fund (IMF) and the World Bank? Which of these institutions is more controversial? Why?

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-01 Understand what is meant by the term globalization. Topic : Various Types of Institutions in Global Business AACSB : Reflective Thinking Gradable : manual

86)

Discuss the role of the Group of Twenty.

87)

Explain the factors that led to the Great Depression of the 1930s.

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88) Describe the implications that result as the volume of world trade continues to grow faster than world GDP.

89) Briefly discuss the ways in which technological change and the Internet have affected globalization.

90) Define containerization and explain how it has changed the way goods are transported around the world.

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91)

Discuss the U.S.’s position as the world’s leading trading nation since the 1980s.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Difficulty : 3 Hard Gradable : manual

92)

Elaborate on why globalization is not inevitable.

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Learning Objective : 01-03 Describe the changing nature of the global economy. Topic : The Changing Nature of the Global Economy Bloom's : Apply Difficulty : 3 Hard Gradable : manual

93) Discuss how supporters and opponents of globalization regard its effect on jobs and income.

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94) Discuss antiglobalization protest patterns that followed the protest in Seattle in 1999. Describe how Trump’s election reflected the antiglobalization movement.

95) Explain how supporters of globalization view the idea that the decline in unskilled wage rates and the demand for unskilled workers is due to the migration of low-wage manufacturing jobs offshore.

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96) What are the various reasons for economic stagnation in many of the world's poorest countries?

97)

What are some of the challenges faced by managers of an international business?

98) How is managing an international business different from managing a purely domestic business?

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 01-05 Understand how the process of globalization is creating opportunities and Topic : Understanding the Differences Between International and Domestic Business Gradable : manual

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Answer Key Test name: Hill_1 1) FALSE Theglobalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-border trade and investment have made it easier to sell internationally. 2) FALSE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) TRUE 9) TRUE 10) FALSE 11) FALSE 12) FALSE 13) TRUE 14) FALSE 15) FALSE 16) TRUE 17) TRUE 18) FALSE 19) TRUE 20) TRUE 21) FALSE

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22) TRUE 23) FALSE 24) TRUE 25) FALSE 26) D Theglobalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-border trade and investment have made it easier to sell internationally. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping create a global market. 27) C Globalization refers to the shift toward a more integrated and interdependent world economy. Globalization has several facets, including the globalization of markets and the globalization of production. 28) A Significant differences still exist among national markets along many relevant dimensions, including consumer tastes and preferences, distribution channels, culturally embedded value systems, business systems, and legal regulations. These differences frequently require companies to customize marketing strategies, product features, and operating practices to best match conditions in a particular country. 29) B As firms follow each other around the world, they bring with them many of the assets that served them well in other national markets—including their products, operating strategies, marketing strategies, and brand names—creating some homogeneity across markets. Thus, greater uniformity replaces diversity. Version 1

30) D The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production. 31) A The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital). 32) A The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital). 33) E Theglobalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality offactors of production (such as labor, energy, land, and capital). 34) D Early outsourcing efforts were primarily confined to manufacturing activities, such as those undertaken by Boeing and Apple. Increasingly, however, companies are taking advantage of modern communications technology, particularly the Internet, to outsource service activities to low-cost producers in other nations. 35) D

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The IMF is often seen as the lender of last resort to nation-states whose economies are in turmoil and whose currencies are losing value against those of other nations. 36) E IMF loans come with strings attached. In return for loans, the IMF requires nation-states to adopt specific economic policies aimed at returning their troubled economies to stability and growth. These requirements have sparked controversy. Some critics maintain that by telling national governments what economic policies they must adopt, the IMF is usurping the sovereignty of nation-states. 37) A According to the UN charter, the UN has four purposes: to maintain international peace and security, to develop friendly relations among nations, to cooperate in solving international problems and in promoting respect for human rights, and to be a center for harmonizing the actions of nations. 38) E Two macro factors underlie the trend toward greater globalization. The first is the decline in barriers to the free flow of goods, services, and capital that has occurred in recent decades. The second factor is technological change, particularly the dramatic developments in recent decades in communication, information processing, and transportation technologies. 39) B Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country. 40) A

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Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country. 41) C International trade refers to the exporting of goods or services to consumers in another country. 42) B Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country. 43) A During the 1920s and 1930s, many of the world's nation-states erected formidable barriers to international trade and foreign direct investment. Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods. The typical aim of such tariffs was to protect domestic industries from foreign competition. 44) E Having learned from this experience, the advanced industrial nations of the West committed themselves after World War II to progressively reducing barriers to the free flow of goods, services, and capital among nations. This goal was enshrined in the General Agreement on Tariffs and Trade. 45) D The Uruguay Round reduced trade barriers; extended GATT to cover services as well as manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and established the World Trade Organization to police the international trading system. 46) B

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The fact that the volume of world trade has been growing faster than world GDP implies several things. First, more firms are doing what Boeing does with the 777 and 787 models: dispersing parts of their production process to different locations around the globe to drive down production costs and increase product quality. Second, the economies of the world’s nation-states are becoming ever more intertwined. As trade expands, nations are becoming increasingly dependent on each other for important goods and services. Third, the world has become significantly wealthier in the last two decades. The implication is that rising trade is the engine that has helped pull the global economy along. 47) A The lowering of trade barriers made globalization of markets and production a theoretical possibility. Technological change has made it a tangible reality. 48) D The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moore's law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months). 49) C The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moore's law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months). 50) C

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Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances. In economic terms, the most important are probably the development of commercial jet aircraft and superfreighters and the introduction of containerization, which simplifies transshipment from one mode of transport to another. 51) A In the early 1960s, the United States was still by far the world's dominant industrial power. In 1960, the United States accounted for 38.3 percent of world output, measured by gross domestic product (GDP). By 2018, the United States accounted for 15.8 percent of world output, still the world's largest industrial and commercial power but down significantly in relative size. Of course, the change in the U.S. position was not an absolute decline because the U.S. economy grew significantly between 1960 and 2018 (the economies of Germany, France, Italy, the United Kingdom, and Canada also grew during this time). Rather, it was a relative decline, reflecting the faster economic growth of several other economies, particularly China as well as several other nations in Asia. 52) A Over the past 30 years, U.S. dominance in export markets has waned as Japan, Germany, and a number of newly industrialized countries such as South Korea and China have taken a larger share of world exports. 53) E

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Of course, the change in the U.S. position was not an absolute decline because the U.S. economy grew significantly between 1960 and 2018 (the economies of Germany, France, Italy, the United Kingdom, and Canada also grew during this time). Rather, it was a relative decline, reflecting the faster economic growth of several other economies, particularly China as well as several other nations in Asia. 54) D Many of tomorrow's economic opportunities may be found in the developing nations of the world, and many of tomorrow's most capable competitors will probably also emerge from these regions. 55) A The motivation for much of the foreign direct investment by non-U.S. firms was the desire to disperse production activities to optimal locations and to build a direct presence in major foreign markets. 56) C The outward stock of foreign direct investment refers to the total cumulative value of foreign investments by firms domiciled in a nation outside of that nation’s borders. 57) D A multinational enterprise (MNE) is any business that has productive activities in two or more countries. 58) B A multinational enterprise (MNE) is any business that has productive activities in two or more countries. 59) D Medium- and small-size multinationals are called mini-multinationals. 60) E Version 1

Although most international trade and investment is still conducted by large firms, many medium- and small-size businesses are becoming increasingly involved in international trade and investment. The rise of the Internet is lowering the barriers that small firms face in building international sales. 61) B A trend in international business has been the growth of medium- and small-size multinationals (mini-multinationals). 62) B Disturbing signs of growing unrest and totalitarian tendencies continue to be seen in several Eastern European and Central Asian states. Thus, the risks involved in doing business in such countries are high, but so may be the returns. 63) B In the past two decades, much has changed in Latin America. Debt and inflation are down, governments have sold state-owned enterprises to private investors, foreign investment is welcomed, and the region's economies have expanded. 64) C In the past two decades, much of this has changed. Throughout most of Latin America, debt and inflation are down, governments have sold state-owned enterprises to private investors, foreign investment is welcomed, and the region’s economies have expanded. Brazil, Mexico, and Chile have led the way. These changes have increased the attractiveness of Latin America, both as a market for exports and as a site for foreign direct investment. 65) E

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During 2008–2009, a crisis that started in the financial sector of America, where banks had been too liberal in their lending policies to homeowners, swept around the world and plunged the global economy into its deepest recession since the early 1980s, illustrating once more that in an interconnected world a severe crisis in one region can affect the entire globe. Similarly, the spread of the COVID-19 pandemic around the world in 2020 seriously disrupted global supply chains and called into question the wisdom of relying upon globally dispersed production systems. 66) B Many influential economists, politicians, and business leaders argue that falling barriers to international trade and investment are the twin engines driving the global economy toward greater prosperity. 67) B The popular feeling is that when corporations outsource service activities to lower-cost foreign suppliers they are "exporting jobs" to low-wage nations and contributing to higher unemployment and lower living standards in their home nations. 68) A One concern frequently voiced by globalization opponents is that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and western Europe. In the past few years, the same fears have been applied to services, which have increasingly been outsourced to nations with lower labor costs. The popular feeling is that when corporations such as Dell, IBM, or Citigroup outsource service activities to lower-cost foreign suppliers—as all three have done—they are "exporting jobs" to low-wage nations and contributing to higher unemployment and lower living standards in their home nations (in this case, the United States). Version 1

69) B Supporters of globalization reply that critics of these trends miss the essential point about free trade agreements—the benefits outweigh the costs. They argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently. 70) A Globalization critics argue that the decline in unskilled wage rates is due to the migration of low-wage manufacturing jobs offshore and a corresponding reduction in demand for unskilled workers. 71) A Growing income inequality is a result of the wages for skilled workers being bid up by the labor market and the wages for unskilled workers being discounted. 72) B Globalization critics often argue that adhering to labor and environmental regulations significantly increases the costs of manufacturing enterprises and puts them at a competitive disadvantage in the global marketplace vis-à-vis firms based in developing nations that do not have to comply with such regulations. A source of concern is that free trade encourages firms from advanced nations to move manufacturing facilities to less developed countries that lack adequate regulations to protect labor and the environment from abuse by the unscrupulous. 73) A The North American Free Trade Agreement (NAFTA) was formed in 1994 among Canada, Mexico, and the United States. Version 1

74) C Supporters argue that tougher environmental regulations and stricter labor standards go hand in hand with economic progress. In general, as countries get richer, they enact tougher environmental and labor regulations. 75) A As an economy grows and income levels rise, initially pollution levels also rise. However, past some point, rising income levels lead to demands for greater environmental protection, and pollution levels then fall. 76) A Although UN-sponsored talks have had reduction in carbon dioxide emissions as a central aim since the 1992 Earth Summit in Rio de Janeiro, until recently there has been little success in moving toward the ambitious goals for reducing carbon emissions laid down in the Earth Summit and subsequent talks in Kyoto, Japan, in 1997, Copenhagen in 2009, and Paris in 2015, for example. In part, this is because the largest emitters of carbon dioxide, the United States and China, failed to reach agreements about how to proceed. China, a country whose carbon emissions are increasing at a rapid rate, has until recently shown little appetite for tighter pollution controls. 77) D The WTO arbitrates trade disputes between its 164 member states. The arbitration panel of the WTO can issue a ruling instructing a member state to change trade policies that violate GATT regulations. If the violator refuses to comply with the ruling, the WTO allows other states to impose appropriate trade sanctions on the transgressor. 78) B

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Critics of globalization argue that despite the supposed benefits associated with free trade and investment, over the past 100 years or so the gap between the rich and poor nations of the world has gotten wider. In 2019, the 34 member states of the Organisation for Economic Cooperation and Development (OECD), which includes most of the world’s rich economies, had an average gross national income (GNI) per person of more than $40,000, whereas the world’s 40 least-developed countries had a GNI of under $1,000 per capita—implying that income per capita in the world’s 34 richest nations was 40 times that in the world’s 40 poorest. 79) D Free trade alone is a necessary, but not sufficient prerequisite to help HIPCs bootstrap themselves out of poverty. Instead, large-scale debt relief is needed for the world's poorest nations to give them the opportunity to restructure their economies and start the long climb toward prosperity. 80) B The richest nations of the world also can help by reducing barriers to the importation of products from the world’s poorest nations, particularly tariffs on imports of agricultural products and textiles. High-tariff barriers and other impediments to trade make it difficult for poor countries to export more of their agricultural production. 81) A All a firm has to do to engage in international business is export or import products from other countries. 82) E

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The managers in an international business must decide which foreign markets to enter and which to avoid. They must choose the appropriate mode for entering a particular foreign country. 83)Globalization refers to the shift toward a more integrated and interdependent world economy. One facet, the globalization of markets, refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to crossborder trade have made it easier to sell internationally. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping to create a global market. Consumer products such as Citigroup credit cards, Coca-Cola soft drinks, Sony PlayStation video games, McDonald's hamburgers, Starbucks coffee, IKEA furniture, and Apple iPhones are frequently held up as prototypical examples of this trend; they are also facilitators of it. By offering the same basic product worldwide, they help to create a global market. 84)The most global of markets are not typically markets for consumer products—where national differences in tastes and preferences can still be important enough to act as a brake on globalization. They are markets for industrial goods and materials that serve universal needs the world over. These include markets for commodities such as aluminum, oil, and wheat; for industrial products such as microprocessors, DRAMs (computer memory chips), and commercial jet aircraft; for computer software; and for financial assets, from U.S. Treasury bills to Eurobonds, and futures on the Nikkei index or the euro. That being said, it is increasingly evident that many newer high-technology consumer products, such as Apple’s iPhone, are being successfully sold the same way the world over.

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85)The International Monetary Fund (IMF) and the World Bank were both created in 1944 by 44 nations that met at Bretton Woods, New Hampshire. The IMF was established to maintain order in the international monetary system; the World Bank was set up to promote economic development. The IMF is the more controversial of the two sister institutions. The IMF is often seen as the lender of last resort to nation-states whose economies are in turmoil and whose currencies are losing value against those of other nations. IMF loans come with strings attached, however; in return for loans, the IMF requires nation-states to adopt specific economic policies aimed at returning their troubled economies to stability and growth. These requirements have sparked controversy. Some critics charge that the IMF's policy recommendations are often inappropriate; others maintain that by telling national governments what economic policies they must adopt, the IMF is usurping the sovereignty of nation-states. On the other hand, the World Bank has focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments (such as building dams or roads). 86) Another institution in the news is theGroup of Twenty (G20). Established in 1999, the G20 comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank. Collectively, the G20 represents 90 percent of global GDP and 80 percent of international global trade. Originally established to formulate a coordinated policy response to financial crises in developing nations, in 2008 and 2009 it became the forum through which major nations attempted to launch a coordinated policy response to the global financial crisis that started in America and then rapidly spread around the world, ushering in the first serious global economic recession since 1981.

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87)During the 1920s and 1930s, many of the world's nation-states erected formidable barriers to international trade and foreign direct investment. Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods. The typical aim of such tariffs was to protect domestic industries from foreign competition. One consequence, however, was "beggar thy neighbor" retaliatory trade policies, with countries progressively raising trade barriers against each other. Ultimately, this depressed world demand and contributed to the Great Depression of the 1930s. 88)The fact that the volume of world trade has been growing faster than world GDP implies several things. First, more firms are doing what Boeing does with the 777 and 787: dispersing parts of their production process to different locations around the globe to drive down production costs and increase product quality. Second, the economies of the world’s nation-states are becoming ever more intertwined. As trade expands, nations are becoming increasingly dependent on each other for important goods and services. Third, the world has become significantly wealthier in the last two decades. The implication is that rising trade is the engine that has helped pull the global economy along.

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89)The lowering of trade barriers made globalization of markets and production a theoretical possibility. Technological change has made it a tangible reality. Since the end of World War II, the world has seen major advances in communication, information processing, and transportation technology, including the explosive emergence of the Internet. Over the past 30 years, global communications have been revolutionized by developments in satellite, optical fiber, wireless technologies, and the Internet. These technologies rely on the microprocessor to encode, transmit, and decode the vast amount of information that flows along these electronic highways. Viewed globally, the Internet has emerged as an equalizer. It rolls back some of the constraints of location, scale, and time zones. The Internet makes it much easier for buyers and sellers to find each other, wherever they may be located and whatever their size. It allows businesses, both small and large, to expand their global presence at a lower cost than ever before. Just as important, it enables enterprises to coordinate and control a globally dispersed production system in a way that was not possible 25 years ago. In economic terms, the most important are probably the development of commercial jet aircraft and superfreighters and the introduction of containerization, which simplifies transshipment from one mode of transport to another. Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances.

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90)In addition to developments in communications technology, several major innovations in transportation technology have occurred since the 1950s. In economic terms, the most important are probably the development of commercial jet aircraft and superfreighters and the introduction of containerization, which simplifies transshipment from one mode of transport to another. Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances. Because the international shipping industry is responsible for carrying about 90 percent of the volume of world trade in goods, this has been an extremely important development. Before the advent of containerization, moving goods from one mode of transport to another was very labor intensive, lengthy, and costly. It could take days and several hundred longshore workers to unload a ship and reload goods onto trucks and trains. With the advent of widespread containerization in the 1970s and 1980s, the whole process can now be executed by a handful of longshore workers in a couple of days. As a result of the efficiency gains associated with containerization, transportation costs have plummeted, making it much more economical to ship goods around the globe, thereby helping drive the globalization of markets and production. 91)By the end of the 1980s, the U.S.’s position as the world’s leading trading nation was being challenged. Over the past 30 years, U.S. dominance in export markets has waned as Japan, Germany, and a number of newly industrialized countries such as South Korea and China have taken a larger share of world exports. During the 1960s, the United States routinely accounted for 20 percent of world exports of manufactured goods. The U.S. share of world exports of goods and services has slipped to 8.2 percent, significantly behind that of China.

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92)The world may be moving toward a more global economic system, but globalization is not inevitable. Countries may pull back from the recent commitment to liberal economic ideology if their experiences do not match their expectations. There are clear signs, for example, of a retreat from liberal economic ideology in Russia. If Russia's hesitation were to become more permanent and widespread, the liberal vision of a more prosperous global economy based on free market principles might not occur as quickly as many hope. Clearly, this would be a tougher world for international businesses. 93)Globalization opponents argue that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and Western Europe. Falling barriers allow firms to move manufacturing activities to countries where wage rates are much lower. Because of this, wage rates of poorer Americans have fallen significantly over the past quarter of a century. Supporters of globalization argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently.

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94)Emboldened by the experience in Seattle, antiglobalization protesters have made a habit of turning up at major meetings of global institutions. Smaller-scale protests have periodically occurred in several countries, such as France, where antiglobalization activists destroyed a McDonald’s restaurant in 1999 to protest the impoverishment of French culture by American imperialism. While violent protests may give the antiglobalization effort a bad name, it is clear from the scale of the demonstrations that support for the cause goes beyond a core of anarchists. Large segments of the population in many countries believe that globalization has detrimental effects on living standards, wage rates, and the environment. Indeed, the strong support for Donald Trump in the 2016 U.S. election was primarily based on his repeated assertions that trade deals had exported U.S. jobs overseas and created unemployment and low wages in America. Since taking office, Trump has pursued policies that have pushed back against globalization in its current form.

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95)Globalization critics argue that the decline in unskilled wage rates is due to the migration of low-wage manufacturing jobs offshore and a corresponding reduction in demand for unskilled workers. However, supporters of globalization see a more complex picture. They maintain that the weak growth rate in real wage rates for unskilled workers owes far more to a technology-induced shift within advanced economies away from jobs where the only qualification was a willingness to turn up for work every day and toward jobs that require significant education and skills. They point out that many advanced economies report a shortage of highly skilled workers and an excess supply of unskilled workers. Thus, growing income inequality is a result of the wages for skilled workers being bid up by the labor market and the wages for unskilled workers being discounted. In fact, evidence suggests that technological change has had a bigger impact than globalization on the declining share of national income enjoyed by labor. This suggests that a solution to the problem of slow real income growth among the unskilled is to be found not in limiting free trade and globalization but in increasing society’s investment in education to reduce the supply of unskilled workers. 96)Many of the world's poorest countries have suffered from totalitarian governments, economic policies that destroyed wealth rather than facilitated its creation, endemic corruption, scant protection for property rights, and prolonged civil war. Such factors help explain why countries such as Afghanistan, Cuba, Haiti, Iraq, Libya, Nigeria, Sudan, and North Korea have failed to improve the economic lot of their citizens during recent decades. A complicating factor is the rapidly expanding populations in many of these countries. Without a major change in government, population growth may exacerbate their problems.

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97) Managing an international business is challenging in many ways and involves a great deal of complexity. The managers of an international business must decide where in the world to site production activities to minimize costs and to maximize value added. They must decide whether it is ethical to adhere to the lower labor and environmental standards found in many less-developed nations. Then they must decide how best to coordinate and control globally dispersed production activities. The managers in an international business also must decide which foreign markets to enter and which to avoid. They must choose the appropriate mode for entering a particular foreign country. These managers must also deal with government restrictions on international trade and investment. They must find ways to work within the limits imposed by specific governmental interventions. 98)Managing an international business is different from managing a purely domestic business for at least four reasons: (1) countries are different, (2) the range of problems confronted by a manager in an international business is wider and the problems themselves are more complex than those confronted by a manager in a domestic business, (3) an international business must find ways to work within the limits imposed by government intervention in the international trade and investment system, and (4) international transactions involve converting money into different currencies.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The term political economy is used to stress the fact that the political, economic, and legal systems of a country are independent of each other and do not influence one another. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-01 Understand how the political systems of countries differ. Topic : Differences in Political Systems Gradable : automatic

2) One way to assess a political system is by understanding the emphasis on individualism or collectivism. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-01 Understand how the political systems of countries differ. Topic : Differences in Political Systems AACSB : Reflective Thinking Gradable : automatic

Plato equated collectivism with equality. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-01 Understand how the political systems of countries differ. Topic : Differences in Political Systems Gradable : automatic

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Karl Marx believed that in a capitalist society, the few benefit at the expense of the many. ⊚ true ⊚ false

5) The social democrats vowed to achieve socialism by turning their backs on revolution and dictatorship. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 02-01 Understand how the political systems of countries differ. Topic : Differences in Political Systems Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

By the mid-1930s, communism had reached its highest point in history. ⊚ true ⊚ false

7) Under the tenets of individualism, citizens should have freedom to choose their own economic and political pursuits. Version 1

⊚ ⊚

true false

Question Details Accessibility : Keyboard Navigation Learning Objective : 02-01 Understand how the political systems of countries differ. Topic : Differences in Political Systems AACSB : Reflective Thinking Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

8) The Cold War can be thought of as a war between collectivism, championed by the former Soviet Union, and individualism, championed by the United States. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 02-01 Understand how the political systems of countries differ. Topic : Differences in Political Systems Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

9) In a totalitarian country, all the constitutional guarantees on which representative democracies are built—an individual's right to freedom of expression and organization, a free media, and regular elections—are denied to the citizens. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 02-01 Understand how the political systems of countries differ. Topic : Differences in Political Systems Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

10)

One identifier of a democratic state is a nonpolitical police force.

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⊚ ⊚

true false

11) The governments of China, Vietnam, and Laos are communist nations, but they have adopted wide-ranging, market-based economic reforms. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-01 Understand how the political systems of countries differ. Topic : Differences in Political Systems Gradable : automatic

12)

The most common form of theocratic totalitarianism is Judaism. ⊚ true ⊚ false

13) In a pure command economy, the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold are all dictated by the interaction of demand and supply. Version 1

⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-02 Understand how the economic systems of countries differ. Topic : Differences in Economic Systems Gradable : automatic

14) Businesses in a command economy have little incentive to be efficient because they cannot go out of business. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-02 Understand how the economic systems of countries differ. Topic : Differences in Economic Systems Gradable : automatic

15)

A common law system is based on tradition and precedent. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Differences in Legal Systems Gradable : automatic

16) past.

In a common law system, tradition refers to cases that have come before the courts in the

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⊚ ⊚

true false

17) Judges under a civil law system have less flexibility than those under a common law system. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Civil Law, Common Law, and Theocratic Law Gradable : automatic

18) Islamic law is primarily a moral rather than a commercial law and is intended to govern all aspects of life. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Civil Law, Common Law, and Theocratic Law Gradable : automatic

19) Contracts in a common law system tend to be shorter and less detailed than those created in a civil law system. Version 1

⊚ ⊚

true false

20) By adopting the Contracts for the International Sale of Goods (CISG), a nation signals to other adopters that it will treat the convention's rules as part of its law. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Resolving International Business Disputes Gradable : automatic

21) When firms do not wish to accept the Contracts for the International Sale of Goods, they often opt for arbitration by a recognized arbitration court to settle contract disputes. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Differences in Legal Systems Gradable : automatic

22) A textbook author would apply for a trademark to obtain the exclusive legal rights associated with their written piece. Version 1

⊚ ⊚

true false

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Differences in Legal Systems Gradable : automatic

23)

When considering the violation of property rights, blackmail is a form of public action. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Differences in Legal Systems Gradable : automatic

24)

An example of public action is when a government official extorts income. ⊚ true ⊚ false

25) The benefits, costs, and risks associated with doing business in a country are independent of that country's political, economic, and legal systems. ⊚ true ⊚ false Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-04 Explain the implications for management practice of national differences i Topic : Risks Associated with Global Capital Markets Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) A country’s __________ system is a part of the political economy. A) religious B) value C) demographic D) legal E) technological

27)

A political system that promotes activity “for the good of society” is based on A) democratic principles. B) individualism. C) public action. D) collectivism. E) private action.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 02-01 Understand how the political systems of countries differ. Topic : Differences in Political Systems Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

28) Some countries downplay individual goals and emphasize the collective goals of the country. These political system stress A) democracy. B) collectivism. C) individualism. D) capitalism. E) privatization.

29) The needs of society as a whole are generally viewed as being more important than individual freedoms when the emphasis is on A) democracy. B) collectivism. C) individualism. D) capitalism. E) privatization.

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30) On an island nation, citizens are restricted in how much land they can own if it creates opposition to the rule of the “common good.” What is the political system of the island based on? A) individualism B) democracy C) collectivism D) capitalism E) protectionism

31) Karl Marx promoted the idea of a(n) __________ society in which the state owned the means of production, distribution, and exchange. A) socialist B) capitalist C) individualist D) monarchist E) feudalist

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32)

Modern socialism traces its intellectual roots to A) Aristotle B) David Hume C) Karl Marx. D) Adam Smith. E) Milton Friedman.

33) Karl Marx believed that the way to correct the economic inequalities in a capitalist society was to A) enforce high tariffs on imports. B) promote exports but defer imports. C) sell state-owned enterprises to private investor D) have state ownership as the basic means of production. E) expropriate funds from nation-states.

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34) In the early twentieth century, the socialist ideology split into two broad camps and the people who believed that socialism could be achieved only through violent revolution and totalitarian dictatorship were referred to as A) communists B) capitalists C) democrats D) individualists E) anarchists

35) A group calling itself the "Change Brotherhood" sought to convert a socialist country by democratic means. The "Change Brotherhood" is an example of A) communists B) democrats C) republicans D) social democrats. E) ideological democrats.

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36) Those who attempt to achieve the same ideologies as that of the communists without violent revolution and totalitarian dictatorship are called A) pure capitalists. B) social democrats. C) individualists D) anarchists E) aristocrats

37)

Karl Marx would disagree with which of these ideas? A) concern over public good rather than private profit B) monopoly of state-owned companies in certain industries C) opposing the ideologies of capitalist societies D) substantial limits on individual political freedom E) selling state-owned enterprises to private investors

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38) Today, communism, which includes state control over all economic activity, is the political norm mainly found in A) countries throughout Europe and Asia. B) small pockets of the United States and Japan. C) small fringe nations. D) eastern Europe. E) large Westernized countries.

39)

The sale of state-owned enterprises to independent, nonpublic investors is referred to as A) privatization. B) nationalization. C) collectivism. D) communalism. E) public action.

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40) The Greek philosopher Aristotle argued for diversity and private ownership. This laid the groundwork for A) collectivism. B) individualism. C) socialism. D) totalitarianism. E) communism.

41) A government of a European nation believes that its citizens should have complete freedom in their economic and political pursuits, and the ideology is "private profit over public good." It can be said that this nation follows the philosophy of A) totalitarianism. B) socialism. C) individualism. D) communism. E) Marxism.

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42) Which concept laid the groundwork for the concepts expressed in the Declaration of Independence? A) private ownership B) individualism C) socialism D) the greater good E) collectivism

43)

A nation based on individualism would agree that A) communal property is more highly productive than private property. B) public good should be preferred over private profit. C) state-owned companies should monopolize certain industries. D) the welfare of society is best served by some collective body such as government. E) self-expression must be guaranteed.

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44)

What is the central message of individualism? A) State-owned entities are more profitable for the common good. B) Individuals rely on government to organize society. C) Individual economic and political freedoms are the rules on which a society should be

based. D) The few should benefit at the expense of the many. E) Harmony can only be achieved by turning our backs on dictatorships.

45)

Democracy, in its purest form, is based on the belief that A) citizens should be directly involved in decision making. B) political freedom of the citizens should be limited. C) citizens are responsible for their own economic health and thus need no government. D) individual freedom in the economic sphere should be restricted. E) one person should have an absolute control over all the citizens of a nation.

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46) Which form of government involves one person or political party that exercises absolute control over all spheres of human life and prohibits opposing political parties? A) capitalism B) totalitarianism C) pure democracy D) republicanism E) representative democracy

47)

What is one characteristic of a representative democracy? A) all enterprises are state-owned B) a single-house legislature C) a lack of intellectual property laws D) a court system that is linked to the political system E) citizens periodically elect individuals to act on their behalf

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48)

Totalitarian states usually have A) free and fair elections. B) free access to state information. C) all the basic civil liberties for citizens. D) the right to freedom of expression and organization. E) a lack of free and fair elections.

49)

What is an accurate depiction of the current state of communism?

A) It is typically found in states that govern according to religious principles. B) It operates at the same level it did in the 1950s. C) Communism is in decline worldwide. D) Communism today generally permits some individual economic freedom but restricts political freedom. E) It is growing at an alarming rate.

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50) Nations that limit the freedom of religious expression with laws based on religious principles follow the political system of A) theocratic totalitarianism. B) communist totalitarianism. C) right-wing totalitarianism. D) pure democracy. E) representative democracy.

51) A totalitarian political system in which a party, group, or individual that represents the interests of a particular tribe monopolizes political power is referred to as A) theocratic totalitarianism. B) communist totalitarianism. C) right-wing totalitarianism. D) tribal totalitarianism. E) democratic totalitarianism.

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52)

Right-wing totalitarianism restricts political freedom to inhibit the rise of A) a pure democracy. B) communism. C) free market capitalism. D) representative democracy. E) tribal totalitarianism.

53)

The fascist regimes that ruled Germany and Italy in the 1930s and 1940s had adopted A) right-wing totalitarianism. B) theocratic totalitarianism. C) representative democracy. D) pure democracy. E) totalitarian democracy.

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54)

A common feature of many right-wing dictatorships is A) total restriction on individual economic freedom. B) strong commitment to socialist or communist ideas. C) governments that are made up of military officers. D) politicians from a particular tribe dominating the political system. E) the direct involvement of the citizens in decision making.

55)

What are the three broad forms of economic systems? A) laissez-faire, authoritarian, egalitarian B) market, command, and mixed C) local, state, federal D) ethical, political, radical E) individualist, collectivist, majoritarian

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 02-02 Understand how the economic systems of countries differ. Topic : Differences in Economic Systems Gradable : automatic

56) An economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced is called a __________ system. A) barter B) command C) market D) regulated E) centrally planned

57) In order for a market economy to work, it is important that supply of a product must not be restricted by a producer. In other words, __________ must be banned. A) entrepreneurism B) start-ups C) monopolies D) globalization E) nationalism

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58) Countries in which the government plans the production of goods and services and also the prices of these items operate in a(n) __________ economy. A) mixed B) market C) egalitarian D) command E) majoritarian

59) In what type of economy are all businesses state-owned, the rationale being that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals? A) free market B) deregulated C) pure command D) mixed E) laissez-faire

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60)

In comparison to market economies, command economies lack A) government interference in allocation of resources. B) dynamism and innovation. C) concern for the interests of the nation. D) commitment to communism. E) any opposition to private ownership.

61) In a __________ economy, certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning. A) command B) pure market C) mixed D) centrally planned E) laissez-faire

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62) In 2008, the U.S. government stepped in to help some failing financial institutions to prevent further collapse of the economy. Typically, the U.S. government does not interfere in these situations. This activity indicates that the U.S. operates under a __________ economy. A) command B) centrally planned C) pure market D) mixed E) laissez-faire

Question Details Accessibility : Keyboard Navigation Learning Objective : 02-02 Understand how the economic systems of countries differ. Topic : Differences in Economic Systems Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

63)

When comparing the three broad types of economic systems, it can be said that

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A) for a pure market economy to function efficiently, product supply must be restricted. B) in a command economy, state-owned enterprises have little incentive to control costs and be efficient. C) the sole role of government in a command economy is to encourage vigorous free and fair competition between private producers. D) mixed economies were once uncommon throughout much of the world, although they are becoming more popular now. E) production in command economies is determined by the interaction of supply and demand and signaled to producers through the price system.

64) A European government took Scottish Alliance, a domestic energy firm, into state ownership to save the company from bankruptcy. However, the other private competitors in the energy industry were enraged by this decision. As a result, the government had to reduce the tax burden on all private energy firms so that both the state-owned enterprise and private firms could coexist. What type of economy does this portray? A) mixed B) market-based C) command D) laissez-faire E) communist

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Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Learning Objective : 02-02 Understand how the economic systems of countries differ. Topic : Differences in Economic Systems Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

65) Collectivist-inclined totalitarian states tend to enact laws that severely restrict private enterprises, while laws enacted by governments in democratic states, where individualism is the dominant political philosophy, tend to be pro-private enterprise and pro-consumer. This indicates that the A) economic system of a country is independent of its legal system. B) legal system of a country is not influenced by the prevailing political system. C) legal system does not affect the attractiveness of a country as an investment site or market. D) all countries have the same legal environments. E) the legal framework of a country reflects the rulers' dominant political ideology.

66) The __________ system of a country encompasses the process through which redress for grievances is obtained. A) economic B) theocratic C) legal D) demographic E) political

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67)

Which legal system evolved in England over hundreds of years? A) common law B) civil law C) autocracy law D) monarchy law E) universal law

68) Nolan is a lawyer representing Killian Auto Group in a lawsuit. During the trial, Nolan referred to a court case from twenty years ago and asked the witness if she felt Killian Auto Group had acted in a similar manner as the company in the previous case. When Nolan referred to the previous court case, he was relying on __________ to make his case. A) tradition B) precedent C) custom D) interpretation E) culture

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Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Civil Law, Common Law, and Theocratic Law Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

69) The common law system enjoys a degree of flexibility not found in other systems because A) it is usually found in democratic republics. B) it originated from Great Britain and can be found in almost all of its former colonies. C) it is interpreted by the law courts with regard to tradition, precedent, and custom. D) it is based on a detailed set of laws organized into codes. E) it has originated recently—just a decade ago.

70) A __________ law system relies on a detailed set of laws organized into codes to interpret the law. A) civil B) theocratic C) common D) traditional E) religious

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71)

Under a civil law system, it is the responsibility of a judge only to __________ the law. A) create B) apply C) assess D) interpret E) update

72)

What is the most widely practiced theocratic legal system in the modern world? A) Christian law B) Islamic law C) Jewish law D) Hindu law E) Buddhist law

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73)

Theocratic law systems are based on A) legal precedent. B) a detailed set of codes and laws. C) religious teachings. D) beliefs of a tribe. E) beliefs of the ruling class.

74)

The Koran and the Sunnah provide the basic foundation of __________ law. A) Christian B) civil C) common D) Islamic E) Jewish

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75) In order to purchase the parts from its supplier, Fromer Manufacturing had to agree with all of the terms set forth in the document the supplier provided which detailed the rights and obligations, of the supplier and Fromer Manufacturing’s rights and obligations. This document is a type of A) invoice B) bill of sale C) contract D) white paper E) precedent

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Differences in Legal Systems Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

76)

When comparing contracts in common law and civil law systems, it can be said that

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A) contracts drafted under a common law system tend to be longer than those drafted under a civil law system. B) contracts drafted under a civil law system tend to be more specific than those drafted under a common law system. C) it is more expensive to draw up contracts in a civil law system than in a common law system. D) resolving contract disputes tends to be less adversarial in common law systems than in civil law systems. E) civil law systems allow for judges to interpret a contract dispute, but this feature is absent in common law systems.

77) The United Nations created CISG in response to __________ that occur in international trade. A) contract disputes B) environmental concerns C) political uprisings D) tariff differences E) foreign exchange rates

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78) When firms do not wish to accept the rules of the CISG, what do they often opt for to settle contract disputes? A) UN involvement B) arbitration C) collective bargaining D) common law system of the United States E) Islamic law

79) When considering the legal use of the word, __________ is the term given to a resource over which an individual or business holds a legal title. A) liability B) contract C) shareholder D) property E) possession

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80)

Theft, piracy, and blackmail by private individuals or groups are examples of A) private consumption. B) private practice. C) privacy tort. D) private action. E) privacy norms.

81) After the collapse of communism in Russia, successful business owners often had to pay "protection money" to the mafia or face violent retribution. In the context of property rights, the behavior of the mafia is an example of A) active violation. B) public action. C) private action. D) boundary spanning. E) industrial espionage.

82)

Which scenario is an example of private action?

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A) the government of Canada levying excessive taxes B) the Brazilian government requiring expensive licenses or state permits from private property holders C) a communist government taking assets into state ownership without compensating the owners D) government bureaucrats demanding bribes from businesses in return for the rights to operate manufacturing facilities in a country E) business owners in the interactive video industry stealing their competitors' trade secrets and intellectual properties

Question Details Accessibility : Keyboard Navigation Learning Objective : 02-03 Understand how the legal systems of countries differ. Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Topic : Property Rights and Intellectual Property Rights Gradable : automatic

83)

Which situation exemplifies public action?

A) the mafia in a South American country demanding "protection money" from successful domestic business owners B) proprietors in a South American country in the hospitality industry complaining about protection rackets by criminal groups C) government bureaucrats demanding bribes from international businesses in return for the right to operate in a South American country D) a South American government being criticized for its inability to curb theft of trade secrets of international businesses by private domestic owners E) a South American government allowing movies to be made tax-free, based on the country’s history, to promote its culture

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Question Details Accessibility : Keyboard Navigation Learning Objective : 02-03 Understand how the legal systems of countries differ. Topic : Differences in Legal Systems Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

84) Future Electric Corp. wants to establish operations in Europe but decides against it when officials demand a bribe in order for the company to open the office. This bribe is an example of A) a market economy. B) a laissez-faire policy. C) a public action. D) a mixed economy. E) a private action.

85) Which term best represents the relationship between the level of corruption and economic growth rate in a country? A) directly proportional B) inversely proportional C) independent D) positive correlation E) zero correlation

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86) In the United States, the Foreign Corrupt Practices Act was passed during the 1970s following revelations that A) U.S. companies had bribed government officials in foreign countries in an attempt to win lucrative contracts. B) U.S. companies were involved in bribing U.S. government officials in cases related to major corporate and accounting scandals. C) U.S. government bureaucrats demanded bribes from U.S. companies in return for a permit to operate in a foreign country. D) several companies were selling their products at lower prices in foreign countries than in the United States. E) successful business owners in the United States often had to pay "protection money" to the Mafia or face violent retribution.

87) Shondra Watson, a U.S.-based business executive, paid the equivalent of $30 to an official of a European country to expedite the overnight delivery of critical documents necessary to expedite a work permit. When questioned, Shondra claimed this was a way to facilitate the performance of an obligation that was already agreed upon. The $30 is an example of

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A) an under-the-table payment. B) a bribe. C) a violation of the Foreign Corrupt Practices Act. D) an inappropriate payment. E) a grease payment.

88)

Grease payments or speed money are allowable under U.S. law to expedite the A) implementation of a new government office. B) incoming federal income tax. C) performance of a routine government action. D) creation of new state-owned business. E) breach of the rule of law.

89)

In which of these situations is Mercury Fiber Inc. using a grease payment?

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A) Mercury Fiber Inc. paid a fine of $1,000 for violating the labor laws in a foreign country. B) Mercury Fiber Inc. made a small payment of $35 to speed up some paperwork related to tax returns in a less-developed country. C) The proprietor of Mercury Fiber Inc. made payments to the Mafia as a protection against violent retribution. D) Mercury Fiber Inc. gave gift vouchers to all its product wholesalers in order to promote the product. E) Mercury Fiber Inc. made an unrecorded payment to one of its accountants in return for window dressing the company's accounts.

90) Max Williamson invented a self-sealing food storage container and in order to protect his intellectual property should secure a __________ on this product. A) patent B) trademark C) grease payment D) permit E) copyright

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91) Products of the mind, such as computer software, a screenplay, a music score, or the chemical formula for a new drug, constitute A) assets which receive no protection under law. B) non-performing assets. C) tangible assets. D) intellectual property. E) real property.

92) Hillson Incorporated, a multinational giant, runs a number of diversified businesses. The intellectual property of the firm would include A) income arising from renting land and buildings. B) profits arising from the sale of agricultural crops. C) interest earned by lending capital to other firms. D) all computer software for budgeting designed by employees. E) investments made in raw materials and machinery.

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93) Jeremy invented a portable blood pressure machine that has generated some interest from major medical supply retailers. Before he agrees to work with the retailers, he wants to protect his invention so it is his sole property to manufacture and sell. What does Jeremy need to help him do this? A) copyright B) trademark C) patent D) warranty E) service mark

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Learning Objective : 02-03 Understand how the legal systems of countries differ. Bloom's : Apply Difficulty : 3 Hard Topic : Property Rights and Intellectual Property Rights Gradable : automatic

94) Big Top Boxes has developed a new type of recycled packaging. Which type of legal protections can grant the company exclusive rights for a defined period to the manufacture, use, or sale of the new packaging? A) warrant B) patent C) copyright D) trademark E) writ

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95) A composer can protect an original musical score from being copied and sold by someone else by acquiring a(n) A) patent B) warrant C) trademark D) copyright E) affidavit

96)

Which of these items can be protected by a copyright? A) new manufacturing process invented in a company B) newly invented telecommunication device C) tangible property like land and building D) music composed by a composer E) new type of car invented by an automobile company

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97) The distinctive Nike logo can only be used on sports equipment produced by Nike. What protects the Nike logo from being used by another manufacturer? A) trademark B) affidavit C) patent D) warrant E) contract

98)

Intellectual property laws protect A) the originator of a new invention. B) government officials when travelling to foreign countries. C) the parts supplier in an international transaction. D) individuals who want to open a franchise of a retail store. E) a company from losing business to a monopoly.

99) While he was shopping for new clothes, Sanjay noticed there was a sale on shirts by Tommy Hilfiger. The Tommy Hilfiger name is an officially registered __________ in menswear clothing.

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A) intellectual property B) patent C) contract D) copyright E) trademark

100) All of the books in a library have a __________, which shows the exclusive legal rights of the author of the book. A) copyright B) trademark C) libel D) patent E) folkway

101)

The strong enforcement of intellectual property laws helps to

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A) reduce the piracy (theft) of intellectual property. B) reduce the attractiveness of a country as a market or investment site. C) reduce the investments made by companies on basic research. D) limit creativity and innovation among people. E) prohibit a company from having a monopoly over its breakthrough inventions.

102)

Ultimately, product safety and product liability laws are in place to protect A) intellectual property rights. B) companies from their domestic competitors. C) companies from their foreign competitors. D) consumers. E) product inventors.

103) Product __________ law holds a firm and its officers responsible when a product causes injury, death, or damage.

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A) equity B) consumption C) liability D) parity E) testing

104) A boom in product liability suits and awards in the United States resulted in a dramatic increase in the cost of liability insurance. Many business executives argue that this A) makes American businesses less competitive in the global marketplace. B) offers American businesses greater protection from foreign competitors. C) exposes consumers to greater product risks. D) eventually makes it cheaper for foreign companies to do business in the United States. E) discourages American companies from outsourcing jobs to less-developed countries.

105) Jenner works for a mountain bike manufacturing company. His company is being sued by hundreds of customers who have been injured when the front wheel of the Columbia 4X model becomes loose and makes the bike difficult to control. The customers are demanding monetary damages. This lawsuit is based on

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A) facilitating payments. B) intellectual property rights. C) criminal law. D) product liability. E) patent violations.

106)

Which of these individuals can claim product liability from the offender?

A) Brett wants to sue a multinational company for mass manufacturing one of his inventions without purchasing the rights. B) Nora’s patented earring designs have been imitated and sold at a low price under her brand name. C) The steering wheel on Geoff’s compact car malfunctioned while still under warranty and caused him to crash. D) Connor has accused his employer of forcing him and his teammates to work in an unsafe environment E) Veronica claims that her neighbor has stolen valuable antiques from her house.

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107) Racquel has dry patches on the back of her hands after using a psoriasis serum manufactured by LMC Pharmaceutical. She learned that the serum’s steroid levels were beyond the standard levels permitted by the government and the damage caused is irreversible. Which standards will address Racquel’s grievances? A) laws related to property rights B) product liability laws C) intellectual property laws D) Foreign Corrupt Practices Act E) Sarbanes-Oxley Act

108)

A nation that has __________ would be unappealing as a place for doing business. A) a market-based economic system B) a strong legal system C) a democratic political institution D) strong property rights E) a totalitarian political system

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-04 Explain the implications for management practice of national differences i Topic : Basic Decisions for Entering Foreign Markets Gradable : automatic

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109) If a country wants to improve its attractiveness as a place for doing business and as an investment site, it should A) oppose the rule of law. B) ensure that the economic activity is heavily regulated by the state. C) move toward a market-based system. D) extensively restrict property rights. E) avoid enforcing intellectual property laws.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-04 Explain the implications for management practice of national differences i Topic : Basic Decisions for Entering Foreign Markets Gradable : automatic

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 110) What are the basic differences between a democratic and a totalitarian government? Explain how the dimensions of individualism and collectivism play a role in these types of government.

111)

Discuss the origins of collectivism.

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112)

Discuss a market economy and describe the role of a consumer in this type of economy.

113)

Discuss why command economies tend to stagnate.

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-02 Understand how the economic systems of countries differ. Topic : Differences in Economic Systems Gradable : manual

114)

Compare the characteristics of a civil law system to a common law system.

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115)

Describe the significance of Contracts for the International Sale of Goods (CISG).

116)

Compare how property rights can be subject to private action and public action.

117)

Describe the Foreign Corrupt Practices Act.

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118) Describe how intellectual property rights vary from one country to the next. How is this demonstrated in China and Thailand?

119)

How do patents, copyrights, and trademarks differ from each other?

120) Discuss how the computer software industry has been affected by the poor enforcement of intellectual property rights.

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121)

Discuss the role of civil and criminal laws in product liability claims.

122) With all other things being equal, which form of political, economic, and legal system is best to do business in?

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Bloom's : Understand Difficulty : 2 Medium Learning Objective : 02-04 Explain the implications for management practice of national differences i Topic : Factors Affecting the Location of Production Activities Gradable : manual

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Answer Key Test name: Hill_2 1) FALSE We use the termpolitical economy to stress that the political, economic, and legal systems of a country are interdependent; they interact and influence each other, and in doing so they affect the level of economic well-being. 2) TRUE By political system, we mean the system of government in a nation. Political systems can be assessed according to two dimensions. The first is the degree to which they emphasize collectivism as opposed to individualism. The second is the degree to which they are democratic or totalitarian. 3) FALSE 4) TRUE Modernsocialists trace their intellectual roots to Karl Marx (1818–1883), although socialist thought clearly predates Marx (elements of it can be traced to Plato). Marx argued that the few benefit at the expense of the many in a capitalist society where individual freedoms are not restricted. 5) TRUE 6) FALSE 7) TRUE 8) TRUE 9) TRUE 10) TRUE 11) TRUE

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12) FALSE 13) FALSE 14) TRUE 15) TRUE The common law system evolved in England over hundreds of years. It is now found in most of Great Britain’s former colonies, including the United States.Common law is based on tradition, precedent, and custom.Tradition refers to a country’s legal history,precedent to cases that have come before the courts in the past, andcustom to the ways in which laws are applied in specific situations. 16) FALSE Tradition refers to a country’s legal history,precedent to cases that have come before the courts in the past, andcustom to the ways in which laws are applied in specific situations. 17) TRUE 18) TRUE 19) FALSE 20) TRUE 21) TRUE 22) FALSE 23) FALSE 24) TRUE Public action to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from property holders. 25) FALSE 26) D

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Collectively we refer to the political, economic, and legal systems as constituting the political economy of a country. This emphasizes the fact that the political, economic, and legal systems of a country are interdependent; they interact and influence each other, and in doing so they affect the level of economic well-being. 27) D When collectivism is emphasized, the needs of society as a whole are generally viewed as being more important than individual freedoms. In such circumstances, an individual’s right to do something may be restricted on the grounds that it runs counter to “the good of society” or to “the common good.” 28) B Collectivism refers to a political system that stresses the primacy of collective goals over individual goals. When collectivism is emphasized, the needs of society as a whole are generally viewed as being more important than individual freedoms. 29) B Collectivism refers to a political system that stresses the primacy of collective goals over individual goals. When collectivism is emphasized, the needs of society as a whole are generally viewed as being more important than individual freedoms. 30) C Collectivism refers to a political system that stresses the primacy of collective goals over individual goals. In such circumstances, an individual's right to do something may be restricted on the grounds that it runs counter to "the good of society" or to "the common good." 31) A

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A socialist society is one in which the state owns the means of production, distribution, and exchange. 32) C Modern socialism traces its intellectual roots to Karl Marx (1818–83), although socialist thought clearly predates Marx. 33) D According to Marx, the pay of workers does not reflect the full value of their labor. To correct this perceived wrong, Marx advocated state ownership of the basic means of production, distribution, and exchange (i.e., businesses). His logic was that if the state owned the means of production, the state could ensure that workers were fully compensated for their labor. 34) A In the early twentieth century, the socialist ideology split into two broad camps. The communists believed that socialism could be achieved only through violent revolution and totalitarian dictatorship. 35) D In the early twentieth century, the socialist ideology split into two broad camps. The communists believed that socialism could be achieved only through violent revolution and totalitarian dictatorship. In contrast, social democrats committed themselves to achieving socialism by democratic means, turning their backs on violent revolution and dictatorship. 36) B Social democrats committed themselves to achieving socialism by democratic means. 37) E

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Karl Marx advocated state ownership of the basic means of production, distribution, and exchange (i.e., businesses). His logic was that if the state owned the means of production, the state could ensure that workers were fully compensated for their labor. 38) C Although China is still nominally a communist state with substantial limits to individual political freedom, in the economic sphere the country has moved sharply away from strict adherence to communist ideology. Old-style communism, with state control over all economic activity, hangs on in only a handful of small fringe states, most notably North Korea. 39) A Privatization involves the sale of state-owned enterprises to private investors. 40) B Individualism can be traced to the ancient Greek philosopher Aristotle. 41) C Individualism stresses that the interests of the individual should take precedence over the interests of the state. 42) B Individualism exercised a profound influence on those in the American colonies that sought independence from Great Britain. Indeed, the concept underlies the ideas expressed in the Declaration of Independence. 43) E

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Individualism is built on two central tenets. The first is an emphasis on the importance of guaranteeing individual freedom and self-expression. The second tenet of individualism is that the welfare of society is best served by letting people pursue their own economic self-interest, as opposed to some collective body (such as government) dictating what is in society’s best interest. 44) C The central message of individualism, therefore, is that individual economic and political freedoms are the ground rules on which a society should be based. This puts individualism in conflict with collectivism. 45) A The pure form of democracy, as originally practiced by several citystates in ancient Greece, is based on a belief that citizens should be directly involved in decision making, which is impractical in modern democratic states with populations in the tens or hundreds of millions. 46) B Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties. 47) E In a representative democracy, citizens periodically elect individuals to represent them. These elected representatives then form a government whose function is to make decisions on behalf of the electorate. 48) E In most totalitarian states, political repression is widespread, free and fair elections are lacking, media are heavily censored, and basic civil liberties are denied.

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49) C Communism, however, is in decline worldwide, and most of the Communist Party dictatorships have collapsed since 1989. 50) A A political system in which political power is monopolized by a party, group, or individual that governs according to religious principles is referred to as theocratic totalitarianism. 51) D Tribal totalitarianism refers to a political system in which a party, group, or individual that represents the interests of a particular tribe (ethnic group) monopolizes political power. Tribal totalitarianism has arisen from time to time in African countries such as Zimbabwe, Tanzania, Uganda, and Kenya. 52) B Right-wing totalitarianism generally permits individual economic freedom but restricts individual political freedom on the grounds that it would lead to the rise of communism. 53) A The fascist regimes that ruled Germany and Italy in the 1930s and 1940s were right-wing totalitarian states. 54) C A common feature of many right-wing dictatorships is an overt hostility to socialist or communist ideas. Many right-wing totalitarian governments are backed by the military, and in some cases the government may be made up of military officers. 55) B

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We can identify three broad types of economic systems: a market economy, a command economy, and a mixed economy. 56) C A market economy is an economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced. 57) C For a market to work in this manner, supply must not be restricted. A supply restriction occurs when a single firm monopolizes a market. In such circumstances, rather than increase output in response to increased demand, a monopolist might restrict output and let prices rise. Given the dangers inherent in monopoly, one role of government in a market economy is to encourage vigorous free and fair competition between private producers. Governments do this by banning restrictive business practices designed to monopolize a market. 58) D In a purecommand economy, the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold. 59) C In a pure command economy, all businesses are state-owned, the rationale being that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals. 60) B

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In a command economy, state-owned enterprises have little incentive to control costs and be efficient because they cannot go out of business. Also, the abolition of private ownership means there is no incentive for individuals to look for better ways to serve consumer needs; hence, dynamism and innovation are absent from command economies. 61) C In a mixed economy, certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning. 62) D In mixed economies, governments sometimes tend to take into state ownership troubled firms whose continued operation is thought to be vital to national interests. In 2008 the U.S. government took an 80 percent stake in AIG to stop that financial institution from collapsing, the theory being that if AIG did collapse, it would have very serious consequences for the entire financial system. The U.S. government usually prefers market-oriented solutions to economic problems, and in the AIG case, the intention was to sell the institution back to private investors as soon as possible. 63) B In a command economy, state-owned enterprises have little incentive to control costs and be efficient, because they cannot go out of business. 64) A

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In a mixed economy, certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning. In mixed economies, governments also tend to take into state ownership troubled firms whose continued operation is thought to be vital to national interests. 65) E The government of a country defines the legal framework within which firms do business, and often the laws that regulate business reflect the rulers' dominant political ideology. For example, collectivist-inclined totalitarian states tend to enact laws that severely restrict private enterprise, whereas the laws enacted by governments in democratic states where individualism is the dominant political philosophy tend to be pro-private enterprise and pro-consumer. 66) C Thelegal system of a country refers to the rules, or laws, that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained. 67) A The common law system evolved in England over hundreds of years. Common law is based on tradition (a country's legal history), precedent (cases that have come before the courts in the past), and custom (the ways in which laws are applied in specific situations). 68) B Common law is based on tradition, precedent, and custom.Tradition refers to a country’s legal history,precedent to cases that have come before the courts in the past, andcustom to the ways in which laws are applied in specific situations. Version 1

69) C Common law is based on tradition, precedent, and custom. Judges in a common law system have the power to interpret the law so that it applies to the unique circumstances of an individual case. In turn, each new interpretation sets a precedent that may be followed in future cases. As new precedents arise, laws may be altered, clarified, or amended to deal with new situations. 70) A A civil law system is based on a detailed set of laws organized into codes. 71) B Judges in a common law system have the power to interpret the law, whereas judges in a civil law system have the power only to apply the law. 72) B Islamic law is the most widely practiced theocratic legal system in the modern world. 73) C Atheocratic law system is one in which the law is based on religious teachings. 74) D The foundation for Islamic law is the holy book of Islam, the Koran, along with the Sunnah, or decisions and sayings of the Prophet Muhammad, and the writings of Islamic scholars who have derived rules by analogy from the principles established in the Koran and the Sunnah. 75) C

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A contract is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved. Many business transactions are regulated by some form of contract. 76) A Because common law tends to be relatively ill specified, contracts drafted under a common law framework tend to be very detailed with all contingencies spelled out. 77) A When contract disputes arise in international trade, there is always the question of which country's laws to apply. To resolve this issue, a number of countries have ratified the United Nations Convention on Contracts for the International Sale of Goods (CISG), which establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations. 78) B When firms do not wish to accept the CISG, they often opt for arbitration by a recognized arbitration court, like the International Court of Arbitration of the International Chamber of Commerce in Paris, to settle disputes. 79) D In a legal sense, the termproperty refers to a resource over which an individual or business holds a legal title, that is, a resource that it owns. 80) D Private action refers to theft, piracy, blackmail, and the like by private individuals or groups.

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81) C Private action refers to theft, piracy, blackmail, and the like by private individuals or groups. Although theft occurs in all countries, a weak legal system allows for a much higher level of criminal action in some than in others. 82) E Private action refers to theft, piracy, blackmail, and the like by private individuals or groups. 83) C Public action to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from property holders. 84) C Public action to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from property holders. It can also be done through illegal means, or corruption, by demanding bribes from businesses in return for the rights to operate in a country, industry, or location. 85) B Economic evidence suggests that high levels of corruption significantly reduce the foreign direct investment, level of international trade, and economic growth rate in a country. 86) A In the 1970s, the United States passed the Foreign Corrupt Practices Act following revelations that U.S. companies had bribed government officials in foreign countries in an attempt to win lucrative contracts.

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87) E Both the U.S. law and OECD convention include language that allows for exceptions known as facilitating or expediting payments (also called grease payments or speed money), the purpose of which is to expedite or to secure the performance of a routine governmental action. 88) C Both the U.S. law and OECD convention include language that allows for exceptions known as facilitating or expediting payments (also called grease payments or speed money), the purpose of which is to expedite or to secure the performance of a routine governmental action. 89) B Both the U.S. law and OECD convention include language that allows for exceptions known as facilitating or expediting payments (also called grease payments or speed money), the purpose of which is to expedite or to secure the performance of a routine governmental action. 90) A Apatent grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention.Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit.Trademarks are designs and names, officially registered, by which merchants or manufacturers designate and differentiate their products. 91) D Intellectual property refers to property that is the product of intellectual activity, such as computer software, a screenplay, a music score, or the chemical formula for a new drug. 92) D Version 1

Intellectual property refers to property that is the product of intellectual activity, such as computer software, a screenplay, a music score, or the chemical formula for a new drug. 93) C A patent grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention. 94) B A patent grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention. 95) D Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit. 96) D Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit. 97) A Trademarks are designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products. 98) A The philosophy behind intellectual property laws is to reward the originator of a new invention, book, musical record, clothes design, restaurant chain, and the like, for his or her idea and effort. 99) E

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Trademarks are designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products (e.g., Tommy Hilfiger clothes). 100) A Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit. 101) A Weak enforcement of intellectual property laws encourages the piracy (theft) of intellectual property. 102) D Product safety laws set certain safety standards to which a product must adhere. Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage. 103) C Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage. Both civil and criminal product liability laws exist. 104) A A boom in product liability suits and awards in the United States resulted in a dramatic increase in the cost of liability insurance. Many business executives argue that the high costs of liability insurance make American businesses less competitive in the global marketplace. 105) D Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage. Product liability can be much greater if a product does not conform to required safety standards.

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106) C Product safety laws set certain safety standards to which a product must adhere. Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage. 107) B Product safety laws set certain safety standards to which a product must adhere. Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage. 108) E Totalitarian countries where citizens are denied basic human rights, corruption is rampant, and bribes are necessary to gain permission to do business are unappealing as a place for doing business. 109) C A nation with democratic political institutions, a market-based economic system, and strong legal system that protects property rights and limits corruption is clearly more attractive as a place in which to do business than a nation that lack democratic institutions, where economic activity is heavily regulated by the state, and where corruption is rampant and the rule of law is not respected.

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110) Democracy and totalitarianism are at different ends of a political dimension.Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives.Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties. The democratic– totalitarian dimension is not independent of the individualism– collectivism dimension. Democracy and individualism go hand in hand, as do the communist version of collectivism and totalitarianism. However, gray areas exist; it is possible to have a democratic state in which collective values predominate, and it is possible to have a totalitarian state that is hostile to collectivism and in which some degree of individualism—particularly in the economic sphere—is encouraged. 111) Advocacy of collectivism can be traced to the ancient Greek philosopher Plato (427–347 B.C.), who, inThe Republic, argued that individual rights should be sacrificed for the good of the majority and that property should be owned in common. Plato did not equate collectivism with equality; he believed that society should be stratified into classes, with those best suited to rule (which for Plato, naturally, were philosophers and soldiers) administering society for the benefit of all. In modern times, the collectivist mantle has been picked up by socialists.

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112) In the archetypal puremarket economy, all productive activities are privately owned, as opposed to being owned by the state. The goods and services that a country produces are not planned by anyone. Production is determined by the interaction of supply and demand and signaled to producers through the price system. If demand for a product exceeds supply, prices will rise, signaling producers to produce more. If supply exceeds demand, prices will fall, signaling producers to produce less. In this system, consumers are sovereign. The purchasing patterns of consumers, as signaled to producers through the mechanism of the price system, determine what is produced and in what quantity. 113)While the objective of a command economy is to mobilize economic resources for the public good, the opposite seems to have occurred. In a command economy, state-owned enterprises have little incentive to control costs and be efficient, because they cannot go out of business. Also, the abolition of private ownership means there is no incentive for individuals to look for better ways to serve consumer needs; hence, dynamism and innovation are absent from command economies. Instead of growing and becoming more prosperous, such economies tend to stagnate. 114)A civil law system tends to be less adversarial than a common law system because the judges rely on detailed legal codes rather than interpreting tradition, precedent, and custom. Judges under a civil law system have less flexibility than those under a common law system. Judges in a common law system have the power to interpret the law, whereas judges in a civil law system have the power only to apply the law.

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115)When contract disputes arise in international trade, there is always the question of which country's laws to apply. To resolve this issue, a number of countries, including the United States, have ratified the United Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations. By adopting the CISG, a nation signals to other adopters that it will treat the convention's rules as part of its law. The CISG applies automatically to all contracts for the sale of goods between different firms based in countries that have ratified the convention, unless the parties to the contract explicitly opt out. One problem with the CISG, however, is that as of late 2013, only 80 nations have ratified the convention (the CISG went into effect in 1988). Some of the world's important trading nations, including the United Kingdom, have not ratified the CISG. 116)Property rights can be violated in two ways—through private action and through public action. Private action refers to theft, piracy, blackmail, and the like by private individuals or groups. Although theft occurs in all countries, a weak legal system allows for a much higher level of criminal action in some than in others. Public action to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from property holders.

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117)In the 1970s, the United States passed the Foreign Corrupt Practices Act following revelations that U.S. companies had bribed government officials in foreign countries in an attempt to win lucrative contracts. This law makes it illegal to bribe a foreign government official to obtain or maintain business over which that foreign official has authority, and it requires all publicly traded companies (whether or not they are involved in international trade) to keep detailed records that would reveal whether a violation of the act has occurred. 118) The protection of intellectual property rights differs greatly from country to country. Although many countries have stringent intellectual property regulations on their books, the enforcement of these regulations has often been lax. This has been the case even among many of the 192 countries that are now members of theWorld Intellectual Property Organization, all of which have signed international treaties designed to protect intellectual property, including the oldest such treaty, theParis Convention for the Protection of Industrial Property, which dates to 1883 and has been signed by more than 170 nations. Weak enforcement encourages the piracy (theft) of intellectual property. China and Thailand have often been among the worst offenders in Asia. Pirated computer software is widely available in China. Similarly, the streets of Bangkok, Thailand’s capital, are lined with stands selling pirated copies of Rolex watches, Levi’s jeans, DVDs, and computer software. 119)Patents, copyrights, and trademarks establish ownership rights over intellectual property. A patent grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention. Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit. Trademarks are designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products. Version 1

120)The computer software industry is an example of an industry that suffers from lax enforcement of intellectual property rights. A study published in 2012 suggested that violations of intellectual property rights cost personal computer software firms revenues equal to $63 billion a year. According to the study's sponsor, the Business Software Alliance, a software industry association, some 42 percent of all software applications used in the world were pirated. One of the worst large countries was China, where the piracy rate ran at 77 percent and cost the industry more than $9.8 billion in lost sales, up from $444 million in 1995. The piracy rate in the United States was much lower at 19 percent; however, the value of sales lost was significant because of the size of the U.S. market. 121) Product safety laws set certain safety standards to which a product must adhere. Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage. Product liability can be much greater if a product does not conform to required safety standards. Both civil and criminal product liability laws exist. Civil laws call for payment and monetary damages. Criminal liability laws result in fines or imprisonment. Both civil and criminal liability laws are probably more extensive in the United States than in any other country, although many other Western nations also have comprehensive liability laws. Liability laws are typically the least extensive in lessdeveloped nations. 122)A nation with democratic political institutions, a market-based economic system, and strong legal system that protects property rights and limits corruption is clearly more attractive as a place in which to do business than a nation that lacks democratic institutions, where economic activity is heavily regulated by the state, and where corruption is rampant and the rule of law is not respected.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The purchasing power parity for a country is adjusted (up or down) depending upon whether a country's cost of living is lower or higher than the cost of living in the United States. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Economic Development Gradable : automatic

2) Gross national income is a measure of the average monthly wage earned by residents of a nation. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Economic Development AACSB : Diversity Bloom's : Remember Difficulty : 1 Easy Gradable : automatic

3) A shadow economy refers to economic activity that might be in the form of unrecorded cash transactions, which are not reflected in the “official” figures reported by a country. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Differences in Economic Systems Gradable : automatic

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4) The gross national income (GNI) per capita comes much closer to Amartya Sen's conception of how development should be measured than narrow economic measures such as the Human Development Index (HDI). ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Differences in Economic Systems Gradable : automatic

5) Economists who argue that innovation and entrepreneurial activity are the engines of long-run economic growth, define innovation broadly to include not just new products but also new processes, new organizations, new management practices, and new strategies. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-01 Explain what determines the level of economic development of a nation. AACSB : Reflective Thinking Topic : Economic and Business Implications of Cultural Change Gradable : automatic

6) If a country's economy is to sustain long-run economic growth, the business environment must be conducive to the consistent production of product and process innovations and to entrepreneurial activity. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Bloom's : Remember Difficulty : 1 Easy Topic : Economic and Business Implications of Cultural Change Gradable : automatic

In a planned economy, there is a great deal of freedom for entrepreneurial activity. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Economic Development Gradable : automatic

8) A nation that has inadequate enforcement of property rights reduces the motivation for innovative activity. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Economic Development AACSB : Reflective Thinking Gradable : automatic

9) The Peruvian development economist Hernando de Soto has argued that much of the developing world will fail to reap the benefits of capitalism until they relax the property rights offered by their legal systems. ⊚ true ⊚ false Version 1

10) Five of the fastest growing economies of the past 30 years—China, South Korea, Taiwan, Singapore, and Hong Kong—had one thing in common at the start of their economic growth: undemocratic governments. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. AACSB : Diversity Bloom's : Remember Difficulty : 1 Easy Topic : Differences in Economic Systems Gradable : automatic

11) A totalitarian regime can promote economic growth if it commits to a market system and values strong protection of property rights. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Differences in Economic Systems AACSB : Reflective Thinking Gradable : automatic

12) During the past three decades, South Korea adopted a more democratic government. This illustrates that democracy can be a consequence of economic progress. Version 1

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true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 2 Medium Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Bloom's : Remember Topic : Differences in Economic Systems Gradable : automatic

13) During the late 1980s and early 1990s, many totalitarian governments collapsed and were replaced by democratically elected governments. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Different Forms of Government Gradable : automatic

14) As categorized by Freedom House, citizens in a “free” country face some restrictions on political rights and civil liberties, often in the context of corruption or ethnic strife. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Differences in Political Systems Gradable : automatic

15) Advances in technology and communication have fostered the growth of democratic ideals. Version 1

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true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Different Forms of Government Gradable : automatic

16) The late influential political scientist Samuel Huntington predicted that the universalization of Western liberal democracy will be the final form of human government. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Diversity Bloom's : Remember Difficulty : 1 Easy Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Different Forms of Government Gradable : automatic

17) Francis Fukuyama promoted the idea that Western liberal democracy would be the final form of human government and lead to a harmonious world. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Diversity Bloom's : Remember Difficulty : 1 Easy Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Different Forms of Government Gradable : automatic

18) In general, command and mixed economies failed to deliver the kind of sustained economic performance that was achieved by countries adopting market-based systems. Version 1

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true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Different Forms of Government Gradable : automatic

19) If a nation has achieved economic freedom, it follows that it has also achieved political freedom. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Different Forms of Government Gradable : automatic

20)

Communist nations consistently practiced deregulation efforts. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Development Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Gradable : automatic

21) Privatization occurs when state-owned property is transferred into the hands of individuals.

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true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Topic : Nationalization and Privatization of Business Gradable : automatic

22) While popular in the 1980s and early 1990s, privatization is no longer in effect around the world today. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Topic : Nationalization and Privatization of Business Gradable : automatic

23) The World Bank has predicted that China will reach total economic reform based on its recent efforts to liberalize state-owned companies. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Topic : Nationalization and Privatization of Business Gradable : automatic

24) It may be more costly to do business in relatively primitive or undeveloped economies because of the lack of infrastructure and supporting businesses. Version 1

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true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Differences in Economic Systems Learning Objective : 03-04 Explain the implications for management practice of national difference in Gradable : automatic

25) Social unrest and disorder are less likely to be found in countries that contain more than one ethnic nationality. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation AACSB : Diversity Bloom's : Remember Difficulty : 1 Easy Topic : Differences in Economic Systems AACSB : Reflective Thinking Learning Objective : 03-04 Explain the implications for management practice of national difference in Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Gross national income figures should be carefully evaluated because they don’t take into account differences in A) the available workforce. B) government intervention. C) the cost of living. D) market conditions. E) political power.

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27)

Gross national income is one common measure of a country’s A) population density. B) economic development. C) mortality rate. D) political affiliation. E) healthcare system.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Economic Development Bloom's : Remember Difficulty : 1 Easy Gradable : automatic

28) A country’s __________ measures the total annual income received by residents of a country and is regarded as a yardstick for the economic activity of a country. A) income elasticity of demand B) gross national product C) net cash flow ratio D) gross national income E) income equity ratio

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Economic Development Bloom's : Remember Difficulty : 1 Easy Gradable : automatic

29) Purchasing power parity is used to adjust gross national income and make a more direct comparison of __________ in various countries. A) living standards B) population density C) geographical area D) factor endowments E) labor productivity

30)

To calculate purchasing power parity, gross national income is adjusted based on A) the trading value of gold in the exchange market. B) the median cost of living in the top five economic nations. C) the status of the cost of living in the United States D) average daily exchange rates in the selected nation. E) limits set by each nation’s government.

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31) In 2019, if the PPP per capita of China was $16,740 and the PPP per capita of the United States was $65,880, this means that the A) GNI per capita was greater in China. B) percent of goods and services consumed in the United States was lower. C) standard of living in China was better. D) cost of living was lower in China. E) annual average GDP growth rate was lower in China.

Question Details Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Differences in Economic Systems AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

32) In 2019, if the GNI per capita of India was $2,130 and its PPP per capita was $6,960, this means that the cost of living in India was lower than the cost of living in A) China. B) Great Britain. C) Germany. D) the United States. E) the rest of the world.

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33) As a result of __________, large amounts of economic activity in India are not made official and the GDP figures of the country fail to tell the entire story of the economy. A) a large population B) unrecorded cash transactions C) deregulation D) nationalization E) closed totalitarianism

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. AACSB : Diversity Bloom's : Remember Difficulty : 1 Easy Topic : Differences in Economic Systems Gradable : automatic

34)

A shadow economy is in evidence when

A) large amounts of economic activity are in the form of legally recorded cash transactions. B) citizens engage in barter agreements to avoid paying taxes. C) a country's GNI per capita exceeds $30,000. D) the expenses of the government are less than its income. E) a country has a trade surplus with another foreign country.

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Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Differences in Economic Systems AACSB : Reflective Thinking Gradable : automatic

35) The three measures of the __________ are life expectancy at birth, educational attainment, and average incomes based on PPP estimates. A) Human Development Index B) Gross National Income C) Gross Domestic Product D) Cost of Living Index E) Cash Reserve Ratio

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Bloom's : Remember Difficulty : 1 Easy Topic : Differences in Economic Systems Gradable : automatic

36) Amartya Sen believed that __________ should also be a factor in the human development index. A) birth rates B) political freedom C) educational attainment D) basic average income E) geographical conditions

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37) According to the Human Development Index, average income adjusted for PPP should be sufficient to A) provide basic needs such as food and shelter. B) promote economic development. C) foster decentralization. D) boost social class. E) foster entrepreneurial dynamism.

38) A country that is classified as having low human development (the quality of life is poor) would have an HDI that is A) less than 0.5 on the HDI scale. B) around 6.0. C) greater than 5.0 but less than 7.0. D) around 80. E) in the bottom 60 percentile.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Differences in Economic Systems AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

39) __________ is broadly defined as the development of new products, processes, organizations, management practices, and strategies. A) Privatization B) Dynamism C) Demographics D) Innovation E) Benchmarking

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Economic Development Bloom's : Remember Difficulty : 1 Easy Gradable : automatic

40) The global pandemic of 2020 forced retail stores to create online shopping opportunities and adopt curbside delivery practices—somewhat similar to what Amazon had been doing for years. This new strategy adopted by retail stores is an example of A) privatization. B) economic deregulation. C) purchasing power parity. D) innovation. E) benchmarking.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Topic : Economic Development AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

41)

Which activity engaged in by Big Town Billiards best exemplifies innovation? A) Big Town Billiards cut the prices of its products by 10 percent. B) Big Town Billiards entered the Chinese market. C) Big Town Billiards offered a "me-to" product similar to that of a competitor. D) Big Town Billiards developed a new business model by selling directly to customers. E) Big Town Billiards cut its costs by 10 percent.

42)

Which of these individuals can be considered an entrepreneur?

A) Jocelyn, an employee at a home goods store, is solely responsible for all the purchases and sales at the store. B) Samantha recycles old household articles to build artwork for her personal use. C) Zander makes his living by investing in small companies that have the potential to grow. D) Kellen started a company that processes cable wire into fabric used in blankets. E) Manuel invented a fingernail strengthening formula and sold it to a company that sells several other nail products.

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43)

When considering innovations and entrepreneurship, it can be said that

A) a command economy creates greater incentives for innovation and entrepreneurship than a market economy. B) if a country's economy is to sustain long-run economic growth, the business environment must restrict entrepreneurial activity. C) a high level of entrepreneurial activity leads to a low level of innovation. D) innovations in production and business processes lead to an increase in the productivity of labor and capital. E) strong legal protection of property rights creates an unfavorable environment for innovation and entrepreneurship.

44)

An unfavorable environment for innovations and entrepreneurship is the result of A) a market economy. B) economic freedom. C) state monopoly in production. D) privatization. E) strong legal protection of property rights.

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45) Annika lives in a country where the state owns all the means of production and there is little incentive for entrepreneurial activity. Annika lives in a A) market economy. B) mixed economy. C) planned economy. D) private economy. E) democratic economy.

46) At one time, economic stagnation resulted in Great Britain because the coal mining and telecommunications industries were A) privatized. B) sold off to foreign owners. C) monopolies owned by the state. D) compromised during the war. E) decentralized.

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47) When a country sells a state-owned monopoly, such as the telecommunications system, to private investors, it is an example of A) communism. B) isolationism. C) privatization. D) economizing. E) protectionism.

48) Camron loves to invent new products but knows that in his country it is difficult for him to reap the rewards of innovations because they are quickly and legally copied by others after he releases them into the marketplace. As a result, Camron has decided to stop inventing. What is preventing Camron from doing what he loves? A) weak property rights protection B) excessive tariffs C) privatization D) strong government intervention E) purchasing power parity

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49) In a nation that ensures strong legal protection of property rights, it is likely that the businesses and individuals will A) want to invest more in innovations. B) avoid privatization. C) face more corruption. D) avoid entrepreneurial activity. E) be faced with a higher tax debt.

50) People in the West tend to associate a(n) __________ with a free market system, strong property rights protection, and economic progress. A) anarchist state B) representative democracy C) planned economy D) communist state E) command economy

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Bloom's : Remember Difficulty : 1 Easy Topic : Differences in Economic Systems Gradable : automatic

51)

One way that a nation can legally expropriate the profits from innovation is A) by eliminating tariffs. B) by accepting kickbacks. C) through the shadow economy. D) through excessive taxation. E) by setting up a monopoly.

52) According to economist Hernando de Soto, the key issue in the relationship between capitalism and property rights is the inability of owners to A) pay the necessary taxes on their property. B) establish legal title to the property they own. C) adapt to a planned economic system. D) create a production monopoly. E) foster dynamism through entrepreneurial activity.

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53) China, South Korea, Taiwan, Singapore, and Hong Kong have had the fastest-growing economies in the past 40 years. What did these five countries have in common at the start of their economic spur? A) extensive trade agreements B) undemocratic governments C) active entrepreneurial activity D) high tariff barriers E) strong property rights protection

54) The belief that geography can influence economic policy, and hence economic growth rates, goes back to A) Adam Smith. B) Amartya Sen. C) Plato. D) Aristotle. E) Karl Marx.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Bloom's : Remember Difficulty : 1 Easy Topic : Geographical Implications that Affect Trade Gradable : automatic

55) The influential economist Jeffrey Sachs argues that __________ with their long engagements in international trade, have been the most supportive of market institutions throughout history. A) mountainous states B) tropical regions C) military societies D) landlocked states E) coastal states

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. Bloom's : Remember Difficulty : 1 Easy Topic : Geographical Implications that Affect Trade Gradable : automatic

56)

Which example demonstrates Jeffrey Sachs’s argument about trade?

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A) A South American nation exports rice but imports wheat because it is more cost effective. B) The soil conditions in a European country are so poor that no crops can be grown and the country must import all food sources. C) Intellectual property rights are well-protected in westernized nations, which provides an absolute advantage. D) The citizens of a country in Central America fail to participate in entrepreneurial activity because of the planned economy. E) The true GNI of an eastern European country is unknown because of the “hidden economy.”

Question Details Accessibility : Keyboard Navigation Learning Objective : 03-01 Explain what determines the level of economic development of a nation. AACSB : Diversity AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : Geographical Implications that Affect Trade Gradable : automatic

57) During the 1970s and 1980s, Japan had one of the most dynamic economies in the world. Since that time, economic growth has stagnated due to A) a centrally planned economy. B) a lack of infrastructure. C) geographic insecurities. D) an aging population. E) educational restraints.

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58) from

During the late 1980s and early 1990s, many of the world's nation-states moved away

A) democratically elected governments. B) free market capitalism. C) individualism. D) political and civil freedoms. E) totalitarian governments.

59) According to Freedom House, just over __________ of the world’s nations are considered “free.” A) 5 percent B) 20 percent C) 90 percent D) 75 percent E) 40 percent

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60) In many nations, the advancement of the economy has created more prosperous middle and working classes and advancements in communication have minimized the state’s ability to censor information. Both factors have led to the A) need to enact monopolies. B) collapse in entrepreneurial activity. C) advancement of political tyranny. D) spread of democracy. E) disintegration of democracy.

61) The collapse of __________ in eastern Europe was precipitated by the growing gulf between the vibrant and wealthy economies of the West and the stagnant economies of the East. A) democracy B) communism C) a free economy D) capitalism E) privatization

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62) How have new information and communication technologies, including the Internet, affected the political economy in general? A) They have led to the spread of communism. B) They have reduced a state's ability to control access to uncensored information. C) They have led to the collapse of democracy. D) They have created new conduits for the spread of closed societies. E) They have led to increased suppression of political and economic freedoms.

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Differences in Political Systems AACSB : Technology Gradable : automatic

63)

Economic advances in many countries have led to the A) decline of middle and working classes. B) rise of totalitarian reforms. C) decline of property rights. D) emergence of closed and self-contained societies. E) emergence of increasingly prosperous middle and working classes.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation AACSB : Diversity Bloom's : Remember Difficulty : 1 Easy Topic : Economic and Business Implications of Cultural Change Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Gradable : automatic

64)

According to the author Francis Fukuyama, the world is most likely witnessing the end of

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A) free market economies. B) capitalism. C) liberal democracies. D) privatization. E) humanity's ideological evolution.

65) Francis Fukuyama saw a world in which __________ is the final form of human government. A) communism B) dictatorship C) totalitarianism D) democracy E) monarchism

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Economic and Business Implications of Cultural Change Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Gradable : automatic

66) Samuel Huntington held the opposite view from Fukuyama and believed that the modernization of non-Western societies caused those societies to

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A) become more Western. B) retreat toward the traditional. C) focus on democratic regimes. D) promote diversity and inclusion. E) reject material possessions.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic and Business Implications of Cultural Change Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Gradable : automatic

67)

In Samuel Huntington's thesis, global terrorism is a product of the A) clash of value systems and ideology between civilizations. B) widespread acceptance of universal global civilization. C) declining liberal democratic ideals. D) differences in the factor endowments between countries. E) geographical differences between nations.

68) As democracy has spread since the 1980s, so has the development of more __________ economies.

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A) centrally-planned B) mixed C) totalitarian D) command E) market-based

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Development Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Gradable : automatic

69)

In the context of global economy, what has been widely accepted since the late 1980s? A) centrally planned command economy B) mixed economy C) nationalization of private property D) deregulation of economies E) authoritarian regime

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Economic Development Bloom's : Remember Difficulty : 1 Easy Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Gradable : automatic

70) Based on calculations for 2020, which country is ranked by the Heritage Foundation as having the world’s freest economy?

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A) Ireland B) Singapore C) North Korea D) China E) the United States

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Differences in Economic Systems Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Gradable : automatic

71)

One way a nation can shift toward a market-based economic system is to A) abolish the laws that deal with protection of property rights. B) introduce stringent foreign investment regulations. C) increase its intervention in the economy. D) adopt privatization. E) oppose democracy.

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Development Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. AACSB : Knowledge Application Gradable : automatic

72)

A nation would __________ as part of deregulation efforts.

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A) implement price controls B) commit to communism C) relax restrictions on international trade D) create a centrally planned economic system E) increase restrictions on foreign direct investment

73) A South American nation recently removed all legal restrictions on the establishment of private enterprises. This action represents the process of A) the nationalization of private assets. B) deregulation. C) socialism. D) expanding totalitarian controls. E) isolationism.

Question Details Accessibility : Keyboard Navigation Topic : Economic Development AACSB : Reflective Thinking Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

74)

Which scenario demonstrates deregulation efforts?

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A) A country exercises tight control over the prices of food grains. B) The establishment of private enterprises in the steel industry is prohibited by a country’s government. C) The retail sector of a country is opened for foreign direct investment. D) A country’s government does not have a legal system to safeguard property rights. E) One nation ranks the lowest among the countries that grant both political and economic freedoms to its citizens.

Question Details Accessibility : Keyboard Navigation Topic : Economic Development Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

75)

The deregulation of an economy involves A) increasing restrictions on direct investment by foreign enterprises and international

trade. B) privatizing state-owned enterprises. C) exercising a high degree of state control over production and pricing. D) abolishing laws related to the protection of property rights. E) opposing democracy by adopting communism.

76) What started in Great Britain in the early 1980s when Prime Minister Margaret Thatcher started to sell state-owned assets such as the British telephone company?

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A) nationalization B) privatization C) antidemocratic government D) communism E) antiglobalization

77)

How does privatization help stimulate gains in economic efficiency?

A) It allows newly privatized firms to gain monopoly position in a particular industry. B) It provides incentives to new private owners to search for increases in productivity and to enter new markets. C) It encourages state control over price and production output. D) It raises barriers to direct investment by foreign enterprises. E) It results in reservation of heavy industry for state ownership and the increase of import tariffs.

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Development AACSB : Reflective Thinking Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Gradable : automatic

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78) Hypothetically, let’s say that India begins mass privatization efforts; however, as a way to protect newly privatized firms, the government imposes high tariffs on imports from foreign competitors. This results in little competition for these newly privatized firms and essentially would create A) state monopolies. B) few barriers to trade. C) a mini-multinational. D) a democratic regime. E) a totalitarian state.

79)

When deregulation efforts are enacted, privatization tends to A) drop off dramatically. B) create more monopolies. C) weaken business holdings. D) sharply increase. E) cease to exist.

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80) A nation has decided to privatize the state-owned cable television company. How can the country help this newly privatized industry succeed? A) impose high corporate taxes on the company immediately after its privatization B) increase barriers to foreign direct investment C) intervene in the company's operations by exercising price controls D) split the company into independent units to compete with each other E) prohibit foreign companies from entering into the field of telecommunication

81) The absence of a legal system that protects property rights and the lack of machinery to enforce that system in a market economy usually results in A) an improvement in the operating efficiency of newly privatized firms. B) reduced barriers to foreign direct investment and international trade. C) an increase in the incentives to engage in economic activity. D) deregulation and privatization of the economy. E) the lack of incentive to engage in economic activity.

82) What is one implication of the global changes in political and economic systems for international business?

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A) The ideological conflict between collectivism and individualism is less in evidence today. B) Adoption of Western ideology is declining worldwide. C) The global tide has been running in favor of command economies and totalitarian dictatorships. D) Free markets and democracy are being replaced by mixed economies and communist governments. E) Liberalization and privatization of state-owned enterprises has been losing popularity.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Differences in Political Systems Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Gradable : automatic

83)

Recent global changes in political and economic systems show that A) East European communist ideology is now widespread. B) a lack of deregulation was the cause for the global financial crisis of 2008–2009. C) it is guaranteed that democracy will thrive in most of the world's newer democratic

states. D) the multipolar world dominated by a number of civilizations of the Cold War era has vanished and is now being replaced by a bipolar world. E) many undeveloped and impoverished national markets of eastern Europe, Latin America, Africa, and Asia are potentially enormous for international business.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Topic : Economic and Political Arguments Surrounding Regional Economic Integration Gradable : automatic

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84) A country with __________ is more likely to attain high and sustained economic growth rates and is a more attractive location for international business. A) weak protection of property rights B) a democratic regime C) command-based economic policies D) ideologies that differ from Western ideologies E) a totalitarian dictatorship

85) There are currently over 1.3 billion people living in India, which makes it a large market when measuring the number of potential consumers. However, India is still considered a smaller market in economic terms because of A) the country’s orientation toward democracy. B) low birthrates. C) high living standards. D) limited purchasing power. E) a commitment to a free market system

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Diversity Topic : Differences in Economic Systems Learning Objective : 03-04 Explain the implications for management practice of national difference in Gradable : automatic

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86) In economic terms, the long-run monetary benefits of doing business in a country are based on the size of the market, the present purchasing power of consumers, and the __________ of the country. A) gender ratio B) geographic location C) natural resources D) future consumer wealth E) political history

87) Small Scale Homes Inc., a U.S.-based construction firm, was the first in the industry to identify the growth potential of Brazil and made huge investments in its economy. As a result, the firm was able to build brand loyalty and gain experience in that country's business practices. In this situation, Small Scale Homes Inc. has benefited from A) a first-mover advantage B) forward integration. C) unrelated differentiation. D) deregulation. E) privatization.

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Question Details Accessibility : Keyboard Navigation Topic : Differences in Economic Systems AACSB : Reflective Thinking Learning Objective : 03-04 Explain the implications for management practice of national difference in Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

88)

Which of these companies is demonstrating a first-mover advantage?

A) Form Health Inc. has more than 50 percent market share in the health forms industry, because no other company has invested in this industry before Form Health Inc. B) The first 50 people who respond to the tweet sent out by Pizza King receive a $5 coupon they can use on their next order. C) The level of satisfaction Gretchen experienced when dining at the Bakester Cafe was highest the first time but reduced each time she dined there. D) First Print Inc. was the first to exit the declining newspaper printing industry and as a result, it avoided losing a lot of money. E) Candace has been asked to review the running shorts she bought from Second Run Inc. Her feedback will help the company improve the product.

Question Details Accessibility : Keyboard Navigation Learning Objective : 03-04 Explain the implications for management practice of national difference in AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : Basic Decisions for Entering Foreign Markets Gradable : automatic

89) When UpTown Finance, a real estate company, entered the low-cost housing business, the market was already saturated with other players. Thus, the company was forced to exit the market due to lack of customer loyalty and substantial dividends. UpTown Finance was facing

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A) first-mover disadvantages. B) late-mover disadvantages. C) last-in first-out disadvantages. D) comparative disadvantages. E) absolute disadvantages.

90) Both China and India have achieved high growth rates despite relatively weak property rights regimes and high levels of corruption, because of A) the shift toward a communist ideology. B) their high living standards. C) their large population. D) their high consumer purchasing power. E) the shift toward a market-based economic system.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Differences in Economic Systems Learning Objective : 03-04 Explain the implications for management practice of national difference in Gradable : automatic

91)

When considering the economic prospects of a country, it can be said that

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A) the economic system and property rights regime are reasonably good predictors of economic prospects of a country. B) countries with command economies tend to achieve greater economic growth rates than free market economies. C) countries that do not have property rights protection tend to achieve greater economic growth rates. D) countries where property rights are not well respected and where corruption is rampant always have very low levels of economic growth. E) the advantages of building brand loyalty and gaining experience in a country's business practices is greater for a last-mover than for a first-mover.

92)

The cost of doing business is most likely to be the lowest in

A) closed totalitarian states. B) primitive or undeveloped economies. C) open democratic societies. D) countries where local laws and regulations set strict standards with regard to product safety, safety in the workplace, and environmental pollution. E) countries that lack well-established laws for regulating business practice.

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93) Consumer Agriculture Inc. is planning an international expansion. In terms of the costs involved in conducting business in a country, it will be most economical for the company if it chooses a country A) with a closed totalitarian political system. B) where the company will have to provide its own infrastructure and supporting business. C) where laws regarding product safety, safety in the workplace, and environmental pollution are extremely stringent. D) where politicians are held accountable by the electorate. E) with no local laws to protect intellectual property.

Question Details Accessibility : Keyboard Navigation Topic : Differences in Political Systems Learning Objective : 03-04 Explain the implications for management practice of national difference in AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

94) When considering the cost of doing business in another country, what would be considered the most attractive market or investment site? A) a country that has adopted a closed totalitarian state B) a country that has a well-developed body of business contract law C) a country with a command-based economic system D) a country with stringent product safety laws and huge liability insurance rates E) a country that does not provide any protection for property rights

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 03-04 Explain the implications for management practice of national difference in Topic : Differences in Legal Systems Gradable : automatic

95) Violent conflicts on the streets of Chicago, Los Angeles, and other cities can cause drastic changes in a nation’s business environment and ultimately affect profits. When this occurs, businesses are facing a(n) __________ risk. A) political B) demographic C) ethical D) technological E) physiological

96) The Peterson Corp. has decided not to do business in a country after learning that many citizens are violently protesting recent government embargoes on food resources. The Peterson Corp. is concerned with the __________ risk associated with the country. A) political B) economic C) demographic D) legal E) technological

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Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Topic : Differences in Political Systems Learning Objective : 03-04 Explain the implications for management practice of national difference in Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

97) A South African nation is facing a high rate of inflation, and the government debt in the country is also high. As a result, the country's business environment is beginning to deteriorate, and the profits of the business enterprises are hurt. According to this information, this nation is facing what type of risk? A) legal B) ethical C) demographic D) ethnographic E) economic

98) Sanjay reminded the board members that it is important to understand the inflation rate of a country before entering into business. Sanjay is concerned with the __________ risks of doing business. A) ethical B) economic C) technological D) legal E) sociological

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99) A(n) __________ risk occurs when a trading partner opportunistically breaks a contract or expropriates property rights. A) political B) legal C) economic D) sociological E) cultural

100) Davis Construction, based in the United States, hesitates to enter into a joint venture with Kaza Limited, a Brazilian company, due to inadequate protection of intellectual property rights. Davis Construction is trying to avoid what type of risk? A) political B) legal C) ethical D) economic E) ethnographic

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Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Learning Objective : 03-04 Explain the implications for management practice of national difference in Bloom's : Apply Difficulty : 3 Hard Topic : Country Risk Produced by Legal Systems Gradable : automatic

101)

The risks of doing business are most likely to be the highest in a country that A) has low inflation rates. B) supports high living standards. C) has only one ethnic nationality. D) protects intellectual property. E) faces frequent changes in government and government policy.

102) Generally, the costs and risks associated with doing business in a foreign country are typically lower in A) less-developed countries. B) economically advanced countries. C) totalitarian states. D) countries with high inflation and falling living standards. E) countries that lack intellectual property rights.

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103) All Metals Corp. is considering doing business in Central America but is concerned that some governments have been accused of corrupt practices. What aspect of the overall attractiveness of doing business in Central America does this represent? A) benefits B) costs C) norms D) risks E) values

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Learning Objective : 03-04 Explain the implications for management practice of national difference in Bloom's : Apply Difficulty : 3 Hard Topic : Factors to Consider When Designing International Distribution Strategies Gradable : automatic

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 104) Describe Amartya Sen's conceptions of development.

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105) Validate the argument made by economists that innovation and entrepreneurial activity are the basis for long-term economic growth.

106) Discuss Hernando de Soto’s arguments related to capitalism and property rights. Cite the situation in Haiti, which exemplifies his argument.

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107) Briefly describe the three significant changes that have occurred in the political economy of some of the world's nation-states since the late 1980s.

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Diversity Bloom's : Remember Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Differences in Political Systems Gradable : manual

108) Explain the broad categories of political freedom established by Freedom House and discuss how these categories are represented in the world today.

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Differences in Political Systems Bloom's : Apply Difficulty : 3 Hard Gradable : manual

109) Describe how author Francis Fukuyama's vision of the new world differs from that of the late influential political scientist Samuel Huntington.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 03-02 Identify the macropolitical and macroeconomic changes occurring worldwide. Topic : Differences in Political Systems AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : manual

110)

Discuss Samuel Huntington's idea of the new world order and how it relates to terrorism.

111)

Discuss the concept of deregulation and its role in a market-based economic system.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Differences in Economic Systems Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Gradable : manual

112) Describe how the privatization movement began and discuss some of the most dramatic privatization programs that have taken place.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Differences in Economic Systems Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Gradable : manual

113) Discuss the significance of legal systems in the context of shifting toward a market-based economic system.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Differences in Economic Systems Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Gradable : manual

114)

Describe some of the risks associated with the changing political economy.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Differences in Political Systems Learning Objective : 03-03 Describe how transition economies are moving toward market-based systems. Difficulty : 3 Hard Gradable : manual

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115) Suppose that Maxwell Excavation Inc. would like your opinion about various countries as potential markets and investment sites. What general information can you share with them about assessing the overall attractiveness of a potential country as a market?

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Answer Key Test name: Hill_3 1) TRUE To account for differences in the cost of living, one can adjust GNI per capita by purchasing power. The base for the adjustment is the cost of living in the United States. The PPP for different countries is then adjusted (up or down) depending upon whether the cost of living is lower or higher than in the United States. 2) FALSE One common measure of economic development is a country’sgross national income (GNI) per head of population. GNI is regarded as a yardstick for the economic activity of a country; it measures the total annual income received by residents of a nation. 3) TRUE Large amounts of economic activity may be in the form of unrecorded cash transactions or barter agreements. People engage in such transactions to avoid paying taxes. Known as theblack economy or shadow economy, estimates suggest that in India it may be around 50 percent of GDP, which implies that the Indian economy is half as big again as the figures reported. 4) FALSE 5) TRUE 6) TRUE 7) FALSE

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In a planned economy, the state owns all means of production. Consequently, entrepreneurial individuals have few economic incentives to develop valuable new innovations because it is the state, rather than the individual, that captures most of the gains. 8) TRUE 9) FALSE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) FALSE 17) TRUE 18) TRUE 19) FALSE 20) FALSE Deregulation involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. Before the collapse of communism, the governments in most command economies exercised tight control over prices and output, setting both through detailed state planning. 21) TRUE 22) FALSE 23) FALSE 24) TRUE 25) FALSE 26) C

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GNI per person figures can be misleading because they don’t consider differences in the cost of living. 27) B One common measure of economic development is a country's gross national income (GNI) per head of population. 28) D GNI is regarded as a yardstick for the economic activity of a country; it measures the total annual income received by residents of a nation. 29) A To account for differences in the cost of living, one can adjust GNI per capita by purchasing power. Referred to as apurchasing power parity (PPP) adjustment, it allows a more direct comparison of living standards in different countries. 30) C To account for differences in the cost of living, one can adjust GNI per capita by purchasing power. Referred to as apurchasing power parity (PPP) adjustment, it allows a more direct comparison of living standards in different countries. The base for the adjustment is the cost of living in the United States. The PPP for different countries is then adjusted (up or down) depending on whether the cost of living is lower or higher than in the United States. 31) D In 2019 the GNI per capita for China was $10,410 but the PPP per capita was $16,740, suggesting that the cost of living was lower in China and that $10,410 in China would buy as much as $16,740 in the United States. 32) D

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PPP or purchasing power parity allows a more direct comparison of living standards in different countries. The base for the adjustment is the cost of living in the United States. 33) B In some countries the "official" figures do not tell the entire story. Large amounts of economic activity may be in the form of unrecorded cash transactions, or barter agreements. In some countries (India being an example), they are reportedly very significant. Known as the black economy, estimates suggest that in India it may be around 50 percent of GDP. 34) B Large amounts of economic activity may be in the form of unrecorded cash transactions, or barter agreements. People engage in such transactions to avoid paying taxes, and although the share of total economic activity accounted for by such transactions may be small in developed economies such as the United States, in some countries (India being an example), they are reportedly very significant. Known as the black economy, estimates suggest that in India it may be around 50 percent of GDP. 35) A The Human Development Index (HDI) is based on three measures: life expectancy at birth (a function of health care); educational attainment (measured by a combination of the adult literacy rate and enrollment in primary, secondary, and tertiary education); and whether average incomes, based on PPP estimates, are sufficient to meet the basic needs of life in a country (adequate food, shelter, and health care). 36) B

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As such, the HDI comes much closer to Sen’s conception of how development should be measured than narrow economic measures such as GNI per capita—although Sen’s thesis suggests that political freedoms should also be included in the index, and they are not. 37) A The HDI is based on three measures: life expectancy at birth (a function of health care); educational attainment (measured by a combination of the adult literacy rate and enrollment in primary, secondary, and tertiary education); and whether average incomes, based on PPP estimates, are sufficient to meet the basic needs of life in a country (adequate food, shelter, and health care). 38) A The HDI is scaled from 0 to 1. Countries scoring less than 0.5 are classified as having low human development (the quality of life is poor); those scoring from 0.5 to 0.8 are classified as having medium human development; those that score above 0.8 are classified as having high human development. 39) D Innovation refers to the development of new products, processes, organizations, management practices, and strategies. 40) D Innovation refers to the development of new products, processes, organizations, management practices, and strategies. 41) D Innovation refers to the development of new products, processes, organizations, management practices, and strategies. Changing the business model is changing the process of doing business.

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42) D Entrepreneurs first commercialize innovative new products and processes, and entrepreneurial activity provides much of the dynamism in an economy. 43) D Innovation and entrepreneurial activity help to increase economic activity by creating new products and markets that did not previously exist. Moreover, innovations in production and business processes lead to an increase in the productivity of labor and capital, which further boosts economic growth rates. 44) C In a planned economy, the state owns all means of production. Consequently, entrepreneurial individuals have few economic incentives to develop valuable new innovations, because it is the state, rather than the individual, that captures most of the gains. 45) C In a planned economy, the state owns all means of production. 46) C Economic stagnation occurred in many mixed economies in those sectors where the state had a monopoly (such as coal mining and telecommunications in Great Britain). This stagnation provided the impetus for the widespread privatization of state-owned enterprises that was witnessed in many mixed economies during the mid-1980s. 47) C Privatization refers to the process of selling state-owned enterprises to private investors. 48) A

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Strong legal protection of property rights is another requirement for a business environment to be conducive to innovation, entrepreneurial activity, and hence economic growth. 49) A Strong legal protection of property rights is another requirement for a business environment to be conducive to innovation, entrepreneurial activity, and hence economic growth. 50) B People in the West tend to associate a representative democracy with a market economic system, strong property rights protection, and economic progress. 51) D The state can expropriate the profits from innovation through legal means, such as excessive taxation, or through illegal means, such as demands from state bureaucrats for kickbacks in return for granting an individual or firm a license to do business in a certain area. 52) B De Soto’s arguments are interesting because he says the key problem is not the risk of expropriation but the chronic inability of property owners to establish legal title to the property they own. 53) B Five of the fastest-growing economies of the past 40 years—China, South Korea, Taiwan, Singapore, and Hong Kong—had one thing in common at the start of their economic growth: undemocratic governments. 54) A

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While a country's political and economic systems are probably the big engines driving its rate of economic development, other factors are also important. One that has received attention is geography. But the belief that geography can influence economic policy, and hence economic growth rates, goes back to Adam Smith. 55) E The influential economist Jeffrey Sachs argues that throughout history, coastal states, with their long engagements in international trade, have been more supportive of market institutions than landlocked states, which have tended to organize themselves as hierarchical (and often militarized) societies. 56) B Sachs’s point is that by virtue of favorable geography, certain societies are more likely to engage in trade than others and are thus more likely to be open to and develop market-based economic systems, which in turn promotes faster economic growth. He also argues that, irrespective of the economic and political institutions a country adopts, adverse geographic conditions—such as the high rate of disease, poor soils, and hostile climate that afflict many tropical countries—can have a negative impact on development. 57) D In the 1970s and 1980s, Japan had one of the most dynamic economies in the world, but low birthrates and an aging population have held back economic growth since the turn of the century. 58) E

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During the late 1980s and early 1990s, a wave of democratic revolutions swept the world. Totalitarian governments collapsed and were replaced by democratically elected governments that were typically more committed to free market capitalism than their predecessors had been. 59) E Freedom House classified some 83 countries as free in 2020, accounting for about 43 percent of the world’s nations. 60) D There are several reasons for the spread of democracy. Two of which are the more prosperous middle and working classes and the advancements in communication. 61) B The collapse of communism in eastern Europe was precipitated by the growing gulf between the vibrant and wealthy economies of the West and the stagnant economies of the communist East. 62) B New information and communication technologies, including satellite television, desktop publishing, and, most important, the Internet, have reduced a state's ability to control access to uncensored information. These technologies have created new conduits for the spread of democratic ideals and information from free societies. 63) E In many countries economic advances have led to the emergence of increasingly prosperous middle and working classes that have pushed for democratic reforms. 64) E

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Author Francis Fukuyama has argued, "We may be witnessing . . . the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government." Fukuyama goes on to say that the war of ideas may be at an end and that liberal democracy has triumphed. 65) D Author Francis Fukuyama has envisioned a more harmonious world dominated by a universal civilization characterized by democratic regimes and free market capitalism. “We may be witnessing . . . the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.” 66) B Huntington theorized that modernization in non-Western societies can result in a retreat toward the traditional. 67) A In Huntington's thesis, global terrorism is a product of the tension between civilizations and the clash of value systems and ideology. 68) E Paralleling the spread of democracy since the 1980s has been the transformation from centrally planned command economies to marketbased economies. 69) D

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Paralleling the spread of democracy since the 1980s has been the transformation from centrally planned command economies to marketbased economies. Many states in Asia, Latin America, and Western Europe have sold state-owned businesses to private investors (privatization) and deregulated their economies to promote greater competition 70) B According to the 2020 index, which is summarized in Map 3.6, the world’s freest economies are (in rank order) Singapore, Hong Kong, New Zealand, Australia, Switzerland, Ireland, United Kingdom, Denmark, and Canada. 71) D The shift toward a market-based economic system often entails a number of steps: deregulation, privatization, and creation of a legal system to safeguard property rights. 72) C Deregulation involves removing price controls, thereby allowing prices to be set by the interplay between demand and supply; abolishing laws regulating the establishment and operation of private enterprises; and relaxing or removing restrictions on direct investment by foreign enterprises and international trade. 73) B Deregulation involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. 74) C

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Deregulation involves removing price controls, thereby allowing prices to be set by the interplay between demand and supply; abolishing laws regulating the establishment and operation of private enterprises; and relaxing or removing restrictions on direct investment by foreign enterprises and international trade. 75) B Deregulation involves removing price controls, thereby allowing prices to be set by the interplay between demand and supply; abolishing laws regulating the establishment and operation of private enterprises; and relaxing or removing restrictions on direct investment by foreign enterprises and international trade. 76) B The privatization movement started in Great Britain in the early 1980s when then Prime Minister Margaret Thatcher started to sell state-owned assets such as the British telephone company, British Telecom (BT). 77) B Privatization is seen as a way to stimulate gains in economic efficiency by giving new private owners a powerful incentive—the reward of greater profits—to search for increases in productivity, to enter new markets, and to exit losing ones. 78) A Studies of privatization have shown that the process often fails to deliver predicted benefits if the newly privatized firms continue to receive subsidies from the state and if they are protected from foreign competition by barriers to international trade and foreign direct investment. In such cases, the newly privatized firms are sheltered from competition and continue acting like state monopolies. 79) D Version 1

Hand in hand with deregulation has come a sharp increase in privatization. 80) D When Brazil decided to privatize the state-owned telephone monopoly, Telebras, the government also split the company into four independent units that were to compete with each other and removed barriers to foreign direct investment in telecommunications services. This action ensured that the newly privatized entities would face significant competition and thus would have to improve their operating efficiency to survive. 81) E Without a legal system that protects property rights, and without the machinery to enforce that system, the incentive to engage in economic activity can be reduced substantially by private and public entities, including organized crime, that expropriate the profits generated by the efforts of private-sector entrepreneurs. 82) A The global changes in political and economic systems discussed earlier have several implications for international business. The long-standing ideological conflict between collectivism and individualism that defined the twentieth century is less in evidence today. 83) E For nearly 50 years, half of the world was off-limits to Western businesses. Now much of that has changed. Many of the national markets of Eastern Europe, Latin America, Africa, and Asia may still be undeveloped and impoverished, but they are potentially enormous. 84) B

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Countries with democratic regimes, market-based economic policies, and strong protection of property rights are more likely to attain high and sustained economic growth rates and are thus a more attractive location for international business. 85) D While some markets are very large when measured by number of consumers (e.g., China and India), low living standards may imply limited purchasing power and therefore a relatively small market when measured in economic terms. 86) D In the most general sense, the long-run monetary benefits of doing business in a country are a function of the size of the market, the present wealth (purchasing power) of consumers in that market, and the likely future wealth of consumers. 87) A By identifying and investing early in a potential future economic star, international firms may build brand loyalty and gain experience in that country's business practices. In the language of business strategy, early entrants into potential future economic stars may be able to reap substantial first-mover advantages, while late entrants may fall victim to late-mover disadvantages. 88) A First-mover advantages are the advantages that accrue to early entrants into a market. By identifying and investing early in a potential future economic star, international firms may build brand loyalty and gain experience in that country's business practices. 89) B

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Late-mover disadvantages are the handicaps that late entrants might suffer. In the language of business strategy, early entrants into potential future economic stars may be able to reap substantial first-mover advantages, while late entrants may fall victim to late-mover disadvantages. 90) E Both China and India have achieved high growth rates despite relatively weak property rights regimes and high levels of corruption. In both countries, the shift toward a market-based economic system has produced large gains despite weak property rights and endemic corruption. 91) A A country's economic system and property rights regime are reasonably good predictors of economic prospects. Countries with free market economies in which property rights are protected tend to achieve greater economic growth rates than command economies or economies where property rights are poorly protected. 92) C The need to pay what are essentially bribes is greater in closed totalitarian states than in open democratic societies where politicians are held accountable by the electorate. 93) D With regard to political factors, a company may have to pay off politically powerful entities in a country before the government allows it to do business there. The need to pay what are essentially bribes is greater in closed totalitarian states than in open democratic societies where politicians are held accountable by the electorate. 94) B Version 1

Local laws that fail to adequately protect intellectual property can lead to the theft of an international business's intellectual property and lost income. 95) A Political risk has been defined as the likelihood that political forces will cause drastic changes in a country's business environment that adversely affect the profit and other goals of a business enterprise. Social unrest typically finds expression in strikes, demonstrations, terrorism, and violent conflict. 96) A Political risk tends to be greater in countries experiencing social unrest and disorder or in countries where the underlying nature of a society increases the likelihood of social unrest. Social unrest typically finds expression in strikes, demonstrations, terrorism, and violent conflict. Such unrest is more likely to be found in countries that contain more than one ethnic nationality. 97) E An economic risk can be defined as the likelihood that economic mismanagement will cause drastic changes in a country's business environment that hurt the profit and other goals of a particular business enterprise. One visible indicator of economic mismanagement tends to be a country's inflation rate. Another is the level of business and government debt in the country. 98) B

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An economic risk can be defined as the likelihood that economic mismanagement will cause drastic changes in a country's business environment that hurt the profit and other goals of a particular business enterprise. One visible indicator of economic mismanagement tends to be a country’s inflation rate. Another is the level of business and government debt in the country. 99) B A legal risk can be defined as the likelihood that a trading partner will opportunistically break a contract or expropriate property rights. 100) B When legal risks in a country are high, an international business might hesitate entering into a long-term contract or joint-venture agreement with a firm in that country. 101) E Social unrest can result in abrupt changes in government and government policy or, in some cases, in protracted civil strife. Such strife tends to have negative economic implications for the profit goals of business enterprises. 102) B Generally, the costs and risks associated with doing business in a foreign country are typically lower in economically advanced and politically stable democratic nations and greater in less-developed and politically unstable nations. 103) B When considering the overall attractiveness of a country, the costs to be considered include corruption, lack of infrastructure, and legal costs.

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104) The Nobel Prize–winning economist Amartya Sen has argued that development should be assessed less by material output measures such as GNI per capita and more by the capabilities and opportunities that people enjoy. According to Sen, development should be seen as a process of expanding the real freedoms that people experience. Hence, development requires the removal of major impediments to freedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, neglect of public facilities as well as the intolerance of repressive states. In Sen's view, development is not just an economic process, but it is a political one too, and to succeed requires the "democratization" of political communities to give citizens a voice in the important decisions made for the community. This perspective leads Sen to emphasize basic health care, especially for children, and basic education, especially for women. Not only are these factors desirable for their instrumental value in helping to achieve higher income levels, but they are also beneficial in their own right. People cannot develop their capabilities if they are chronically ill or woefully ignorant. 105) There is substantial agreement among economists that innovation and entrepreneurial activity are the engines of long-run economic growth. Those who make this argument defineinnovation broadly to include not just new products, but also new processes, new organizations, new management practices, and new strategies. Innovation and entrepreneurial activity help increase economic activity by creating new products and markets that did not previously exist. Moreover, innovations in production and business processes lead to an increase in the productivity of labor and capital, which further boosts economic growth rates. Innovation is also seen as the product of entrepreneurial activity. Often,entrepreneurs first commercialize innovative new products and processes, and entrepreneurial activity provides much of the dynamism in an economy. Version 1

106) The influential Peruvian development economist Hernando de Soto has argued that much of the developing world will fail to reap the benefits of capitalism until property rights are better defined and protected. de Soto’s arguments are interesting because he says the key problem is not the risk of expropriation but the chronic inability of property owners to establish legal title to the property they own. As an example of the scale of the problem, he cites the situation in Haiti, where individuals must take 176 steps over 19 years to own land legally. Because most property in poor countries is informally “owned,” the absence of legal proof of ownership means that property holders cannot convert their assets into capital, which could then be used to finance business ventures. Banks will not lend money to the poor to start businesses because the poor possess no proof that they own property, such as farmland, that can be used as collateral for a loan. By de Soto’s calculations, the total value of real estate held by the poor in third-world and former communist states amounted to more than $9.3 trillion in 2000. If those assets could be converted into capital, the result could be an economic revolution that would allow the poor to bootstrap their way out of poverty.

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107)The political economy of many of the world’s nation-states has changed radically since the late 1980s. Three trends have been evident. First, during the late 1980s and early 1990s, a wave of democratic revolutions swept the world. Totalitarian governments fell and were replaced by democratically elected governments that were typically more committed to free market capitalism than their predecessors had been. Second, over the same period, there has been a move away from centrally planned and mixed economies and toward a more free market economic model. Third, and somewhat counter to the two prior trends, since 2012 there has been a shift back toward greater authoritarianism in some nations, and there are some signs that certain nations may be retreating from the free market model, particularly in the area of international trade where protectionism is on the rise again.

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108) One notable development of the last 30 years has been the spread of democracy (and, by extension, the decline of totalitarianism). Map 3.5 reports on the extent of totalitarianism in the world as determined by Freedom House. This map charts political freedom in 2020, grouping countries into three broad groupings: free, partly free, and not free. In “free” countries, citizens enjoy a high degree of political and civil freedoms. “Partly free” countries are characterized by some restrictions on political rights and civil liberties, often in the context of corruption, weak rule of law, ethnic strife, or civil war. In “not free” countries, the political process is tightly controlled and basic freedoms are denied. Freedom House classified some 83 countries as free in 2020, accounting for about 43 percent of the world’s nations. These countries respect a broad range of political rights. Another 63 countries, accounting for 32 percent of the world’s nations, were classified as partly free, while 49 countries representing approximately 25 percent of the world’s nations were classified as not free. Many of the newer democracies are to be found in eastern Europe and Latin America, although there also have been notable gains in Africa during this time, including South Africa and Nigeria. Entrants into the ranks of the world’s democracies during the last 30 years include Mexico, which held its first fully free and fair presidential election in 2000 after free and fair parliamentary and state elections in 1997 and 1998; Senegal, where free and fair presidential elections led to a peaceful transfer of power; and Nigeria, where in 2015 for the first time the opposition won an election and there was a peaceful transfer of power.

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109)Fukuyama's envisioned a harmonious world dominated by a universal civilization characterized by democratic regimes and free market capitalism. In contrast to Fukuyama, Huntington envisioned a world split into different civilizations, each of which has its own value systems and ideology. He argued there is no "universal" civilization based on widespread acceptance of Western liberal democratic ideals. Huntington maintained that while many societies may be modernizing— they are adopting the material paraphernalia of the modern world, from automobiles to Coca-Cola and Facebook—they are not becoming more Western. On the contrary, Huntington theorized that modernization in non-Western societies can result in a retreat toward the traditional, such as the resurgence of Islam in many traditionally Muslim societies. 110)As for terrorism, in Huntington’s thesis, global terrorism is a product of the tension between civilizations and the clash of value systems and ideology. The terror attacks undertaken by al-Qaeda and ISIS are consistent with this view. Others point to terrorism’s roots in long-standing conflicts that seem to defy political resolution—the Palestinian, Kashmir, and Northern Ireland conflicts being obvious examples. It is also true that much of the terrorism perpetrated by alQaeda affiliates in Iraq during the 2000s and more recently by ISIS in Iraq and Syria can be understood in part as a struggle between radicalized Sunni and Shia factions within Islam. Moreover, a substantial amount of terrorist activity in some parts of the world, such as Colombia, has been interwoven with the illegal drug trade. As former U.S. Secretary of State Colin Powell has maintained, terrorism represents one of the major threats to world peace and economic progress in the twenty-first century.

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111)Deregulation involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. Before the collapse of communism, the governments in most command economies exercised tight control over prices and output, setting both through detailed state planning. They also prohibited private enterprises from operating in most sectors of the economy, severely restricted direct investment by foreign enterprises, and limited international trade. Deregulation in these cases involved removing price controls, thereby allowing prices to be set by the interplay between demand and supply; abolishing laws regulating the establishment and operation of private enterprises; and relaxing or removing restrictions on direct investment by foreign enterprises and international trade. 112)The privatization movement started in Great Britain in the early 1980s when then–Prime Minister Margaret Thatcher started to sell stateowned assets such as the British telephone company, British Telecom (BT). In a pattern that has been repeated around the world, this sale was linked with the deregulation of the British telecommunications industry. By allowing other firms to compete head to head with BT, deregulation ensured that privatization did not simply replace a state-owned monopoly with a private monopoly. Since the 1980s, privatization has become a worldwide phenomenon. More than 8,000 acts of privatization were completed around the world between 1995 and 1999. Some of the most dramatic privatization programs occurred in the economies of the former Soviet Union and its eastern European satellite states. In the Czech Republic, for example, three-quarters of all state-owned enterprises were privatized between 1989 and 1996, helping push the share of gross domestic product accounted for by the private sector up from 11 percent in 1989 to 60 percent in 1995.

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113)A well-functioning market economy requires laws protecting private property rights and providing mechanisms for contract enforcement. Without a legal system that protects property rights, and without the machinery to enforce that system, the incentive to engage in economic activity can be reduced substantially by private and public entities, including organized crime, that expropriate the profits generated by the efforts of private-sector entrepreneurs. When communism collapsed, many of these countries lacked the legal structure required to protect property rights, all property having been held by the state. Although many nations have made big strides toward instituting the required system, it will be many more years before the legal system is functioning as smoothly as it does in the West. 114)Just as the potential gains are large, so are the risks. There is no guarantee that democracy will thrive in many of the world’s newer democratic states, particularly if these states have to grapple with severe economic setbacks. Totalitarian dictatorships could return, although they are unlikely to be of the communist variety. Although the bipolar world of the Cold War era has vanished, it may be replaced by a multipolar world dominated by a number of civilizations. In such a world, much of the economic promise inherent in the global shift toward market-based economic systems may stall in the face of conflicts between civilizations. While the long-term potential for economic gain from investment in the world’s new market economies is large, the risks associated with any such investment are also substantial. It would be foolish to ignore these. The financial system in China, for example, is not transparent, and many suspect that Chinese banks hold a high proportion of nonperforming loans on their books. If true, these bad debts could trigger a significant financial crisis during the next decade in China, which would dramatically lower growth rates.

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115)The overall attractiveness of a country as a potential market or investment site for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. Generally, the costs and risks associated with doing business in a foreign country are typically lower in economically advanced and politically stable democratic nations and greater in less developed and politically unstable nations. The calculus is complicated, however, because the potential long-run benefits are dependent not only upon a nation's current stage of economic development or political stability but also on likely future economic growth rates. Economic growth appears to be a function of a free market system and a country's capacity for growth (which may be greater in less developed nations). This leads one to conclude that, other things being equal, the benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems and no dramatic upsurge in either inflation rates or private-sector debt. It is likely to be least favorable in politically unstable developing nations that operate with a mixed or command economy or in developing nations where speculative financial bubbles have led to excess borrowing.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) There is universal consensus on the definition of culture. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-01 Explain what is meant by the culture of a society. Topic : What is Culture? Gradable : automatic

2) Rituals and symbols are visible manifestations of a culture and constitute the outward expression of deeper values. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-01 Explain what is meant by the culture of a society. Topic : What is Culture? Gradable : automatic

3) While folkways are routine conventions, they represent deep moral significance in society. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 04-01 Explain what is meant by the culture of a society. Topic : What is Culture? Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

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4) A group consists of two or more individuals who have a shared sense of identity and interact in a structured way. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture Gradable : automatic

The group is the typical unit of social organization found in non-Western societies. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Social Culture Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Gradable : automatic

Children tend to become a member of the social category to which their parents belong. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture Gradable : automatic

The least rigid system of social stratification is a caste system.

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⊚ ⊚

true false

8) In the United States, individuals who are born into a class system and are at the bottom of the social hierarchy can work their way up. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture Gradable : automatic

9) Class membership in the United States is based on economic achievement rather than familial background and schooling. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture Gradable : automatic

10) Companies that assume a high degree of class consciousness are better able to establish a competitive advantage in the global economy. Version 1

⊚ ⊚

true false

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Social Culture Learning Objective : 04-03 Identify the business and economic implications of differences in culture. AACSB : Reflective Thinking Gradable : automatic

11) An emphasis on collective action makes it easier to build teams within an organization to perform group tasks ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Social Culture Learning Objective : 04-03 Identify the business and economic implications of differences in culture. AACSB : Reflective Thinking Gradable : automatic

12) Confucianism and Confucian ethics influence behavior and shape culture in parts of Asia; therefore, it is correct to characterize Confucianism as a religion. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Philosophical Approaches to Ethics Gradable : automatic

13)

Most of the ethical systems in place around the world are the product of religion.

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⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Understand Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Ethical Issues in International Business Gradable : automatic

14) Max Weber argued that the Catholic promise of salvation in the next world, rather than this world, fostered "a spirit of capitalism." ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Ethical Issues in International Business Gradable : automatic

15)

While well-known to many, Islam has one of the smallest followings of all religions. ⊚ true ⊚ false

16) Under the Islamic banking method of mudarabah, when an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment. Version 1

⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Ethical Issues in International Business Gradable : automatic

17) When a murabaha contract is used in Islamic banking, a company essentially pays the bank to purchase equipment, supplies, and other needs on behalf of the company. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-03 Identify the business and economic implications of differences in culture. AACSB : Reflective Thinking Topic : Ethical Issues in International Business Gradable : automatic

18) The concept of mobility between castes within an individual's lifetime is a central tenet for traditional Hindus. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Ethical Issues in International Business Gradable : automatic

19) Confucianism is not concerned with the supernatural and has little to say about the concept of a supreme being or an afterlife. Version 1

⊚ ⊚

true false

20) Cultural norms, such as respect for others and neatness, are part of the “hidden curriculum” in schools. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture Gradable : automatic

21) According to Geert Hofstede, high power distance cultures were found in societies that tended to play down inequalities of power and wealth. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-04 Recognize how differences in social culture influence values in business. Topic : Hofstede’s Framework Gradable : automatic

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22) According to Hofstede’s research, in feminine cultures, sex roles are sharply distinguished and there is vast differentiation between men and women in the same job. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-04 Recognize how differences in social culture influence values in business. Topic : Hofstede’s Framework Gradable : automatic

23)

In Japan today, office workers are still steadfastly adhering to the collectivist model. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Social Culture Learning Objective : 04-05 Demonstrate an appreciation for the economic and business implications of Gradable : automatic

24) According to the World Values Survey, as countries get richer, a shift occurs away from "traditional values" linked to religion, family, and country, and toward "secular rational" values. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Social Culture Learning Objective : 04-05 Demonstrate an appreciation for the economic and business implications of Gradable : automatic

Version 1

25) An Asian country has seen a shift from a universal following of traditional values to a society in which the younger generation is adopting more Western values and methods of conducting business. This is known as the adaptation hypothesis. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Social Culture Learning Objective : 04-05 Demonstrate an appreciation for the economic and business implications of Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Baruth has been asked by his manager to directly contact the CEO of the foreign company they are trying to do business. However, Baruth knows that this is not a socially acceptable practice there, and it is better to wait for the company to contact him. Which aspect of culture is guiding Baruth’s decision? A) values B) norms C) attitudes D) dispositions E) beliefs

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-01 Explain what is meant by the culture of a society. Topic : Social Culture AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

27)

A group of people who share a common set of values and norms is called a(n)

Version 1

A) alliance. B) team. C) cohort. D) society. E) folkway.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-01 Explain what is meant by the culture of a society. Topic : Social Culture Gradable : automatic

28) Janine values individual freedom, democracy, and loyalty, and she believes all Americans do the same. This belief is an expression of Janine’s A) values. B) ethics. C) folkways. D) norms. E) cohorts.

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-01 Explain what is meant by the culture of a society. Difficulty : 2 Medium Topic : Social Culture AACSB : Reflective Thinking Bloom's : Apply Gradable : automatic

29)

Which statement about culture is true?

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A) Culture is static as it does not evolve. B) Multinational enterprises can be engines of cultural change. C) The cost of doing business in a country or region is always independent of its culture. D) It is not possible for a country to support multiple cultures. E) The values and norms of a culture emerge fully formed.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 04-01 Explain what is meant by the culture of a society. Topic : What is Culture? Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

30)

In a social context, the term values is used to describe the A) economic benefits inherent to a culture. B) collective wealth of the society. C) ideas about what a group believes to be good, right, and desirable. D) political preferences of a country. E) social rules and guidelines about appropriate behavior in public.

31) When a visiting member to Dalia’s book club started repeating conspiracy theories about the book’s author without any proof, the members of the club redirected the discussion and told her that wasn’t fair to the author, who wasn’t there to defend herself. This demonstrates the book club’s

Version 1

A) values. B) ethics. C) folkways. D) mores. E) rules.

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-01 Explain what is meant by the culture of a society. Topic : What is Culture? Difficulty : 2 Medium AACSB : Knowledge Application Bloom's : Apply Gradable : automatic

32) In a society, actions of people directed toward one another are governed by a set of social rules called A) norms. B) manifestoes. C) laws. D) scriptures. E) dialects.

33) Roberto knows it is important for him to dress appropriately and make sure his hair is neatly trimmed when he goes for an interview because the employer will expect him to do so. This example of a social convention is called a

Version 1

A) folkway. B) value. C) mandate. D) rule. E) taboo.

34)

Which situation exemplifies a violation of a folkway? A) committing a financial fraud B) practicing cannibalism under the belief that it leads to superpowers C) failing to greet a person you know D) stealing an author's or an inventor's intellectual property E) committing mail fraud

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-01 Explain what is meant by the culture of a society. Topic : What is Culture? AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

35)

What is one difference between folkways and mores?

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A) Folkways are norms that are seen as central to the functioning of a society, whereas mores are the routine conventions of everyday life. B) Violating mores tends to bring more serious retribution than violating folkways. C) Folkways exclude rituals and symbolic behaviors included in mores. D) Folkways have much greater significance than mores. E) Mores cannot be enacted into laws, whereas folkways can.

36) Joshua decided that the only way he could pay back his auto loan was to transfer funds from the company where he worked directly into his personal account. He also knows that if he gets caught, he will probably spend time in jail. Joshua’s choice represents a violation of A) folkways. B) mores. C) rituals. D) etiquette. E) precepts.

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-01 Explain what is meant by the culture of a society. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : Causes of Unethical Behavior Gradable : automatic

37) When she visited Italy, Catherine noticed that restaurants were slower to deliver food and expected customers to stay longer than she was used to in the U.S. This is an example of a

Version 1

A) folkway. B) value. C) more. D) law. E) rule.

38)

What is a characteristic of mores? A) Mores are actions of little moral significance. B) Violation of mores is generally not a serious matter. C) Social conventions regarding how we eat are a good example of mores. D) Mores do not differ among cultures. E) Certain mores have been enacted into law.

39)

Which statement about most Western societies is true?

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A) In Western societies groups, rather than individuals, are the basic building blocks of social organization. B) The value systems of many Western societies emphasize individual achievement. C) In Western societies, the social standing of individuals is merely a function of who they work for. D) The emphasis on individuals in Western societies has led to a low level of entrepreneurial activity. E) It is easier to build and manage teams within organizations in Western societies.

40)

What has strongly influenced the development of modern extended social groups? A) a common agreement among governments B) falling levels of underdeveloped nations C) the return to family values D) the advent of social media E) the creation of multiple subcultures

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture Gradable : automatic

41) to

A high degree of managerial mobility in societies that emphasize individualism can lead

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A) reduced costs of doing business. B) increased managerial loyalty and commitment to an individual company. C) lack of company-specific experience, knowledge, and a network of contacts among managers. D) lack of exposure among employees to different ways of doing business. E) inability to apply good practices and techniques developed in one firm to other firms.

42) In the context of social structure, comparatively American society is characterized by a low degree of A) social stratification. B) mobility between strata. C) entrepreneurial activity. D) managerial mobility. E) dynamism and innovation.

43) In one small African country, it is very hard for a person born within a particular stratum of society to move to a different stratum. This means that the country has a low degree of

Version 1

A) social mobility. B) ethnocentrism. C) entrepreneurial activity. D) managerial mobility. E) dynamism and innovation.

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

44) A country emphasizes individual performance and achievements in every sphere of society. How might this affect the business environment in this country? A) There would be a low degree of dynamism and innovation. B) Managerial mobility would be the most effective resource. C) There would be a low degree of entrepreneurial activity in the country. D) The employees in this country may lack loyalty and commitment to a company. E) Managers in such a country have highly developed company-specific skills, but they lack general skills.

Question Details Accessibility : Keyboard Navigation Topic : Social Culture Learning Objective : 04-03 Identify the business and economic implications of differences in culture. AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

45)

One of the downsides to an emphasis on individualism is that it

Version 1

A) is difficult to build teams within an organization to perform collective tasks. B) does not support entrepreneurship and innovation. C) discourages managerial mobility. D) fails to foster general managerial skills required to find solutions to current problems. E) discourages competition among employees within a company.

46) Mosha, who works for a multinational company, is often put in teams consisting of people from different cultures. Mosha finds it difficult to function in these teams because, unlike the others, he comes from a culture where building his personal "brand" is emphasized. His culture emphasizes A) individualism. B) ethnocentrism. C) collectivism. D) cooperation. E) group identify.

Question Details Accessibility : Keyboard Navigation Topic : Social Culture Learning Objective : 04-03 Identify the business and economic implications of differences in culture. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

47) Hiroko lives in Japan. She belongs to many groups, but the one that is most important to her in terms of her status is most likely

Version 1

A) the immediate family. B) social peers. C) traditional friendships. D) the company she works for. E) her educational institution.

Question Details Accessibility : Keyboard Navigation Difficulty : 2 Medium Topic : Social Culture Learning Objective : 04-03 Identify the business and economic implications of differences in culture. AACSB : Knowledge Application Bloom's : Apply Gradable : automatic

48) When compared to American society, some argue that Japanese society is characterized by a lack of A) commitment to lifetime employment. B) emphasis on group memberships. C) self-managing work teams. D) close cooperation between individuals. E) entrepreneurship.

49) Maribelle’s company has always emphasized that every employee is an important part of the company’s success and does not highlight individual achievements. By emphasizing the group, Maribelle’s company will most likely

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A) encourage competition between members of the group. B) expose managers to different ways of doing business. C) foster dynamism and entrepreneurship. D) discourage employees from moving from company to company. E) fail to facilitate self-managing work teams.

50) When Broderick’s society placed an emphasis on group identification over individualism, he found that this emphasis A) encouraged managerial mobility between companies. B) led to a lack of entrepreneurship. C) hampered team building and cooperation. D) raised the costs of doing business due to its adverse impact on managerial stability. E) led to the lack of company-specific skills and a network of contacts among managers.

51) Karon was born into a family that owns numerous corporations and more than one multimillion dollar home. She never worried about paying for college or buying her own car. These characteristics define Karon’s

Version 1

A) mores. B) social stratum. C) folkways. D) values. E) caste system.

Question Details Accessibility : Keyboard Navigation Difficulty : 2 Medium Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture AACSB : Knowledge Application Bloom's : Apply Gradable : automatic

52) What is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual's lifetime? A) caste system B) merit system C) class system D) collectivism E) individualism

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53) A country follows a system of social stratification that allows for flexibility in terms of social mobility. In this system of open stratification, the status of a person is solely determined by his or her own socioeconomic achievements. This country is most likely to be following what system of social stratification? A) caste B) class C) religious D) grade E) bureaucratic

54) In one country, citizens are restricted from moving out of the stratum they are born into. Also, individuals are allowed to engage only in the same occupation as their parents. The system of social stratification being practiced is a __________ system. A) cluster B) caste C) merit-based D) class E) bureaucracy-based

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture AACSB : Reflective Thinking Difficulty : 3 Hard Gradable : automatic

Version 1

55) Some sociologists argue that __________ has a more rigid class structure than other Western societies, including the United States, because of its historical division into three main classes. A) South Africa B) India C) Italy D) Japan E) the United Kingdom

56) When Sari learned that Mary was from a poor neighborhood in the south of town, she decided to stop befriending her since her own family lives in a wealthy neighborhood along the beach. Sari’s choice is an example of A) social mobility. B) class consciousness. C) cross-culture literacy. D) extended social groups. E) class representativeness.

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57) In one country, people are traditionally conscious about their socioeconomic backgrounds. This in turn regulates their relationships with members of other classes. What will most likely result from this heightened class consciousness? A) The mobility between the social classes of the society will increase. B) The level of industrial disruption and industrial disputes will be low. C) Most of the population will perceive itself to be middle class. D) An antagonistic relationship will exist between management and labor classes. E) Successful individuals, irrespective of their origins, will be highly respected.

Question Details Accessibility : Keyboard Navigation Topic : Social Culture Learning Objective : 04-03 Identify the business and economic implications of differences in culture. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

58) A high degrees of class consciousness in societies can be disruptive within industries, which can often lead to A) high levels of social mobility. B) healthy relationships between management and labor classes. C) low levels of industrial disruption. D) an increase in the costs of production. E) greater opportunities for businesses to establish competitive advantage.

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59) Which ethical system has influenced behavior and shaped culture in parts of Asia, but is not considered a religion? A) Confucianism B) Hinduism C) Islam D) Christianity E) Buddhism

60)

In 1904, Max Weber theorized that there was a relationship between Protestantism and A) personal happiness. B) freedom. C) capitalism. D) ethics. E) manufacturing.

Version 1

61) Some sociologists argue that the __________ branch of Christianity has had the greatest effect on the economy. A) Orthodox B) Muslim C) Catholic D) Jewish E) Protestant

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Ethical Decision Making Gradable : automatic

62) According to Max Weber, the Protestant tributes of hard work, wealth creation, and __________ fostered the emergence of modern capitalism. A) polychronic time B) positivity C) ethnocentrism D) monochronic time E) frugality

63)

The rise of Islamic fundamentalism is, in part, a response to the

Version 1

A) denial of equal rights for women and other minorities. B) movement in traditional Islamic societies toward modernization. C) narrowing gap between the rich and the poor. D) increasing standard of living in Islamic societies. E) widening gap between the highly developed and the less developed nations.

64)

What is a characteristic of Islamic values, norms, and rituals? A) Islam has roots in Confucianism. B) Islamic ethics support worldly gain and temporal power. C) Islam forbids the consumption of pork and alcohol. D) Islam makes a clear distinction between church and state. E) Unlike Christianity and Judaism, Islam is not a monotheistic religion.

65)

According to Islamic beliefs, private property is considered

Version 1

A) a favor from Allah. B) property of the state. C) a privilege and not a right. D) a sign of wealth and prosperity. E) a sign of moral degradation.

66) A major distinction between a conventional bank and an Islamic bank is that Islamic banks A) are allowed to charge higher interest rates on loans. B) cannot accept private deposit. C) cannot pay or charge interest. D) are not subject to any form of law. E) are supposed to refrain from making a profit through any source.

67)

A mudarabah contract might be categorized as a(n) __________ in the United States.

Version 1

A) profit-sharing scheme B) mortgage C) personal loan D) unethical transaction E) property tax

68) Armen’s religion believes in the spiritual progression of each person’s soul and that dharma is the moral force guiding behavior. Which religion does this describe? A) Hinduism B) Islam C) Protestantism D) Buddhism E) Catholicism

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-02 Identify the forces that lead to differences in social culture. AACSB : Reflective Thinking Topic : Philosophical Approaches to Ethics Gradable : automatic

69)

Which religion does not owe its founding to any one particular individual?

Version 1

A) Buddhism B) Hinduism C) Christianity D) Islam E) Catholicism

70)

Dharma refers to A) the spiritual progression of each person’s soul. B) a moral force that requires the acceptance of certain responsibilities. C) the belief in reincarnation. D) a lack of belief in one God. E) a state of complete spiritual perfection.

71)

A person who practices Hinduism would say that nirvana can only be achieved by

Version 1

A) persisting in a quest for material goods. B) practicing physical self-denial. C) material reincarnation. D) accumulating wealth. E) achieving spiritual oneness.

72)

Which statement about Hinduism is true? A) Hinduism supported India's caste system. B) Hinduism allows mobility between castes within an individual's lifetime. C) Max Weber argued that Hinduism encourages entrepreneurial activity. D) Hindus do not believe in reincarnation, or rebirth into a different body, after death. E) Hinduism was founded by Siddhartha Gautama, an Indian prince.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Philosophical Approaches to Ethics Gradable : automatic

73) Max Weber argued that the ascetic principles embedded in __________ do not encourage entrepreneurial activity in pursuit of wealth creation.

Version 1

A) Islam B) Hinduism C) Confucianism D) Protestantism E) capitalism

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Philosophical Approaches to Ethics Gradable : automatic

74)

Hindus see mobility between castes as something that can only be achieved through

A) appropriate schooling and occupation. B) individual economic achievements over the course of one's lifetime. C) spiritual progression and reincarnation. D) hard work that results in gradual upward mobility over generations. E) offering prayer five times a day, and by refraining from the payment or receipt of interest.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Understand Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Philosophical Approaches to Ethics Gradable : automatic

75) A woman recently quit her job in a bank because her religion considers the payment or receipt of interest as exploitative and unjust. According to this information, she is a follower of

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A) Protestantism. B) Hinduism. C) Judaism. D) Confucianism. E) Islam.

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Ethical Issues in International Business AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

76) When Sheng converses with his colleagues in the multinational company that he works for, he finds that he is the only one who believes in and talks about things such as reincarnation and the spiritual progression of each person's soul. Sheng's religion is most likely A) Protestantism. B) Hinduism. C) Judaism. D) Confucianism. E) Islam.

77)

Confucianism is based on the idea that personal salvation can be achieved through

Version 1

A) nirvana. B) physical denial. C) spiritual progression. D) right action. E) wealth accumulation.

78) Which religion was founded in the sixth century B.C. by Siddhartha Gautama, who renounced his wealth to pursue an ascetic lifestyle and spiritual perfection? A) Hinduism B) Buddhism C) Confucianism D) Islam E) Judaism

79)

What is the common aspect of the teachings of Hinduism and Buddhism?

Version 1

A) Both stress the afterlife and spiritual achievement rather than worldly involvement. B) Both support the existence of a caste system. C) Both advocate the same kind of extreme ascetic behavior. D) Both propagate the Noble Eightfold Path as a route for transformation. E) Both condemn the payment or the receipt of interest on loans and deposits.

80)

Which statement about Buddhism is true?

A) Buddhism was founded in the fifth century B.C. by K'ung-Fu-tzu, in China. B) Cultural stress on entrepreneurial behavior is not present. C) Buddhism advocates the kind of extreme ascetic behavior that is encouraged by Hinduism. D) Like Hinduism, Buddhism also supports the caste system. E) Unlike Hinduism, Buddhism does not stress afterlife and spiritual achievement.

81) Maurice practices a religion that does not propagate the caste system. Also, his religion emphasizes right seeing, thinking, speech, action, living, effort, mindfulness, and meditation as a route for spiritual transformation. According to this information, Maurice can be considered a

Version 1

A) Hindu. B) Buddhist. C) Confucian. D) Sikh. E) Muslim.

Question Details Accessibility : Keyboard Navigation Difficulty : 2 Medium Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Philosophical Approaches to Ethics AACSB : Knowledge Application Bloom's : Apply Gradable : automatic

82) For more than 2,000 years until the 1949 communist revolution, what was the official ethical system of China? A) Maoism B) Feng Shui C) Confucianism D) Shintoism E) Buddhism

83)

According to Confucian thought, being loyal to one’s superiors is considered

Version 1

A) an optional practice. B) a sign of ethnocentrism and stereotyping. C) a negative response. D) an absolute obligation. E) less important than loyalty to family.

84) In a Confucian culture, it would be common for a superior to reward the loyalty of a subordinate by bestowing blessings on him or her. These blessings are examples of A) saving face. B) cognitive dissonance. C) stereotyping. D) reciprocal obligations. E) legal constructs.

85)

Which statement about Confucianism is true?

Version 1

A) Confucianism is a religion principally followed in India, Korea, and Japan. B) Confucianism preaches about the supernatural, the concept of a supreme being, and an afterlife. C) Confucian ethics raise the costs of doing business in China, Japan, South Korea, and Taiwan. D) Conflict between management and labor tends to be high in the countries that follow Confucianism. E) Three values central to Confucianism are loyalty, reciprocal obligations, and honesty in dealing with others.

86) A company is a devout follower of Confucian ethics. Hence, it hires people who live by similar principles. What is most likely to be a characteristic of this company? A) The conflict between management and labor will be high. B) The company's management will expect blind loyalty from the workers. C) It will often indulge in violations of business agreements. D) The cost of doing business will be low for those companies that enter into a business with it. E) It will not have any relationship networks supported by reciprocal obligations.

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-03 Identify the business and economic implications of differences in culture. AACSB : Reflective Thinking Topic : Philosophical Approaches to Ethics Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

Version 1

87) Zhang is a representative for a Chinese company that is based in Confucian culture. When Zhang mentions to his staff that guanxi should be taken into consideration, what is he referring to? A) the ability to produce the best product at the lowest cost B) relationships or connections the business has C) government tariffs that could affect business D) building a company from the ground up E) working with foreign nationals who have opposing views

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 2 Medium Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Philosophical Approaches to Ethics Bloom's : Apply Gradable : automatic

88)

What Confucian ethic is central to the Chinese concept of guanxi? A) holding all material possessions in trust for God B) renunciation of the material world C) devoting life to a spiritual quest D) reciprocal obligations E) individual progress

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Philosophical Approaches to Ethics Gradable : automatic

Version 1

89) A company that wants to market winter gear to citizens of Alaska should be aware that there are 24 words used in the state to describe different types of snow. This shows how __________ structures how we perceive the world and defines a culture. A) language B) nonverbal cues C) listening D) perception E) dissonance

90) What is the most widely spoken language in the world, and is increasingly becoming the language of international business? A) Mandarin B) French C) English D) Spanish E) German

Version 1

91) Mandarin Chinese is the mother tongue of the largest number of people, but English is the most widely spoken language in the world. This indicates that A) many people speak English as a second language. B) many native English speakers are learning Chinese. C) the population of native English speakers exceeds that of China. D) Chinese will soon overtake English as the most widely spoken language. E) Chinese is increasingly becoming the language of international business.

92) Kristina felt very uncomfortable while talking to the store manager because he moved so close to Kristina that his face was just inches away. What aspect of the situation was bothering Kristina? A) verbal cues B) punctuation C) speech tone D) unspoken language E) voice modulation

Question Details Accessibility : Keyboard Navigation Difficulty : 2 Medium Learning Objective : 04-02 Identify the forces that lead to differences in social culture. AACSB : Knowledge Application Bloom's : Apply Topic : How Language Affects Culture Gradable : automatic

93)

What is the best definition of personal space?

Version 1

A) It is the amount of distance to be maintained from the audience in order to be audible to them. B) It is a psychological phase wherein a person has free flowing thoughts. C) In ergonomics, it is the minimum amount of space required by an average employee in order to work efficiently. D) It is the comfortable amount of distance between you and someone you are talking with. E) It is the amount of space a country has per person and is arrived at by dividing the country's total geographical area by its total population.

94) When schools emphasize respect for others, obedience to authority, honesty, neatness, being on time, and use a grading system, they are A) teaching children to be noncompetitive. B) impinging on fundamental freedoms and values. C) indirectly teaching cultural values and norms. D) indirectly creating a rigid caste system. E) unnecessarily deviating from formal education.

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95) What does Michael Porter point to as the reason for Japan’s success in the post-World War II economy? A) family heritage B) high taxation C) education system D) government intervention E) more small businesses

96) Managers at World Imports/Exports, an international company with operations in China and the United States, are often heard complaining about the difficulties in achieving synergy and cooperation between the employees of both the countries. After extensive research it was concluded that the cultural differences between these countries, which resulted in different workrelated values, caused the lack of cooperation. In order to effectively tackle this problem, World Imports/Exports should A) vary its management processes and practices to account for these differences. B) adopt the host country's management processes and practices in both countries. C) opt to exit one of the countries to avoid a conflict. D) provide incentives to the employees based only on their individual performance. E) adopt the home country's management processes and practices in both countries.

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-04 Recognize how differences in social culture influence values in business. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : The Nature of Cross-Cultural Risk Gradable : automatic

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97) Hofstede added a fifth dimension to his study on how culture relates to values in the workplace known as long-term versus short-term orientation, which was inspired by A) Hinduism. B) capitalism. C) Confucianism. D) Christianity. E) communism.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-04 Recognize how differences in social culture influence values in business. Topic : Hofstede's Framework Gradable : automatic

98)

Which statement regarding Geert Hofstede's cultural dimensions is true? A) In societies where collectivism was emphasized, the ties between individuals were

loose. B) Low power distance cultures were found in countries that let inequalities grow over time into inequalities of power and wealth C) Members of high uncertainty avoidance cultures had a strong need for rules and regulations. D) In masculine cultures, little differentiation was made between men and women in the same job. E) Members of low uncertainty avoidance cultures placed a premium on job security, career patterns, and retirement benefits.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-04 Recognize how differences in social culture influence values in business. Topic : Hofstede's Framework Gradable : automatic

99) In Maria’s company, senior officers eat in the same cafeteria as the entry-level workers. On a trip to an office of the company in Brazil, she was surprised to find that the company had different cafeterias for managers and workers as well as different parking lots. The difference that Maria perceived can be attributed to which of Hofstede's dimensions? A) uncertainty avoidance B) individualism C) power distance D) collectivism E) masculinity

100) Job security and retirement benefits are extremely important to an entry-level employee. Hofstede would say this employee exhibits high A) collectivism. B) masculinity. C) uncertainty avoidance. D) power distance. E) class consciousness.

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101) When traveling to another country on business, Jacob was shocked to meet a male nurse. In his hometown, nurses were always female. Jacob’s home country culture displays a high degree of which of Hofstede's cultural dimensions? A) collectivism B) masculinity C) low uncertainty avoidance D) high power distance E) class consciousness

102) A country where “saving face” is valued is an example of which of Hofstede’s dimensions? A) individualism versus collectivism B) long-term versus short-term orientation C) masculinity versus femininity D) uncertainty avoidance E) power distance

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103)

What is a characteristic of high uncertainty avoidance cultures? A) They place importance on job flexibility and indefinite career patterns. B) They allow a manager to tightly control subordinates' initiatives. C) They demonstrate less emotional resistance to change. D) They are characterized by a greater readiness to take risks. E) They oppose the use of rules and regulations to exercise control over individuals.

104)

A country characterized by low uncertainty avoidance and low masculinity will

A) place a premium on job security and career progression for both men and women. B) support stringent managerial control and competition between men and women. C) be less resistant to change and less distinguishing between men and women in the same job. D) have a strong need for rules and exertion of power in the society and gender egalitarianism. E) oppose risk-taking and gender egalitarianism.

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105)

What would be a traditional value in a masculine culture? A) empathy B) achievement C) indistinguishable sex roles D) muted power E) reciprocity

106) Which of Hofstede's dimensions focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities? A) individualism versus collectivism B) power distance C) uncertainty avoidance D) masculinity versus femininity E) Confucian dynamism

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107)

What is the new “sixth dimension” to be added to Hofstede’s original dimensions? A) sympathy versus empathy B) individualism versus collectivism C) static versus constancy D) indulgence versus restraint E) supply versus demand

108) What term is used by Hofstede to describe a society that allows relatively free gratification of basic human drives? A) democratic B) utilitarian C) ambiguous D) indulgence E) persistence

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109)

Hofstede’s research has been criticized as A) being culturally bound. B) focusing on the fact that many countries have more than one culture. C) ignoring the relationship between culture and the nation-state. D) not focusing on one company. E) not focusing on one industry.

110) A decade ago, the government of a developing country decided to democratize the country's economy. As a result, today the country is experiencing rapid economic advancement and societal changes favorable to international business. Which change is most likely to occur next in this country?

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A) The country will exhibit more need for social and material support structures built on collectives. B) As the country gets richer, there will be a shift in the society from "traditional" to "secular rational" values. C) As the country gets richer, there will be a shift in the society from "well-being" to "survival" values. D) The people in the country will give more importance to collectivism than to individualism. E) Religion will take on a stronger role in business decision making.

Question Details Accessibility : Keyboard Navigation Topic : Social Culture Learning Objective : 04-05 Demonstrate an appreciation for the economic and business implications of AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

111)

Japan’s economy has produced more wealth, which has resulted in a decrease in A) collectivism. B) individualism. C) business. D) values. E) achievement.

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112) The distinctive culture of a small country has been losing its relevance among the citizens of the country. This is due to the fact that the people of this country are extensively adopting certain universally accepted values and norms. This behavior of these citizens demonstrates A) ethnocentrism. B) the convergence hypothesis. C) egocentrism. D) cultural stagnation. E) social mobility.

Question Details Accessibility : Keyboard Navigation Topic : Social Culture AACSB : Reflective Thinking Learning Objective : 04-05 Demonstrate an appreciation for the economic and business implications of Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

113) Caterina argues to anyone who will listen that the cultural group she belongs to is superior. As a result, she has developed a reputation in her company as being intolerant of employees from other cultures. Caterina’s behavior is known as A) cultural convergence. B) Confucian dynamism. C) ethnocentrism. D) cultural literacy. E) class consciousness.

Question Details Accessibility : Keyboard Navigation Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 04-05 Demonstrate an appreciation for the economic and business implications of Bloom's : Apply Topic : Ethnocentrism Gradable : automatic

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114)

Which scenario best exemplifies ethnocentrism?

A) Tanya believes that her opinions and interests are superior to that of her siblings. B) Natalie is highly tolerant toward different cultures and enjoys learning different languages. C) Bo's belief in the superiority of his culture has resulted in conflicts with his colleagues from different countries. D) Estavan faces an ethical dilemma as he must decide whether or not to hire his underqualified cousin. E) A large corporation has been accused of using legal but unethical ways to gain access to the markets of less developed countries.

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-05 Demonstrate an appreciation for the economic and business implications of AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : Ethnocentrism Gradable : automatic

115) When interacting with a Japanese business counterpart, Laurie made it very clear that the American way of making the product was superior, implying that the Japanese way of doing business was inferior. Laurie was demonstrating A) power distance. B) the class system. C) ethnocentrism. D) individualism. E) uncertainty avoidance.

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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 116) Compare and contrast values and norms, and then discuss the various types of norms.

117)

Discuss the idea of culture at different levels within a society and provide an example.

Question Details Accessibility : Keyboard Navigation Learning Objective : 04-01 Explain what is meant by the culture of a society. Topic : What is Culture? AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual

118) Two high school students have become pen pals as a cultural exchange assignment prior to graduation. One student is from the U.S., where there is a class system of social stratification, and her parents are successful attorneys. The other student is from Nepal, where there is caste system of social stratification. Her parents and grandparents sold vegetables from a stall in the local market. Explain the difference between a class system and a caste system, and how social stratification will likely impact these students’ achievements in the future.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 04-02 Identify the forces that lead to differences in social culture. Topic : Social Culture Bloom's : Analyze Difficulty : 2 Hard Gradable : manual

119)

Elaborate on the connection made between Protestant ethics and "the spirit of capitalism."

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 04-03 Identify the business and economic implications of differences in culture. AACSB : Reflective Thinking Topic : Philosophical Approaches to Ethics Gradable : manual

120)

Briefly explain how practitioners of Islam view the practice of earning a profit.

121) What are the two different banking methods that Islamic banks have experimented with in order to avoid the payment or receipt of interest?

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Philosophical Approaches to Ethics Gradable : manual

122)

Elaborate on the Hindu beliefs of dharma, karma, and nirvana.

123)

Compare and contrast the principles of Hinduism and Buddhism.

124)

What are the three values that are central to the Confucian system of ethics?

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 04-03 Identify the business and economic implications of differences in culture. Topic : Philosophical Approaches to Ethics Gradable : manual

125)

Briefly describe the five cultural dimensions in Hofstede's model.

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Answer Key Test name: Hill_4 1) FALSE There isn’t a universal consensus on the definition of culture, which makes it difficult to build culture into a company’s global operations. Thousands of definitions have been offered for the term culture. 2) TRUE 3) FALSE 4) TRUE Agroup is an association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behavior. 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) TRUE 10) FALSE 11) TRUE 12) FALSE 13) TRUE 14) FALSE 15) FALSE 16) TRUE

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The Islamic banking method of themudarabah contract is similar to a profit-sharing scheme. Undermudarabah, when an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment. 17) TRUE In amurabaha contract, when a firm wishes to purchase something using a loan—let’s say a piece of equipment that costs $1,000—the firm tells the bank after having negotiated the price with the equipment manufacturer. The bank then buys the equipment for $1,000, and the borrower buys it back from the bank at some later date for, say, $1,100, a price that includes a $100 markup for the bank. 18) FALSE 19) TRUE 20) TRUE 21) FALSE 22) FALSE 23) FALSE 24) TRUE 25) FALSE There may be a slow but steadyconvergence occurring across different cultures toward some universally accepted values and norms. This is known as the convergence hypothesis, and such convergence at least is happening at younger ages of the population. 26) B Culture is a system of values and norms that are shared among a group of people. Norms are the social rules and guidelines that prescribe appropriate behavior in particular situations. 27) D

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The term society refers to a group of people who share a common set of values and norms. 28) A Values form the bedrock of a culture. Values provide the context within which a society’s norms are established and justified. They may include a society’s attitudes toward such concepts as individual freedom, democracy, truth, justice, honesty, loyalty, social obligations, collective responsibility, women, love, sex, marriage, and so on. 29) B It is important to note that multinational enterprises can themselves be engines of cultural change. In India, for example, McDonald's and other Western fast-food companies may help to change the dining culture of that nation, drawing them away from traditional restaurants and toward fast-food outlets. 30) C Values are meant to describe ideas about what a group believes to be good, right, and desirable. Put differently, values are shared assumptions about how things ought to be. 31) A Values are meant to describe ideas about what a group believes to be good, right, and desirable. Put differently, values are shared assumptions about how things ought to be. 32) A Norms mean the social rules and guidelines that prescribe appropriate behavior in particular situations. Put differently, they are the social rules that govern people's actions toward one another. 33) A

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Folkways are the routine conventions of everyday life. Generally, folkways are actions of little moral significance. They are social conventions concerning things such as the appropriate dress code in a particular situation, good social manners, eating with the correct utensils, neighborly behavior, etc. 34) C Folkways are the routine conventions of everyday life. Generally, folkways are actions of little moral significance, like greeting a person you know. Although folkways define the way people are expected to behave, violation of them is not normally a serious matter. 35) B Mores are norms that are seen as central to the functioning of a society and to its social life. They have much greater significance than folkways. Accordingly, violating mores can bring serious retribution. 36) B Mores include such factors as indictments against theft, adultery, incest, and cannibalism. In many societies, certain mores have been enacted into law. 37) A Folkways are the routine conventions of everyday life. A good example of folkways concerns attitudes toward time in different countries. 38) E In many societies, certain mores have been enacted into law. Thus, all advanced societies have laws against theft, incest, and cannibalism. 39) B

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The value systems of many Western societies emphasize individual achievement. The social standing of individuals is not so much a function of who they work for as of their individual performance in whatever work setting they choose. 40) D Social media have expanded the boundaries of what is included in group life and placed an added emphasis on what we can call extended social groups. Social media clearly did not enter into the equation of what was possible in terms of group life. But, social media as a vehicle to the creation of group life has unique possibilities that affect both individuals within a social group and the group itself. 41) C The lack of loyalty and commitment to an individual company, and the tendency to move on for a better offer, can result in managers who have good general skills but lack the knowledge, experience, and network of interpersonal contacts that come from years of working within the same company. 42) A Some societies are characterized by a relatively high degree of social stratification and relatively low mobility between strata (e.g., Indian); other societies are characterized by a low degree of social stratification and high mobility between strata (e.g., American). 43) A Some societies are characterized by a relatively high degree of social stratification and relatively low mobility between strata (e.g., Indian); other societies are characterized by a low degree of social stratification and high mobility between strata. 44) D Version 1

Individualism also finds expression in a high degree of managerial mobility between companies, and this is not always a good thing. The lack of loyalty and commitment to an individual company, and the tendency to move on for a better offer, can result in managers who have good general skills but lack the knowledge, experience, and network of interpersonal contacts that come from years of working within the same company. 45) A The emphasis on individualism makes it difficult to build teams within an organization to perform collective tasks. If individuals are always competing with each other on the basis of individual performance, it may be difficult for them to cooperate. 46) A The emphasis on individualism makes it difficult to build teams within an organization to perform collective tasks. If individuals are always competing with each other on the basis of individual performance (such as building one's personal brand), it may be difficult for them to cooperate. 47) D In traditional Japanese society, the group was the family or village to which an individual belonged. Today, the group has frequently come to be associated with the work team or business organization. 48) E Just as U.S. society is characterized by a great deal of entrepreneurship, reflecting the primacy of values associated with individualism, some argue that Japanese society is characterized by a corresponding lack of entrepreneurship. 49) D Version 1

The primacy of the value of group identification discourages managers and workers from moving from company to company. 50) B The primacy of the group is not always beneficial. For instance, some argue that Japanese society, where the group is the primary unit of social organization, is characterized by a lack of entrepreneurship. 51) B Individuals are born into a particular stratum. They become a member of the social category to which their parents belong. These strata are typically defined on the basis of socioeconomic characteristics such as family background, occupation, and income. 52) A A caste system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual's lifetime. 53) B A class system is a less rigid form of social stratification in which social mobility is possible. It is a form of open stratification in which the position a person has by birth can be changed through his or her own achievements or luck. 54) B A caste system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual's lifetime. Often a caste position carries with it a specific occupation. 55) E

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While many societies have class systems, social mobility within a class system varies from society to society. For example, some sociologists have argued that the United Kingdom has a more rigid class structure than certain other Western societies, such as the United States. 56) B Class consciousness refers to a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with members of other classes. 57) D Class consciousness has been played out in the society. Mutual antagonism and lack of respect make it difficult to achieve cooperation between management and labor in companies and result in a relatively high level of industrial disputes. 58) D An antagonistic relationship between management and labor classes, and the resulting lack of cooperation and high level of industrial disruption, tends to raise the costs of production in countries characterized by significant class divisions. In turn, this can make it more difficult for companies based in such countries to establish a competitive advantage in the global economy. 59) A Confucianism and Confucian ethics influence behavior and shape culture in parts of Asia, yet it is incorrect to characterize Confucianism as a religion. 60) C In 1904, a German sociologist, Max Weber, made a connection between Protestant ethics and "the spirit of capitalism" that has since become famous. Version 1

61) E Several sociologists have argued that of the main branches of Christianity—Catholic, Orthodox, and Protestant—the latter has the most important economic implications. In 1904, prominent German sociologist Max Weber made a connection between Protestant ethics and “the spirit of capitalism” that has since become famous. 62) E Weber theorized that there was a relationship between Protestantism and the emergence of modern capitalism. He argued that Protestant ethics emphasizes the importance of hard work and wealth creation (for the glory of God) and frugality (abstinence from worldly pleasures). 63) B The rise of fundamentalism has no one cause. In part, it is a response to the social pressures created in traditional Islamic societies by the move toward modernization and by the influence of Western ideas, such as liberal democracy, materialism, equal rights for women, and attitudes toward sex, marriage, and alcohol. 64) C The ritual nature of everyday life in a Muslim country is striking to a Western visitor. Among other things, orthodox Muslim ritual requires prayer five times a day (business meetings may be put on hold while the Muslim participants engage in their daily prayer ritual), demands that women should be dressed in a certain manner, and forbids the consumption of pork and alcohol. 65) A The protection of the right to private property is also embedded within Islam, although Islam asserts that all property is a favor from Allah (God), who created and so owns everything. Version 1

66) C Conventional banks make a profit on the spread between the interest rate they have to pay to depositors and the higher interest rate they charge borrowers. However, Islam prohibits the payment or receipt of interest, which is considered usury. 67) A Amudarabah contract is similar to a profit-sharing scheme. Undermudarabah, when an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment. 68) A Hindus believe that a moral force in society requires the acceptance of certain responsibilities, calleddharma. Hindus believe in reincarnation, or rebirth into a different body, after death. Hindus also believe inkarma, the spiritual progression of each person’s soul. 69) B Unlike Christianity, Islam, and Buddhism, the founding of Hinduism is not linked to a particular person. 70) B Hindus believe that a moral force in society requires the acceptance of certain responsibilities, calleddharma. 71) B By perfecting the soul in each new life, Hindus believe that an individual can eventually achieve nirvana, a state of complete spiritual perfection that renders reincarnation no longer necessary. Many Hindus believe that the way to achievenirvana is to lead a severe ascetic lifestyle of material and physical self-denial, devoting life to a spiritual rather than material quest. Version 1

72) A Historically, Hinduism supported India's caste system. The concept of mobility between castes within an individual's lifetime makes no sense to traditional Hindus. Hindus see mobility between castes as something that is achieved through spiritual progression and reincarnation. An individual can be reborn into a higher caste in his or her next life if he or she achieves spiritual development in this life. 73) B Max Weber, famous for expounding on the Protestant work ethic, also argued that the ascetic principles embedded in Hinduism do not encourage the kind of entrepreneurial activity in pursuit of wealth creation that we find in Protestantism. According to Weber, traditional Hindu values emphasize that individuals should be judged not by their material achievements but by their spiritual achievements. Hindus perceive the pursuit of material well-being as making the attainment of nirvana more difficult. Given the emphasis on an ascetic lifestyle, Weber thought that devout Hindus would be less likely to engage in entrepreneurial activity than devout Protestants. 74) C The concept of mobility between castes within an individual's lifetime makes no sense to traditional Hindus. Hindus see mobility between castes as something that is achieved through spiritual progression and reincarnation. An individual can be reborn into a higher caste in his or her next life if he or she achieves spiritual development in this life. 75) E Islam prohibits the payment or receipt of interest, which is considered usury. 76) B

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Hindus believe in reincarnation, or rebirth into a different body, after death. Hindus also believe in karma, the spiritual progression of each person's soul. 77) D Confucianism teaches the importance of attaining personal salvation through right action. Although not a religion, Confucian ideology has become deeply embedded in the culture of these countries over the centuries and, through that, has an impact on the lives of many millions more. 78) B Buddhism was founded in the sixth century B.C. by Siddhartha Gautama, who renounced his wealth to pursue an ascetic lifestyle and spiritual perfection. 79) A Buddhism and Hinduism both stress the afterlife and spiritual achievement rather than involvement in this world. 80) B The emphasis on wealth creation that is embedded in Protestantism is not found in Buddhism. Thus, in Buddhist societies, we do not see the same kind of historical cultural stress on entrepreneurial behavior that Weber claimed could be found in the Protestant West. 81) B Siddhartha offered the Noble Eightfold Path as a route for transformation. This emphasizes right seeing, thinking, speech, action, living, effort, mindfulness, and meditation. Buddhists also stress the afterlife and spiritual achievement rather than involvement in this world. Unlike Hinduism, Buddhism does not support the caste system.

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82) C For more than 2,000 years until the 1949 communist revolution, Confucianism was the official ethical system of China. While observance of Confucian ethics has been weakened in China since 1949, more than 200 million people still follow the teachings of Confucius, principally in China, Korea, and Japan. 83) D In Confucian thought, loyalty to one’s superiors is regarded as a sacred duty—an absolute obligation. In modern organizations based in Confucian cultures, the loyalty that binds employees to the heads of their organization can reduce the conflict between management and labor that we find in more class-conscious societies. 84) D However, in a Confucian culture, loyalty to one’s superiors, such as a worker’s loyalty to management, is not blind loyalty. The concept of reciprocal obligations is important. Confucian ethics stresses that superiors are obliged to reward the loyalty of their subordinates by bestowing blessings on them. 85) E In this regard, three values central to the Confucian system of ethics are of particular interest: loyalty, reciprocal obligations, and honesty in dealings with others. 86) D A concept found in Confucian ethics is the importance attached to honesty. When companies adhere to Confucian ethics, they can trust each other not to violate the terms of cooperative agreements. When companies can trust each other not to break contractual obligations, the costs of doing business are lowered. Version 1

87) B Explanation: This Confucian ethic is central to the Chinese concept of guanxi, which refers to relationship networks supported by reciprocal obligations. Guanxi means relationships, although in business settings it can be better understood as connections. 88) D Confucian ethics stress that superiors are obliged to reward the loyalty of their subordinates by bestowing blessings on them. If these "blessings" are not forthcoming, neither will be the loyalty. This Confucian ethic is central to the Chinese concept ofguanxi, which refers to relationship networks supported by reciprocal obligations. 89) A Language does far more than just enable people to communicate with each other. The nature of a language also structures the way we perceive the world. The language of a society can direct the attention of its members to certain features of the world rather than others. 90) C The most widely spoken language in the world is English, followed by French, Spanish, and Chinese (i.e., many people speak English as a second language). English is increasingly becoming the language of international business. 91) A Chinese is the mother tongue of the largest number of people. However, the most widely spoken language in the world is English. That is because many people speak English as a second language. 92) D

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An aspect of nonverbal communication is personal space, which is the comfortable amount of distance between you and someone you are talking with. 93) D An aspect of nonverbal communication is personal space, which is the comfortable amount of distance between you and someone you are talking with. In the United States, the customary distance apart adopted by parties in a business discussion is five to eight feet. 94) C Values and norms are taught both directly and indirectly. Respect for others, obedience to authority, honesty, neatness, being on time, and so on, are all part of the hidden curriculum of schools. 95) C Professor Michael Porter notes that after the last World War, Japan had almost nothing except for a pool of skilled and educated human resources. Porter’s point is that Japan’s excellent education system is an important factor explaining the country’s postwar economic success. 96) A Of considerable importance for an international business with operations in different countries is how a society's culture affects the values found in the workplace. An international business with operations in two or more countries should vary its management processes and practices to account for cultural differences. 97) C Geert Hofstede added a fifth dimension inspired by Confucianism that he called long-term versus short-term orientation. 98) C

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Members of high uncertainty avoidance cultures placed a premium on job security, career patterns, retirement benefits, and so on. They also had a strong need for rules and regulations; the manager was expected to issue clear instructions, and subordinates' initiatives were tightly controlled. 99) C Power distance focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities. In low power distance cultures inequalities are played down as much as possible whereas they are emphasized in high power distance cultures. 100) C Members of high uncertainty avoidance cultures placed a premium on job security, career patterns, retirement benefits, and so on. They also had a strong need for rules and regulations; the manager was expected to issue clear instructions, and subordinates’ initiatives were tightly controlled. 101) B According to Geert Hofstede, in masculine cultures, sex roles are sharply differentiated. 102) B The long-term versus short-term orientation captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors. 103) B

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Members of high uncertainty avoidance cultures placed a premium on job security, career patterns, retirement benefits, and so on. They also had a strong need for rules and regulations; the manager was expected to issue clear instructions, and subordinates' initiatives were tightly controlled. Lower uncertainty avoidance cultures were characterized by a greater readiness to take risks and less emotional resistance to change. 104) C Low uncertainty avoidance cultures were characterized by a greater readiness to take risks and less emotional resistance to change. In feminine or low masculinity cultures, sex roles were less sharply distinguished, and little differentiation was made between men and women in the same job. 105) B In masculine cultures, sex roles were sharply differentiated, and traditional “masculine values,” such as achievement and the effective exercise of power, determined cultural ideals. In feminine cultures, sex roles were less sharply distinguished, and little differentiation was made between men and women in the same job. 106) B Hofstede's power distance dimension focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities. 107) D A strong movement is underway to add a sixth dimension to Hofstede’s work. Geert Hofstede, working with Michael Minkov’s analysis of the World Values Survey, added a promising new dimension called indulgence versus restraint. 108) D Version 1

Indulgence refers to a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun.Restraint refers to a society that suppresses gratification of needs and regulates it by means of strict social norms. 109) A Hofstede’s research may have been culturally bound. The research team was composed of Europeans and Americans. The questions they asked of IBM employees—and their analysis of the answers—may have been shaped by their own cultural biases and concerns. 110) B As countries get richer, there seems to be a shift from "traditional" to "secular rational" values, and from "survival values" to "well-being" values—values that stress the importance of diversity, belonging, and participation in political processes. 111) A As Japan has become richer, the cultural emphasis on collectivism has declined and greater individualism is being witnessed. One reason for this shift may be that richer societies exhibit less need for social and material support built on collectives, whether the collective is the extended family or the company. 112) B A steady convergence occurring across different cultures toward some universally accepted values and norms is known as the convergence hypothesis. 113) C Ethnocentrism is a belief in the superiority of one's own ethnic group or culture. Hand in hand with ethnocentrism goes a disregard or contempt for the culture of other countries. Version 1

114) C Ethnocentrism is a belief in the superiority of one's own ethnic group or culture. Hand in hand with ethnocentrism goes a disregard or contempt for the culture of other countries. 115) C Ethnocentrism is a belief in the superiority of one's own ethnic group or culture. Hand in hand with ethnocentrism goes a disregard or contempt for the culture of other countries.

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116)● By values, we mean ideas about what a group believes to be good, right, and desirable. Put differently, values are shared assumptions about how things ought to be. ● By norms, we mean the social rules and guidelines that prescribe appropriate behavior in particular situations. Norms are the social rules that govern people's actions toward one another. Norms can be subdivided further into two major categories: folkways and mores. ● Folkways are the routine conventions of everyday life. Generally, folkways are actions of little moral significance. Rather, they are social conventions concerning things such as the appropriate dress code in a particular situation, good social manners, eating with the correct utensils, neighborly behavior, and the like. Although folkways define the way people are expected to behave, violation of them is not normally a serious matter. Folkways include rituals and symbolic behavior. ● Mores are norms that are seen as central to the functioning of a society and to its social life. They have much greater significance than folkways. Accordingly, violating mores can bring serious retribution. Mores include such factors as indictments against theft, adultery, incest, and cannibalism. In many societies, certain mores have been enacted into law.

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117) It is possible to talk about culture at different levels. It is reasonable to talk about "American society" and "American culture," but there are several societies within the United States, each with its own culture. For example, in the United States, one can talk about African American culture, Cajun culture, Chinese American culture, Hispanic culture, Indian culture, Irish American culture, Southern culture, and many more cultural groups. In some way, this means that the relationship between culture and country is often ambiguous. Even if a country can be characterized as having a single homogeneous culture, often that national culture is a mosaic of subcultures. 118)● The most rigid system of stratification is a caste system. A caste system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual's lifetime. Often a caste position carries with it a specific occupation, which is passed down through the family to succeeding generations. ● A class system is a less rigid form of social stratification in which social mobility is possible. It is a form of open stratification in which the position a person has by birth can be changed through his or her own achievements or luck. Individuals born into a class at the bottom of the hierarchy can work their way up; conversely, individuals born into a class at the top of the hierarchy can slip down. While many societies have class systems, social mobility within a class system varies from society to society.

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119)● In 1904, German sociologist Max Weber made a connection between Protestant ethics and "the spirit of capitalism." Weber noted that capitalism emerged in Western Europe, where "business leaders and owners of capital, as well as the higher grades of skilled labor, and even more the higher technically and commercially trained personnel of modern enterprises, are overwhelmingly Protestant." Weber theorized that there was a relationship between Protestantism and the emergence of modern capitalism. He argued that Protestant ethics emphasize the importance of hard work and wealth creation (for the glory of God) and frugality (abstinence from worldly pleasures). According to Weber, this kind of value system was needed to facilitate the development of capitalism. ● Protestantism also may have encouraged capitalism's development in another way. By breaking away from the hierarchical domination of religious and social life that characterized the Catholic Church for much of its history, Protestantism gave individuals significantly more freedom to develop their own relationship with God. The right to freedom of form of worship was central to the nonconformist nature of early Protestantism. This emphasis on individual religious freedom may have paved the way for the subsequent emphasis on individual economic and political freedoms and the development of individualism as an economic and political philosophy. Thus, the combination of hard work and the accumulation of capital, which could be used to finance investment and expansion, paved the way for the development of capitalism in Western Europe and subsequently in the United States.

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120) Islam is critical of those who earn profit through the exploitation of others. In the Islamic view of the world, humans are part of a collective in which the wealthy and successful have obligations to help the disadvantaged. Put simply, in Muslim countries, it is fine to earn a profit, so long as that profit is justly earned and not based on the exploitation of others for one’s own advantage. It also helps if those making profits undertake charitable acts to help the poor. Furthermore, Islam stresses the importance of living up to contractual obligations, keeping one’s word, and abstaining from deception.

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121)● Because Islamic banks cannot pay or charge interest, they must find a different way of making money. Islamic banks have experimented with two different banking methods—the mudarabah and the murabaha. ● A mudarabah contract is similar to a profit-sharing scheme. Under mudarabah, when an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment. Similarly, when a business (or individual) deposits money at an Islamic bank in a savings account, the deposit is treated as an equity investment in whatever activity the bank uses the capital for. Thus, the depositor receives a share in the profit from the bank's investment (as opposed to interest payments) according to an agreed-on ratio. ● The second Islamic banking method, the murabaha contract, is the most widely used among the world's Islamic banks, primarily because it is the easiest to implement. In a murabaha contract, when a firm wishes to purchase something using a loan—let's say a piece of equipment that costs $1,000—the firm tells the bank after having negotiated the price with the equipment manufacturer. The bank then buys the equipment for $1,000, and the borrower buys it back from the bank at some later date for, say, $1,100, a price that includes a $100 markup for the bank.

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122)● Hindus believe that a moral force in society requires the acceptance of certain responsibilities, called dharma. Hindus believe in reincarnation, or rebirth into a different body, after death. ● Hindus also believe in karma, the spiritual progression of each person’s soul. A person’s karma is affected by the way he or she lives. The moral state of an individual’s karma determines the challenges he or she will face in the next life. ● By perfecting the soul in each new life, Hindus believe that an individual can eventually achieve nirvana, a state of complete spiritual perfection that renders reincarnation no longer necessary. Many Hindus believe that the way to achieve nirvana is to lead a severe ascetic lifestyle of material and physical self-denial, devoting life to a spiritual rather than material quest.

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123)● Hinduism has approximately 1.1 billion adherents, most of them on the Indian subcontinent. Hinduism began in the Indus Valley in India more than 4,000 years ago, making it the world's oldest major religion. Unlike Buddhism, its founding is not linked to a particular person. Many Hindus believe that the way to achieve nirvana is to lead a severe ascetic lifestyle of material and physical self-denial, devoting life to a spiritual rather than material quest. ● Buddhism was founded in the sixth century B.C. by Siddhartha Gautama. Unlike Hinduism, Buddhism does not support the caste system. Nor does Buddhism advocate the kind of extreme ascetic behavior that is encouraged by Hinduism. Nevertheless, like Hindus, Buddhists stress the afterlife and spiritual achievement rather than involvement in this world. But unlike Hinduism, the lack of support for the caste system and extreme ascetic behavior suggests that a Buddhist society may represent a more fertile ground for entrepreneurial activity than a Hindu culture.

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124)● The three values that are central to the Confucian system of ethics are loyalty, reciprocal obligations, and honesty in dealings with others. ● In Confucian thought, loyalty to one's superiors is regarded as a sacred duty—an absolute obligation. In modern organizations based in Confucian cultures, the loyalty that binds employees to the heads of their organization can reduce the conflict between management and labor that we find in more class-conscious societies. However, in a Confucian culture, loyalty to one's superiors, such as a worker's loyalty to management, is not blind loyalty. ● The concept of reciprocal obligations is important. Confucian ethics stress that superiors are obliged to reward the loyalty of their subordinates by bestowing blessings on them. ● A third concept found in Confucian ethics is the importance attached to honesty. Confucian thinkers emphasize that although dishonest behavior may yield short-term benefits for the transgressor, dishonesty does not pay in the long run. The importance attached to honesty has major economic implications. When companies can trust each other not to break contractual obligations, the costs of doing business are lowered.

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125)● Hofstede first isolated four dimensions that he claimed summarized different cultures—power distance, uncertainty avoidance, individualism versus collectivism, and masculinity versus femininity. ● The power distance dimension focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities. ● The individualism versus collectivism dimension focused on the relationship between the individual and his or her fellows. ● Hofstede's uncertainty avoidance dimension measured the extent to which different cultures socialized their members into accepting ambiguous situations and tolerating uncertainty. ● His masculinity versus femininity dimension looked at the relationship between gender and work roles. ● Hofstede later expanded his original research to include a fifth dimension, called long-term versus short-term orientation, that he argued captured additional cultural differences not brought out in his earlier work. It refers to the extent to which a culture programs its citizens to accept delayed gratification of their material, social, and emotional needs. It captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The term ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit Topic : Ethical Decision Making Gradable : automatic

2) Many of the ethical issues in international business are rooted in the fact that political systems, law, economic development, and culture vary significantly from nation to nation. ⊚ true ⊚ false Question Details AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit AACSB : Diversity Topic : Ethical Issues in International Business Gradable : automatic

3) The Sullivan principles stem from the beliefs of Leon Sullivan who felt it was not ethical for General Motors to operate in South Africa unless the company participated in apartheid laws for its African operations. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit Topic : Ethical Issues in International Business Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

4) The phenomenon known as the tragedy of the commons is in evidence when a resource that is held by all, but not owned by anyone, is depleted to the point of degradation. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit Topic : Ethical Issues in International Business Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

5) "Facilitating payments" are payments to secure contracts that would not otherwise be secured. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit Topic : Ethical Issues in International Business Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

After it was amended, the Foreign Corrupt Practices Act barred "facilitating payments."

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⊚ ⊚

true false

7) The OECD convention on bribery obliges member states and other signatories to make the bribery of foreign public officials a criminal offense. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit Topic : Ethical Issues in International Business Gradable : automatic

8) An ethical dilemma occurs when neither of the choices in a situation seems appropriate or right. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Ethical Decision Making Learning Objective : 05-02 Recognize an ethical, corporate social responsibility, and/or sustainabili Gradable : automatic

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Organizational culture is one of the determinants of ethical behavior. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Ethical Decision Making Learning Objective : 05-03 Identify the causes of unethical behavior by managers as they relate to bu Gradable : automatic

10) Unfortunately, it is common in business practices to assume that people from different cultures make ethical decisions using the same process. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-03 Identify the causes of unethical behavior by managers as they relate to bu Topic : Causes of Unethical Behavior Gradable : automatic

11) The social rules that provide guidelines for appropriate behavior in a particular situation are known as attitudes. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-03 Identify the causes of unethical behavior by managers as they relate to bu Topic : Causes of Unethical Behavior Gradable : automatic

12) Milton Friedman would agree that a business should undertake social expenditures beyond those mandated by the law and required to run a business efficiently even if it reduces profits. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Gradable : automatic

13) One criticism of the righteous moralist approach to ethics is that adopting home-country standards isn’t always appropriate. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Gradable : automatic

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14) The utilitarian approaches to ethics are based on the idea that the moral worth of actions is determined by their ultimate consequences. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Gradable : automatic

15)

Utilitarianism is based on the belief that actions have a single moral consequence. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Gradable : automatic

16) Kantian ethics is concerned with environmental ethical issues such as manufacturing emissions and polluted waters. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Gradable : automatic

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17) John Rawls argues that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Gradable : automatic

18) According to John Rawls's veil of ignorance, inequalities are justified if they benefit the position of the least-advantaged person. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Gradable : automatic

19) Business leaders should use every relevant opportunity to stress the importance of business ethics and make sure that key business decisions not only make good economic sense but also are ethical. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Ethical Issues in International Business Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

20) A firm’s stakeholders are individuals or groups that have an interest, claim, or stake in the company, in what it does, and in how well it performs. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Issues in International Business Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

21) The first step in an ethical algorithm is to identify those common resources that are not owned by anyone in particular but are used by everybody. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Issues in International Business Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

22)

An internal stakeholder includes an individual who owns the business.

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⊚ ⊚

true false

23) Ethics officers act as an internal ombudsperson with responsibility for handling confidential inquiries from employees. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Ethical Issues in International Business Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

24) The concept of corporate social responsibility (CSR) refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions. ⊚ true ⊚ false Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th AACSB : Reflective Thinking Topic : Ethics and Social Responsibility Gradable : automatic

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25) A company pursuing a sustainable strategy would adopt business practices that degrade the environment. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Topic : Ethics and Social Responsibility Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Business __________ refers to accepted principles of right or wrong that govern the conduct of a businessperson, the members of a profession, or the actions of an organization. A) strategy B) goodwill C) ethics D) mission E) vision

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit Topic : Ethical Decision Making Gradable : automatic

27)

The Sullivan principles resulted from Leon Sullivan’s response to

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A) globalization. B) apartheid laws. C) grease payments. D) deforestation. E) anti-dumping laws.

28)

The apartheid system was based on a violation of A) environmental standards. B) human rights. C) educational standards. D) totalitarian beliefs. E) religious principles.

29) Ten years after he proposed what came to be known as Sullivan's principles, Leon Sullivan concluded that following his principles

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A) was the most ethical way of doing business in South Africa. B) was not sufficient to ethically justify the existence of Western businesses in South Africa. C) would be effective only when companies opposed democracy in South Africa. D) had led international companies to successfully combat the apartheid regime in South Africa. E) would safeguard the citizens and businesses in South Africa from Western businesses.

30) Due to strict air emissions standards in its home nation, Bristol Inc. has shifted its operations to a developing nation where there are few environmental standards in place. The firm has now been able to gain competitive advantage by avoiding costly air emissions controls in its new factory. This strategic move of Bristol Inc. would be considered A) illegal. B) ethical. C) unethical. D) uneconomical. E) totalitarian.

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit Topic : Ethical Issues in International Business AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

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31)

Which of these companies has adopted unethical practices?

A) Millhouse Inc. ceased its operations in some developing nations on account of low employment standards in those countries. B) Caffer Coffee Corp. sells its coffees at a lower price in less-developed nations. C) Kline Bros. Inc., a multinational company operating in developing nations, pays its labor 30 percent more than what the local competitors pay. D) Swift Electronics Inc. closed down a production plant as the local management there employed child labor. E) Tri-Land Auto sends its waste products for disposal to a developing nation because the pollution control laws in its home country are stricter than those in the developing nation.

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit Topic : Ethical Issues in International Business Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

32) Global Gears Inc. moved its entire production operation to a foreign country, where the company was free to dump pollutants into the river located adjacent to the factory. In this scenario, Global Gears is contributing to A) environmental growth. B) corruption. C) human rights growth. D) improving its corporate social responsibility. E) the global tragedy of the commons.

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33)

The term global commons refers to

A) social norms and values that are common across the globe. B) a group of nations that share similar ideologies on globalization. C) natural resources from which everyone benefits but for which no one is specifically responsible. D) common laws to be obeyed by companies involved in international business. E) arrangements, like common currencies, between countries to simplify international trading.

34) Over the past few years, three new factories have been built near Jasper City. A four-acre area of land lies between these three factories and since no one “owns” this land, all three factories are using it as a landfill to dump waste products. The once-beautiful land is now encased in garbage. What phenomenon does this portray?

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A) social loafing B) cultural relativism C) tragedy of the commons D) deadweight loss E) the difference principle

35)

In the modern world, corporations often hasten the global tragedy of the commons by

A) moving production to locations where they are free to pump pollutants into the environment. B) imposing stringent environmental standards on developing countries. C) creating common environmental and employment standards for all nations. D) adopting costly pollution controls and in turn losing out on economic advantages. E) adhering to civil laws rather than common laws in case of any environmental violations.

36)

Which company is contributing to the global tragedy of the commons?

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A) a firm exploiting the weak employment standards in a host nation B) a firm dumping its chemical wastes directly into a river C) a firm exploiting the weak intellectual property rights in a developing nation D) a neighboring country opposing the introduction of a free trade area E) a country denying its citizens basic human rights

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-01 Understand the ethical, corporate social responsibility, and sustainabilit Topic : Ethical Issues in International Business Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

37)

Speed money or grease payments, are payments made to A) secure contracts that would not otherwise be secured. B) obtain exclusive preferential treatment in a foreign market. C) influence foreign bureaucrats in the company's favor. D) ensure a business receives the standard treatment that it ought to receive. E) secure monopoly rights in less-developed countries.

38) In order to build large production units and expedite certain routine government actions related to this, Freeman Corp. made legal payments to the government officials of the host nation. Such payments are typically referred to as

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A) bribes B) speed money C) customs duties. D) excise taxes. E) preferred dividends.

39) The result of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was to A) make it mandatory for companies to adhere to the pollution control standards of their home country in all the nations in which they do business. B) make bribery of foreign officials a criminal offense but not consider facilitating payments a criminal offense. C) make grease payments mandatory in order to obtain exclusive preferential treatment in a host nation. D) consider payment of speed money to be moral, but illegal. E) make it obligatory for companies to adopt a zero-tolerance approach toward grease payments.

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40) Texas Star Oil won the bid to build an oil facility for a host country government. However, the execution of the contract has been delayed due to bureaucratic procedures in the less-developed nation. In order to legally overcome this problem, Texas Star Oil could resort to the payment of A) customs duties. B) excise taxes. C) expatriation taxes. D) speed money. E) repatriation fees.

41) Cast Away Electronics paid a sum of $25,000 to an official of a foreign government to ensure that the company obtained exclusive preferential treatment for the plant it is building. The $25,000 can be classified as A) customs duties. B) excise taxes. C) speed money. D) a bribe. E) repatriation fees.

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42) Studies have found that facilitating payments ultimately increase the cost of doing business and as a result the large oil multinational BP has A) embraced a “wait and see” approach. B) made such payments a part of normal business practice. C) adopted a zero-tolerance approach. D) agreed that such payments should only be used in the home country. E) asked the United Nations to legalize these payments.

43) The practice of "gift giving" between the parties to a business negotiation is considered right and proper in many Asian cultures. However, some Westerners view the practice as a form of bribery, and therefore unethical, particularly if the gifts are substantial. This demonstrates that A) notions of ethics are universal. B) Asian countries are still influenced by totalitarianism. C) what is ethical depends on one's cultural perspective. D) Asian cultures are more economically advanced. E) accepted employment practices are universal.

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Question Details AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Issues in International Business Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-02 Recognize an ethical, corporate social responsibility, and/or sustainabili AACSB : Reflective Thinking Gradable : automatic

44) Annika is the manager of an auto parts manufacturing facility in a developing country. This facility does not meet the acceptable standards of the manufacturing facility based in her home nation. She knows that demanding a better facility will raise the cost of the auto parts that are mainly exported to other less-developed countries. However, she also realizes that by not demanding a better facility, the employees who work there are prone to serious health issues. This scenario represents A) a role conflict. B) the tragedy of the commons. C) factor endowments. D) an ethical dilemma. E) the difference principle.

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Issues in International Business Learning Objective : 05-02 Recognize an ethical, corporate social responsibility, and/or sustainabili AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

45)

Which of these employees is facing an ethical dilemma?

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A) Kyler has felt unsure about a mobile phone he purchased and has been reading only good reviews about the phone to console himself. B) After seeing a whole new collection of televisions at a store, Corinne is regretting the purchase of an outdated television she made last month. C) The manager at Big Wheel Bikes Inc. has to make a vendor choice between his underqualified brother-in-law and a highly-experienced, trusted supplier. D) Renata is responsible for deciding whether she should upgrade the manufacturing unit with new machines and reduce costs or retain the impoverished manual labor force. E) Jenner has to decide whether the annual profits of the company should be distributed to the employees as a salary hike or in the form of nonmonetary benefits.

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Issues in International Business Learning Objective : 05-02 Recognize an ethical, corporate social responsibility, and/or sustainabili Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

46)

What situation is most likely to lead to unethical behavior in a business setting? A) a strong sense of personal ethics exhibited by employees B) expatriate managers working away from their ordinary social context and supporting

culture C) providing managers with a moral compass or an ethical algorithm D) large business corporations making social investments in host countries E) multinational corporations advocating the concept ofnoblesse oblige

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Question Details AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-03 Identify the causes of unethical behavior by managers as they relate to bu Topic : Causes of Unethical Behavior AACSB : Reflective Thinking Gradable : automatic

47) In a business setting, managers sometimes do not realize they are behaving unethically, primarily because they A) fail to take into account the ethical dimension of business decisions. B) ignore business variables such as cost, delivery, and product quality. C) have a strong system of personal ethics. D) abide by the concept ofnoblesse oblige. E) believe that social investments made by their companies can always compensate for their unethical actions.

48)

A company’s organizational culture refers to A) the employees, the product, and competition that affects decisions. B) the values and norms that are shared among the employees. C) the pressure managers feel to meet unrealistic business goals. D) the relationship between home-country employees and expatriates. E) the leadership style of the organization.

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Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-03 Identify the causes of unethical behavior by managers as they relate to bu Topic : Causes of Unethical Behavior Gradable : automatic

49) Lisette works for Brookings Auto Group, which has set the same sales target for all employees in their 350 locations across the globe. The company fails to consider any environmental constraints which might hamper sales and to avoid being penalized, employees often falsify their sales reports. What is triggering the employees' unethical behavior? A) unrealistic performance goals B) cultural differences of countries C) strong personal ethics among employees D) varying ethical standards in different nations E) national differences in factors of production

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-03 Identify the causes of unethical behavior by managers as they relate to bu Topic : Causes of Unethical Behavior AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

50) Shondra works as a sales representative for Solar Corp. Last year her sales target was $2 million and this year in an aggressive bid for growth, the company increased the sales quota for all its salespeople to $4 million, although the market for Solar Corp.'s product has slowed. In order to meet her target, Shondra bribed an official of a potential customer. The roots of her unethical behavior most likely are the result of

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A) unrealistic performance goals. B) cultural differences of countries. C) strong personal ethics among employees. D) varying ethical standards in different nations. E) national differences in factors of production.

51) The chairman of the board of Eagle’s Way Entertainment engages in corruption and uses his power in the company to enrich himself and his family members. Consequently, his employees also engage in the same behavior. In this case, the roots of unethical behavior can be traced to A) unrealistic performance expectations. B) organizational leadership. C) noblesse oblige and social responsibility. D) varying ethical standards in different cultures. E) geographical distance between employees and the parent company.

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52) Monique learned that the company she works for didn’t report to their supplier that they received a double shipment of parts but were only charged for a single shipment. Knowing this, she doesn’t feel guilty at all when she doesn’t report that human resources reimbursed her twice for the same hotel stay she incurred last month while attending a work seminar. In this situation, the unethical choice of the employee is the result of A) societal norms. B) environmental concerns. C) host-country performance. D) unrealistic performance goals. E) leadership choices.

53) Within organizational culture, __________ are abstract ideas about what a group thinks is good, right, and desirable. A) folkways B) norms C) values D) attitudes E) mores

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Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Decision Making Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-03 Identify the causes of unethical behavior by managers as they relate to bu Gradable : automatic

54)

Straw men approaches to ethics refer to those that are A) inappropriate guidelines. B) accepted worldwide. C) used in democratic but not totalitarian states. D) based on religious values. E) used in masculine societies.

55)

The __________ is a straw man approach to business ethics. A) Friedman doctrine B) Kantian ethics C) Sullivan principle D) utilitarian philosophy E) just distribution theory

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56)

According to Milton Friedman, the only social responsibility of business is to A) increase profits. B) monopolize an industry. C) demonstrate humanity. D) improve society. E) foster creativity.

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Gradable : automatic

57) Salty ‘n Crunchy Popcorn Inc. believes that the sole purpose of its existence is to maximize profits for its stockholders. The firm has often been criticized for not engaging in any social investments. However, the firm has been praised for abiding by the laws while earning profits. Which philosophical approach to ethics does this demonstrate? A) Friedman doctrine B) Utilitarianism C) Kantian ethics D) Sullivan's principles E) Naive immoralist

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Question Details AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

58)

The phrase "When in Rome, do as the Romans do" is associated with A) cultural relativism. B) utilitarianism. C) Kantian ethics. D) the Sullivan principles. E) naive immoralists.

59) After Aero Supply Inc. opened a facility in a foreign country, it learned that child labor was acceptable in that nation and agreed to hire a group of 15-year-old children as full-time employees. Which philosophical approach to ethics does this represent? A) cultural relativism B) just distribution C) Kantian ethics D) righteous moralist E) Sullivan principles

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60) Maritime Builders Inc. has research and manufacturing units all across the globe. The company expects its expatriate managers to adopt the ethics propagated by the culture in which they operate their respective units. The company allows its managers to pursue any actions if they are permitted in the host nation—even if they would be considered unethical in the home country. Maritime Builders Inc. is following A) the Friedman doctrine. B) Sullivan's principles. C) righteous moralism. D) Kantian ethics. E) cultural relativism.

61) Pure and Natural Inc. operates in three different countries, and the CEO believes that the best approach to ethics is cultural relativism. How will this ethical approach affect the actions of Pure and Natural Inc.?

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A) All business units of Pure and Natural Inc. will adopt a common standard of ethics irrespective of their location. B) Business decisions made by managers of Pure and Natural Inc. will be solely based on the goal of maximization of societal good. C) The business units of Pure and Natural Inc. will be empowered to adopt the standards of ethics followed in their respective host nations. D) Pure and Natural Inc. will advocate the idea that universal notions of morality transcend different cultures. E) Pure and Natural Inc. will follow its home-country standards of ethics at all its foreign locations.

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

62) Mason is an expatriate who was recently moved from a South American location, where his company said he was allowed to make facilitating payments in order to hasten government documentation, to a European location where the company says he needs to find another way to accomplish this task because facilitating payments aren’t allowed. Which of the straw man approaches to ethics does this represent? A) the righteous moralist B) cultural relativism C) ethnocentrism D) just distribution E) cultural convergence

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63) In its home country, Peterson Piping routinely provides grease payments to local officials to expedite overseas shipments. It has decided to open a plant in the United States and has determined that it would not offer any facilitating payments to U.S. officials. Peterson Piping’s behavior illustrates the straw man approach of A) the righteous moralist. B) cultural relativism. C) ethnocentrism. D) just distribution. E) cultural convergence.

64)

A righteous moralist is most likely to claim that

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A) a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. B) a firm should adopt the ethics of the culture in which it is operating. C) people should be treated as ends and never purely as means to the ends of others. D) human beings have fundamental rights and privileges that transcend national boundaries and cultures. E) inequalities are justified if they benefit the position of the least-advantaged person.

65) from

The straw man approach of righteous moralism is typically associated with managers

A) developing countries. B) totalitarian nations. C) BRIC nations. D) developed nations. E) war-torn countries.

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66) Bryce is the expatriate manager of his company's facility in Brazil. He expects the exact same standards of working conditions, wages, and labor management in the Brazilian facility that is practiced by the corporate office in the United States. His policy does not always lead to profits because of the vast cultural differences between the two nations. What straw men approach to ethics is Bryce using? A) naive immoralism B) cultural relativism C) righteous moralism D) Sullivan principles E) just distribution

67) Amber Athletics Inc. is a multinational company. The home country of the company considers grease payments illegal and unethical. The company has a zero-tolerance approach toward grease payments irrespective of any of its host nations' perspectives toward such payments. In this context, Amber Athletics Inc. is following the approach to ethics known as A) naive immoralist. B) righteous moralist. C) cultural pluralist. D) cultural relativist. E) ethnocentric.

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68)

The biggest criticism of the righteous moralist approach to an ethical situation is that it

A) ignores home-country standards rather than factoring them into a situation. B) relies on standards set in individual cultures regardless of living conditions. C) opposes ethnocentric beliefs. D) goes too far and not every situation can be approached relying on home-country standards. E) leans too much on cultural relativism.

69) A multinational corporation that adopts the naive immoralist approach to ethics will most likely A) lack cultural sensitivity. B) demonstrate moral imperialism. C) be highly ethical in its business in a host nation irrespective of the ethical standards followed by other corporations in that host nation. D) believe that, in a host country, any action is ethically justified if everyone is doing it. E) demonstrate a high degree of ethnocentrism.

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70) Jason is a manager of a multinational company and is working in one of the company's production plants located outside of the U.S. Jason has all of his employees work a minimum of ten hours overtime each week but will only pay for up to five hours of overtime. When criticized as unethical, Jason argues that such actions are ethically defensible because every company in the country is doing it. What ethical approach is he using? A) utilitarian B) righteous moralist C) naive immoralist D) Kantian ethics E) ethnocentrism

71) Arturo is the manager of Prism Paints Inc. and has agreed to build a new manufacturing facility in South America. He realizes this decision will cause him to shut down a small plant in Missouri, but he decides that since the new facility will cut his operating costs in half, that is worth more than closing a plant employing forty people. Which philosophical approach to ethics does this demonstrate?

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A) righteous moralist B) Friedman doctrine C) utilitarian D) cultural relativism E) naive immoralist

72)

The utilitarian philosophy for business ethics primarily focuses on A) applying home-country standards of ethics in foreign countries. B) adopting the ethics of the culture in which a business operates. C) maximizing business profits by increasing employee productivity. D) ensuring justified treatment of any minority. E) weighing the benefits, costs, and risks associated with a course of action.

73) The __________ approach to ethics holds that an action is judged desirable if it leads to the best possible balance of good consequences over bad consequences.

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A) ethnocentric B) utilitarian C) cultural relativist D) naive immoralist E) righteous moralist

74)

According to the utilitarian perspective, the best decisions are those that A) maximize a firm's profit. B) maximize stockholders' wealth. C) have greater social costs than benefits. D) produce the greatest good for the greatest number of people. E) result in the justified treatment of a minority.

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75) Lock-Tite Window and Door Company is considering opportunities in Central America to obtain component parts for their products. The market analysis team is busy comparing the benefits of increased parts production to the costs of increased air emissions and other adverse environmental conditions. The company is using the __________ approach to make this ethical decision. A) naive immoralism B) Friedman doctrine C) ethnocentrism D) utilitarian E) righteous moralism

76)

What is a drawback of the utilitarian approach to business ethics? A) It omits the consideration of justice. B) It fails to consider the benefits, costs, and risks of a course of action. C) It advocates moral imperialism and ethnocentrism. D) It overemphasizes the significance of maximization of stockholder wealth. E) It recognizes that actions have multiple consequences.

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77) According to __________, people should be treated as ends and never purely as means to the ends of others. A) Kantian ethics B) Friedman doctrine C) cultural relativism D) righteous moralism E) naive immoralism

78) Some contemporary moral philosophers view Kant's ethical philosophy as incomplete because his system has no place for A) basic human rights. B) the moral worth of actions. C) moral emotions and sentiments. D) just and fair treatment of a minority. E) human dignity.

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79)

Kantian philosophy would view __________ as an ethical violation. A) employing people to work long hours at low pay B) treating people as ends rather than as means C) practicing superior standards of employment in the host country D) empowering people with fundamental rights and privileges E) treating employees as conscious moral beings

80) While Jaxon realized that his company was allowed to deduct an employee’s wages if they called in sick in the overseas facility he managed, he instead implemented up to ten paid sick days per year for each employee because he felt it was fundamentally the right thing to do. A rights theorist would say that Jaxon is using __________ to make this choice. A) the tragedy of the common B) Sullivan’s principle C) his moral compass D) the difference principle E) ethnocentrism

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81) While making a business decision, a manager who believes in rights theories is most likely to focus on A) respecting fundamental human privileges. B) achieving collective goals, even if that involves violating fundamental rights. C) propagating home-country standards of ethics. D) weighing the associated social benefits, costs, and risks. E) maximizing stockholders' wealth and profits.

82)

The Universal Declaration of Human Rights would agree that

A) there should not be different sets of fundamental rights and privileges for different cultures. B) it is unethical to employ child labor in sweatshops even if that happens to be common in some countries. C) it is ethical to treat people as means to the ends of others. D) citizens of a nation have no duties to their community. E) people do not have a right to join trade unions for protection of their interests.

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83) In stating that all human beings are born free and equal in dignity and rights, and that they are endowed with reason and conscience and should act toward one another in a spirit of brotherhood, Article 1 of the Universal Declaration of Human Rights echoes A) the Friedman doctrine. B) naive immoralism. C) cultural relativism. D) Kantian ethics. E) the Sullivan principles.

84) Article 23 of the Universal Declaration of Human Rights implies that it is unethical to employ child labor in sweatshop settings and pay less than subsistence wages, even if that happens to be common practice in some countries. This is in contrast to

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A) Kantian ethics. B) cultural relativism. C) rights theories. D) Marxism. E) justice theories.

85) Jasmine believes that it is the obligation of the state government to ensure that all corporations eliminate toxic emissions from their manufacturing facilities. Jasmine believes that government should act as A) a straw man. B) common ground. C) a social folkway. D) a moral agent. E) a naive immoralist.

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Learning Objective : 05-04 Describe the different philosophical approaches to business ethics that ap Topic : Philosophical Approaches to Ethics Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

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86) Kipson Energy unloaded two tankers worth of toxic waste at a port in a foreign nation. Two hundred men and boys worked four days in their shorts and sandals to unload the barrels from the tankers for $7 a day. They were not told about the content of the barrels. Some observers felt that it was the obligation of not just the government, but also of Kipson Energy to ensure that no harm was done to the workers. These observers are most likely A) justice theorists. B) cultural relativists. C) naive immoralists. D) rights theorists. E) utilitarians.

87)

Justice theories primarily focus on A) minimizing the amount of political liberty permitted to each person. B) the attainment of fair and equitable distribution of economic goods and services. C) the attainment of maximum business profits. D) protecting multinationals in case they violate fundamental human rights. E) minimizing the amount of economic freedom permitted to each person.

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88) Which philosopher asserts that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage? A) John Rawls B) Leon Sullivan C) Garrett Hardin D) Milton Friedman E) Carol Gilligan

89)

The veil of ignorance, a conceptual device designed by John Rawls, supports A) impartiality in justice. B) oppression of people by totalitarian governments. C) economic suppression of people. D) apartheid laws. E) cultural relativism.

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90) The __________ supports the idea that everyone is imagined to be oblivious to all of his or her particular characteristics, such as, race, sex, intelligence, nationality, family background, and special talents. A) tragedy of the commons B) naive immoralism C) straw man approach D) veil of ignorance E) difference principle

91) Under John Rawls's concept of the veil of ignorance, people are imagined to be ignorant of their A) ability to be cognizant of other people’s values. B) fundamental rights. C) particular characteristics such as race, sex, and nationality. D) political and economic freedom. E) social responsibilities.

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92)

Rawls would agree with the idea that inequalities can be justified if they A) are based on home-country values. B) redistribute wealth and property C) benefit those in the highest position. D) are used to the advantage of everyone. E) benefit those in the worst position.

93) The __________, developed by Rawls, indicates that inequalities are justified if they benefit the position of the least-advantaged members of society. A) difference principle B) tragedy of the commons C) theory of private equity D) unity of command E) laws of equivalent trade

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94)

A moral compass is used by managers to A) help them navigate through difficult ethical dilemmas. B) maximize stockholders' wealth. C) legally justify their unethical behavior. D) identify new markets that have the best growth potential. E) establish political imperialism in host countries.

95) is by

One way businesses can make sure they are hiring individuals with strong personal ethics

A) employing only those people who have a very high intelligence quotient. B) administering simple tests that indicate analytical skills of a prospective employee. C) asking for letters of reference from the prospective employees. D) hiring only those people who are relatives of current employees. E) spying on prospective employees.

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Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Decision Making Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

96) Trish is leading the team at SunBelt Sports in creating a formal statement of the ethical priorities the business will adhere to. What type of document is Trish and her team working on? A) mission statement B) facilitating payment C) marketing mix D) values statement E) code of ethics

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Decision Making Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

97)

In a business setting, which of these practices is most likely to be considered unethical?

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A) At Kelly Manufacturing, managers act in accordance with rights theories. B) Murphy Auto Group promotes employees who engage in ethical behavior and penalizes those who do not. C) Martin Millwork hires independent auditors to ensure that subcontractors used by the company are applying its code of conduct. D) Creative Color Inc. makes sure that key business decisions make good economic sense irrespective of their social costs and risks. E) During interviews, Barnwell Design informs prospective employees about the ethical climate in the organization.

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Topic : Causes of Unethical Behavior Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

98)

A(n) __________ is considered an external stakeholder of an organization. A) employee B) customer C) trustee D) director E) stockholder

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Decision Making Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

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99) Water Wonders is a manufacturing company that makes large-scale fish tanks. It has customers, investors, vendors, and competitors from all across the globe. Which of these Water Wonders business associates would be an internal stakeholder? A) Fresh Fisheries Inc., a firm that supplies machinery to Water Wonders B) Gretchen, a prominent member of the top management at Water Wonders C) Below Sea Creators, a competing firm that produces similar products D) the government of the home country where Water Wonders operates E) Tyson, a major buyer of Water Wonders products

100) The term __________ can be described as thinking like the stakeholders and asking how a proposed decision might impact that stakeholder. A) corporate espionage B) ethical dilemma C) cultural relativism D) moral imagination E) moral courage

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Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Decision Making Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

101)

When thinking through an ethical issue, the first step you should take is to A) identify which stakeholders a decision would affect and in what ways. B) judge the ethics of the proposed strategic decision. C) establish a moral intent. D) audit a decision to check for its consistency with ethical principles. E) review a decision to check for its consistency with Rawls's veil of ignorance.

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Ethical Decision Making Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

102) Phillip would like to hire just one company to construct the new botanic garden exhibit in Scottsdale, but he can’t imagine asking such a small crew to work many months in the hot conditions of the Arizona summer. Phillip is relying on __________ to make his decision. A) his ethnocentrism B) the tragedy of the commons C) straw men theories D) Kantian theory E) his moral imagination

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Question Details AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Decision Making Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

103)

What practice should a company avoid to ensure ethical decision making? A) auditing past decisions made in the company B) protecting the fundamental rights of stakeholders C) taking care of the interests of external stakeholders D) placing its economic interests before its moral principles E) adopting the moral principles specified in the company code of ethics

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Decision Making Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

104)

The last step in ethical decision making involves A) judging the ethics of the proposed decision. B) establishing moral intent. C) auditing of decisions. D) engaging in ethical behavior. E) identifying the stakeholders a decision would affect.

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Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Ethical Decision Making Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

105) Which step in ethical decision making helps businesspeople know if their decision process is working and if changes should be made to ensure greater compliance with a code of ethics? A) judging the ethics of the proposed decision B) auditing past decisions C) establishing a moral intent D) involving moral imagination E) identifying the concerned stakeholders

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Ethical Decision Making Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : automatic

106)

Charlotte is the ethics officer at Green Stages Inc. Her responsibilities would include A) conducting training programs for employees. B) implementing ethnocentric principles. C) ensuring that the economic interest of stakeholders is given prime importance. D) training managers to avoid moral imagination and veil of ignorance. E) informing external stakeholders about the moral consequences of a decision.

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Question Details AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Decision Making Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

107) When her manager asked Talia if she would “lose” the invoice that came in with the extra shipment of parts because the supplier wouldn’t know any difference, Talia replied “No.” Her response is an example of A) moral courage. B) organizational citizenship. C) ethical dilemma. D) cross-cultural literacy. E) cultural relativism.

108) __________ is the idea that businesspeople should consider the social consequences of economic actions when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and social consequences.

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A) Factor endowment B) Tragedy of the commons C) Corporate dynamism D) Corporate social responsibility E) Economies of scale

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Topic : Ethics and Social Responsibility Gradable : automatic

109)

In a business setting, the term noblesse oblige refers to A) benevolent behavior that is considered the responsibility of successful enterprises. B) obliging a government official with the expectation of a reciprocal favor. C) wealthy corporations abusing their power for private gain. D) preferential treatment received by successful companies from governments. E) tax exemptions that are given only to local companies but not to foreign companies.

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Topic : Ethics and Social Responsibility Gradable : automatic

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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 110) Describe how violation of the apartheid laws by Western businesses helped improve human rights in South Africa.

111) Discuss how facilitating payments were affected by the Foreign Corrupt Practices Act and the OECD convention on bribery. Explain how economists responded to this.

112)

Describe the global tragedy of the commons and provide an example of this situation.

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113) Provide an example of how an American executive can face an ethical dilemma when acting as an international manager in a foreign country.

114)

List the six determinants of ethical behavior.

Question Details AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 05-03 Identify the causes of unethical behavior by managers as they relate to bu Topic : Causes of Unethical Behavior AACSB : Knowledge Application Gradable : manual

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115)

Discuss any two straw men approaches to business ethics.

116)

Compare and contrast cultural relativism and righteous moralism.

117)

Discuss the utilitarian approach to business ethics and examine its weaknesses.

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118)

Describe how the difference principle plays a role in John Rawls's principles of justice.

119) Discuss some steps an international business and its managers can take to make sure ethical issues are considered in business decisions.

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Ethical Decision Making Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : manual

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120)

Discuss the link between the concept of sustainability and the tragedy of the commons.

Question Details AACSB : Analytical Thinking AACSB : Ethics Accessibility : Keyboard Navigation Topic : Ethical Decision Making Bloom's : Understand Difficulty : 2 Medium Learning Objective : 05-05 Explain how global managers can incorporate ethical considerations into th Gradable : manual

121) Explain corporate social responsibility and describe how the concept of noblesse oblige factors into this concept.

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Answer Key Test name: Hill_5 1) TRUE The termethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) FALSE 7) TRUE 8) TRUE That is the nature ofethical dilemmas—situations in which none of the available alternatives seems ethically acceptable. 9) TRUE 10) TRUE 11) FALSE Values are abstract ideas about what a group believes to be good, right, and desirable, while norms are the social rules and guidelines that prescribe appropriate behavior in particular situations. 12) FALSE

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Friedman’s basic position is that “the social responsibility of business is to increase profits,” so long as the company stays within the rules of law. He explicitly rejects the idea that businesses should undertake social expenditures beyond those mandated by the law and required for the efficient running of a business. For example, his arguments suggest that improving working conditions beyond the level required by the lawand necessary to maximize employee productivity will reduce profits and is therefore not appropriate. 13) TRUE 14) TRUE 15) FALSE 16) FALSE Kantian ethics holds that people should be treated as ends and never purely asmeans to the ends of others. People are not instruments, like a machine. People have dignity and need to be respected as such. 17) TRUE 18) FALSE 19) TRUE 20) TRUE A firm’sstakeholders are individuals or groups that have an interest, claim, or stake in the company, in what it does, and in how well it performs. 21) FALSE 22) TRUE

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A firm’s stakeholders are individuals or groups that have an interest, claim, or stake in the company, in what it does, and in how well it performs. They can be divided into internal stakeholders and external stakeholders. Internal stakeholders are individuals or groups who work for or own the business.External stakeholders are all the other individuals and groups that have some direct or indirect claim on the firm. 23) TRUE 24) TRUE 25) FALSE 26) C The term businessethics refers to accepted principles of right or wrong that govern the conduct of a businessperson, the members of a profession, or the actions of an organization. 27) B The Sullivan principles were named after Leon Sullivan, a black Baptist minister and a member of General Motors' board of directors. Sullivan argued that it was ethically justified for GM to operate in South Africa so long as two conditions were fulfilled. First, the company should not obey the apartheid laws in its own South African operations (a form of passive resistance). Second, the company should do everything within its power to promote the abolition of apartheid laws. 28) B

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Sullivan's principles promoted the abolition of apartheid laws, and were widely adopted by U.S. firms operating in South Africa. South Africa represents an example that most people can relate to, most likely remember, and is relatively easy to understand (compared with authoritarian populists politicians infringing on human rights, which is often more difficult to understand and see in practice). The apartheid system denied basic political rights to the majority nonwhite population of South Africa, mandated segregation between whites and nonwhites, reserved certain occupations exclusively for whites, and prohibited blacks from being placed in positions where they would manage whites. 29) B Ten years after he proposed what came to be known as the Sullivan principles, Leon Sullivan concluded that simply following the principles was not sufficient to break down the apartheid regime and that any American company, even those adhering to his principles, could not ethically justify their continued presence in South Africa. 30) C Regulations differ from nation to nation. Given this, it is unethical for a company to try to escape tight emission limits by moving production to a country with lax regulations. 31) E In the modern world, corporations can contribute to the global tragedy of the commons by moving production to locations where they are free to pump pollutants into the atmosphere or dump them in oceans or rivers, thereby harming these valuable global commons. While such action may be legal, it is still unethical. 32) E

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In the modern world, corporations can contribute to the global tragedy of the commons by moving production to locations where they are free to pump pollutants into the atmosphere or dump them in oceans or rivers, thereby harming these valuable global commons. While such action may be legal, it is still unethical. 33) C The atmosphere and oceans can be viewed as a global commons from which everyone benefits but for which no one is specifically responsible. 34) C The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation. 35) A In the modern world, corporations can contribute to the global tragedy of the commons by moving production to locations where they are free to pump pollutants into the atmosphere or dump them in oceans or rivers, thereby harming these valuable global commons. 36) B The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation. 37) D

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The Foreign Corrupt Practices Act was subsequently amended to allow for "facilitating payments." Sometimes known as speed money or grease payments, facilitating payments are not payments to secure contracts that would not otherwise be secured and nor are they payments to obtain exclusive preferential treatment. Rather they are payments to ensure receiving the standard treatment that a business ought to receive from a foreign government, but might not due to the obstruction of a foreign official. 38) B Sometimes known as speed money or grease payments, facilitating payments are made to expedite routine government action. 39) B The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions obliges member states and other signatories to make the bribery of foreign public officials a criminal offense, but excludes facilitating payments made to expedite routine government action from the convention. 40) D Sometimes known as speed money or grease payments, facilitating payments are made to expedite routine government action. 41) D Sometimes known as speed money or grease payments, facilitating payments are made to expedite routine government action. However, such payments are not payments to obtain exclusive preferential treatment. Payments made to obtain exclusive preferential treatment are bribes. 42) C

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Another study found that firms that paid more in bribes are likely to spend more, not less, management time with bureaucrats negotiating regulations and that this tended to raise the costs of the firm. The demand for speed money creates a genuine ethical dilemma. The argument that corruption feeds on itself strengthens the ethical case for never engaging in corruption, no matter how compelling the benefits might seem. Many multinationals have accepted this argument. The large oil multinational BP, for example, has a zero-tolerance approach toward facilitating payments. 43) C The ethical obligations of a multinational corporation toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear-cut. There may be no agreement about accepted ethical principles. From an international business viewpoint, some argue that what is ethical depends upon one's cultural perspective. 44) D Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable. Doing the right thing, or even knowing what the right thing might be, is often far from easy. 45) D An ethical dilemma is a situation in which there is no ethically acceptable solution. 46) B Home-country managers working abroad in multinational firms (expatriate managers) may experience more than the usual degree of pressure to violate their personal ethics. 47) A Version 1

Several studies of unethical behavior in a business setting have concluded that businesspeople sometimes do not realize they are behaving unethically, primarily because they simply fail to ask, "Is this decision or action ethical?" Instead, they apply a straightforward business calculus to what they perceive to be a business decision, forgetting that the decision may also have an important ethical dimension. 48) B The termorganizational culture refers to the values and norms that are shared among employees of an organization. 49) A One of the causes of unethical behavior is pressure from the parent company to meet unrealistic performance goals that can be attained only by cutting corners or acting in an unethical manner. 50) A One of the causes of unethical behavior is pressure from the parent company to meet unrealistic performance goals that can be attained only by cutting corners or acting in an unethical manner. 51) B Leaders help to establish the culture of an organization, and they set the example that others follow. Other employees in a business often take their cue from business leaders, and if those leaders do not behave in an ethical manner, they might not either. 52) E Leaders help to establish the culture of an organization, and they set the example that others follow. Other employees in a business often take their cue from business leaders, and if those leaders do not behave in an ethical manner, they might not either. Version 1

53) C Values are abstract ideas about what a group believes to be good, right, and desirable, whilenorms are the social rules and guidelines that prescribe appropriate behavior in particular situations. 54) A Straw men approaches to business ethics are raised by business ethics scholars primarily to demonstrate that they offer inappropriate guidelines for ethical decision making in a multinational enterprise. 55) A Straw men approaches to business ethics are raised by business ethics scholars primarily to demonstrate that they offer inappropriate guidelines for ethical decision making in a multinational enterprise. Four such approaches to business ethics are commonly discussed in the literature. These approaches can be characterized as the Friedman doctrine, cultural relativism, the righteous moralist, and the naive immoralist. 56) A Friedman's basic position is that the only social responsibility of business is to increase profits, so long as the company stays within the rules of law. He explicitly rejects the idea that businesses should undertake social expenditures beyond those mandated by the law and required for the efficient running of a business. 57) A

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Friedman's basic position is that the only social responsibility of business is to increase profits, so long as the company stays within the rules of law. Friedman's belief is that a firm should maximize its profits because that is the way to maximize the returns that accrue to the owners of the firm, its stockholders. If stockholders then wish to use the proceeds to make social investments, that is their right, according to Friedman, but managers of the firm should not make that decision for them. 58) A Cultural relativism is the belief that ethics are nothing more than the reflection of a culture—all ethics are culturally determined—and accordingly, a firm should adopt the ethics of the culture in which it is operating. This approach is often summarized by the maxim "When in Rome, do as the Romans do." 59) A Cultural relativism is the belief that ethics are nothing more than the reflection of a culture—all ethics are culturally determined—and that accordingly, a firm should adopt the ethics of the culture in which it is operating. This approach is often summarized by the maxim "When in Rome do as the Romans do." 60) E Cultural relativism believes that ethics are nothing more than the reflection of a culture—all ethics are culturally determined—and that accordingly, a firm should adopt the ethics of the culture in which it is operating. 61) C

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Cultural relativism believes that ethics are nothing more than the reflection of a culture—all ethics are culturally determined—and that accordingly, a firm should adopt the ethics of the culture in which it is operating. 62) B While dismissing cultural relativism in its most sweeping form, some ethicists argue there is residual value in this approach. Societal values and norms do vary from culture to culture, customs do differ, so it might follow that certain business practices are ethical in one country, but not in another. 63) B Cultural relativism is the belief that ethics are nothing more than the reflection of a culture—all ethics are culturally determined—and that accordingly, a firm should adopt the ethics of the culture in which it is operating. While dismissing cultural relativism in its most sweeping form, some ethicists argue there is residual value in this approach. Societal values and norms do vary from culture to culture, customs do differ, so it might follow that certain business practices are ethical in one country, but not in another. 64) A Righteous moralism is the belief that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. 65) D Righteous moralism is the belief that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. This approach is typically associated with managers from developed nations. Version 1

66) C Righteous moralism is the belief that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. This approach is typically associated with managers from developed nations. 67) B A righteous moralist claims that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. This approach is typically associated with managers from developed nations. 68) D The main criticism of the righteous moralist approach is that its proponents go too far. While there are some universal moral principles that should not be violated, it does not always follow that the appropriate thing to do is adopt home-country standards. 69) D A naive immoralist asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either. 70) C A naive immoralist asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either. 71) C

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Utilitarian approaches to ethics hold that the moral worth of actions or practices is determined by their consequences. Utilitarianism recognizes that actions have multiple consequences, some of which are good in a social sense and some of which are harmful. As a philosophy for business ethics, utilitarianism focuses attention on the need to weigh carefully all of the social benefits and costs of a business action and to pursue only those actions where the benefits outweigh the costs. 72) E Utilitarianism recognizes that actions have multiple consequences, some of which are good in a social sense and some of which are harmful. As a philosophy for business ethics, it focuses attention on the need to weigh carefully all of the social benefits and costs of a business action and to pursue only those actions where the benefits outweigh the costs. 73) B Utilitarian approaches to ethics hold that the moral worth of actions or practices is determined by their consequences. An action is judged desirable if it leads to the best possible balance of good consequences over bad consequences. 74) D As a philosophy for business ethics, utilitarianism focuses attention on the need to weigh carefully all of the social benefits and costs of a business action and to pursue only those actions where the benefits outweigh the costs. The best decisions, from a utilitarian perspective, are those that produce the greatest good for the greatest number of people. 75) D

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As a philosophy for business ethics, utilitarianism focuses attention on the need to weigh carefully all of the social benefits and costs of a business action and to pursue only those actions where the benefits outweigh the costs. The best decisions, from a utilitarian perspective, are those that produce the greatest good for the greatest number of people. Many businesses have adopted specific tools such as cost-benefit analysis and risk assessment that are firmly rooted in a utilitarian philosophy. 76) A One of the problems with utilitarianism is that the philosophy omits the consideration of justice. The action that produces the greatest good for the greatest number of people may result in the unjustified treatment of a minority. 77) A Kantian ethics holds that people should be treated as ends and never purely as means to the ends of others. People are not instruments, like a machine. People have dignity and need to be respected as such. 78) C Although contemporary moral philosophers tend to view Kant's ethical philosophy as incomplete—for example, his system has no place for moral emotions or sentiments such as sympathy or caring—the notion that people should be respected and treated with dignity still resonates in the modern world. 79) A Employing people in sweatshops, making them work long hours for low pay in poor work conditions, is a violation of ethics, according to Kantian philosophy, because it treats people as mere cogs in a machine and not as conscious moral beings that have dignity. Version 1

80) C Developed in the twentieth century, rights theories recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures. Moral theorists argue that fundamental human rights form the basis for themoral compass that managers should navigate by when making decisions that have an ethical component. More precisely, they should not pursue actions that violate these rights. 81) A One well-known definition of a fundamental right construes it as something that takes precedence over or "trumps" a collective good. Moral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when making decisions that have an ethical component. More precisely, they should not pursue actions that violate these rights. 82) B The notion that there are fundamental rights that transcend national borders and cultures was the underlying motivation for the United Nations Universal Declaration of Human Rights. Article 23 of the Universal Declaration of Human Rights implies that it is unethical to employ child labor in sweatshop settings and pay less than subsistence wages, even if that happens to be common practice in some countries. These are fundamental human rights that transcend national borders. 83) D Echoing Kantian ethics, Article 1 of the Universal Declaration of Human Rights states: All human beings are born free and equal in dignity and rights. They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood. 84) B

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According to the United Nations Universal Declaration of Human Rights, fundamental human rights transcend national borders and cultures. However, cultural relativism implicitly rejects the idea that universal notions of morality transcend different cultures. 85) D Within the framework of a theory of rights, certain people or institutions are obligated to provide benefits or services that secure the rights of others. Such obligations also fall on more than one class of moral agent (amoral agent is any person or institution that is capable of moral action such as a government or corporation). 86) D Rights theories recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures. Rights establish a minimum level of morally acceptable behavior. 87) B Justice theories focus on the attainment of a just distribution of economic goods and services. A just distribution is one that is considered fair and equitable. 88) A John Rawls argues that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage. According to Rawls, valid principles of justice are those with which all persons would agree if they could freely and impartially consider the situation. 89) A

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According to John Rawls, valid principles of justice are those with which all persons would agree if they could freely and impartially consider the situation. Impartiality is guaranteed by a conceptual device that Rawls calls the veil of ignorance. Under the veil of ignorance, everyone is imagined to be ignorant of all of his or her particular characteristics, for example, race, sex, intelligence, nationality, family background, and special talents. 90) D Under the veil of ignorance, everyone is imagined to be ignorant of all of his or her particular characteristics, for example, race, sex, intelligence, nationality, family background, and special talents. 91) C According to Rawls, valid principles of justice are those with which all persons would agree if they could freely and impartially consider the situation. Impartiality is guaranteed by a conceptual device that Rawls calls the veil of ignorance. Under the veil of ignorance, everyone is imagined to be ignorant of all of his or her particular characteristics, for example, race, sex, intelligence, nationality, family background, and special talents. 92) D Rawls's first principle of justice is that each person be permitted the maximum amount of basic liberty compatible with a similar liberty for others. The second principle is that once equal basic liberty is assured, inequality in basic social goods—such as income and wealth distribution, and opportunities—is to be allowed only if such inequalities benefit everyone. 93) A

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John Rawls accepts that inequalities can be just if the system that produces inequalities is to the advantage of everyone. More precisely, he formulates what he calls the difference principle, which is that inequalities are justified if they benefit the position of the leastadvantaged person. 94) A Managers need a moral compass to help them find an acceptable solution to the dilemma. Thus, Rawls's veil of ignorance is a conceptual tool that contributes to the moral compass that managers can use to help them navigate through difficult ethical dilemmas. 95) C In order to avoid hiring people who subsequently turn out to have poor personal ethics, businesses can give potential employees psychological tests to try to discern their ethical predisposition, and they can check with prior employees regarding someone's reputation (e.g., by asking for letters of reference and talking to people who have worked with the prospective employee). The latter is common and does influence the hiring process. 96) E A code of ethics is a formal statement of the ethical priorities a business adheres to. Often, the code of ethics draws heavily on documents such as the UN Universal Declaration of Human Rights, which itself is grounded in Kantian and rights-based theories of moral philosophy. 97) D

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Leaders in a business must give life and meaning to ethical behavior by repeatedly emphasizing their importance and then acting on them. This means using every relevant opportunity to stress the importance of business ethics and making sure that key business decisions not only make good economic sense but also are ethical. 98) B The internal stakeholders of a company are individuals or groups who work for or own the business. They include all employees, the board of directors, and stockholders. External stakeholders are all other individuals and groups that have some claim on the firm. Typically, this group is composed of customers, suppliers, lenders, governments, unions, local communities, and the general public. 99) B The internal stakeholders of a company are individuals or groups who work for or own the business. They include all employees, the board of directors, and stockholders. External stakeholders are all other individuals and groups that have some claim on the firm. Typically, this group is composed of customers, suppliers, lenders, governments, unions, local communities, and the general public. 100) D Stakeholder analysis involves a certain amount of what has been called moral imagination. This means standing in the shoes of a stakeholder and asking how a proposed decision might impact that stakeholder. 101) A A five-step process has been recommended to think through ethical problems (this is another example of an ethical algorithm). In step 1, businesspeople should identify which stakeholders a decision would affect and in what ways. Version 1

102) E Stakeholder analysis involves a certain amount of what has been calledmoral imagination. This means standing in the shoes of a stakeholder and asking how a proposed decision might impact that stakeholder. 103) D Although maximizing long-run profitability is the decision rule that most businesses stress, it should be applied subject to the constraint that no moral principles are violated—that the business behaves in an ethical manner. 104) C Step five, the last step in a stakeholder analysis, requires the business to audit its decisions, reviewing them to make sure they were consistent with ethical principles, such as those stated in the company's code of ethics. 105) B Step five, the last step in a stakeholder analysis, requires the business to audit its decisions, reviewing them to make sure they were consistent with ethical principles, such as those stated in the company's code of ethics. This final step is critical and often overlooked. Without auditing past decisions, businesspeople may not know if their decision process is working and if changes should be made to ensure greater compliance with a code of ethics. 106) A

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To make sure that a business behaves in an ethical manner, a number of firms now have ethics officers. These individuals are responsible for managing their organization’s ethics and legal compliance programs. This includes making sure that all employees are trained to be ethically aware, that ethical considerations enter the business decision-making process, and that the company's code of ethics is followed. 107) A It is important to recognize that employees in an international business may need significant moral courage. Moral courage enables managers to walk away from a decision that is profitable, but unethical. Moral courage gives an employee the strength to say no to a superior who instructs her to pursue actions that are unethical. Moral courage gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company. 108) D The concept of corporate social responsibility refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and social consequences. 109) A Noblesse oblige is a French term that refers to honorable and benevolent behavior considered the responsibility of people of high (noble) birth. In a business setting, it is taken to mean benevolent behavior that is the responsibility of successful enterprises.

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110)Despite the odious nature of the apartheid system, Western businesses operated in South Africa. By the 1980s, however, many argued that inward investment by foreign multinationals, by boosting the South African economy, supported the repressive apartheid regime. Several Western businesses started to change their policies in the late 1970s and early 1980s. General Motors, which had significant activities in South Africa, was at the forefront of this trend. GM adopted what came to be called the Sullivan principles, which argued that it was ethically justified for GM to operate in South Africa so long as two conditions were fulfilled. First, the company should not obey the apartheid laws in its own South African operations. Second, the company should do everything within its power to promote the abolition of apartheid laws. Sullivan's principles were widely adopted by U.S. firms operating in South Africa. Their violation of the apartheid laws was ignored by the South African government, which clearly did not want to antagonize important foreign investors. However, after 10 years, Leon Sullivan concluded that simply following the principles was not sufficient to break down the apartheid regime and that any American company, even those adhering to his principles, could not ethically justify their continued presence in South Africa. Over the next few years, numerous companies divested their South African operations. These divestments, coupled with the imposition of economic sanctions from the U.S. and other governments, contributed to the abandonment of white minority rule and apartheid in South Africa and the introduction of democratic elections in 1994. Thus, adopting an ethical stance was argued to have helped improve human rights in South Africa.

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111) While facilitating payments, orspeed money, are excluded from both the Foreign Corrupt Practices Act and the OECD convention on bribery, the ethical implications of making such payments are unclear. From a practical standpoint, giving bribes might be the price that must be paid to do a greater good (assuming the investment creates jobs and assuming the practice is not illegal). Several economists advocate this reasoning, suggesting that in the context of pervasive and cumbersome regulations in developing countries, corruption may improve efficiency and help growth! These economists theorize that in a country where preexisting political structures distort or limit the workings of the market mechanism, corruption in the form of black-marketeering, smuggling, and side payments to government bureaucrats to “speed up” approval for business investments may enhance welfare.10 Arguments such as this persuaded the U.S. Congress to exempt facilitating payments from the FCPA.

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112)No one owns the atmosphere or the oceans, but polluting both, no matter where the pollution originates, harms all. The atmosphere and oceans can be viewed as a global commons from which everyone benefits but for which no one is specifically responsible. In such cases, a phenomenon known as the tragedy of the commons becomes applicable. The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation. The phenomenon was first named by Garrett Hardin when describing a particular problem in sixteenth-century England. In the modern world, corporations can contribute to the global tragedy of the commons by moving production to locations where they are free to pump pollutants into the atmosphere or dump them in oceans or rivers, thereby harming these valuable global commons. Such actions seem to violate basic societal notions of ethics and corporate social responsibility. This issue is taking on greater importance as concerns about human-induced global warming move to center stage.

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113)Students responses will vary. The book notes the following example: For example, imagine that a visiting American executive finds that a foreign subsidiary in a poor nation has hired a 12-year-old girl to work on a factory floor. Appalled to find that the subsidiary is using child labor in direct violation of the company’s own ethical code, the American instructs the local manager to replace the child with an adult. The local manager dutifully complies. The girl, an orphan, who is the only breadwinner for herself and her six-year-old brother, is unable to find another job, so in desperation she turns to prostitution. Two years later, she dies of AIDS. Had the visiting American understood the gravity of the girl’s situation, would he still have requested her replacement? Would it have been better to stick with the status quo and allow the girl to continue working? Probably not, because that would have violated the reasonable prohibition against child labor found in the company’s own ethical code. What then would have been the right thing to do? What was the obligation of the executive given this ethical dilemma? 114)Six determinants of ethical behavior: personal ethics, decisionmaking processes, organizational culture, unrealistic performance goals, leadership, and societal culture.

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115) Straw men approaches to business ethics are raised by business ethics scholars primarily to demonstrate that they offer inappropriate guidelines for ethical decision making in a multinational enterprise. These approaches can be characterized as the Friedman doctrine, cultural relativism, the righteous moralist, and the naive immoralist. Economist Milton Friedman wrote an article that has become a classic straw man example that business ethics scholars outline only to then tear down. Friedman's basic position is that the only social responsibility of business is to increase profits, so long as the company stays within the rules of law. He explicitly rejects the idea that businesses should undertake social expenditures beyond those mandated by the law and required for the efficient running of a business. His arguments suggest that improving working conditions beyond the level required by the law and necessary to maximize employee productivity will reduce profits and are therefore not appropriate. His belief is that a firm should maximize its profits because that is the way to maximize the returns that accrue to the owners of the firm, its shareholders. If shareholders then wish to use the proceeds to make social investments, that is their right, according to Friedman, but managers of the firm should not make that decision for them. Another straw man often raised by business ethics scholars is cultural relativism, which is the belief that ethics are nothing more than the reflection of a culture—all ethics are culturally determined—and that accordingly, a firm should adopt the ethics of the culture in which it is operating. This approach is often summarized by the maxim “when in Rome, do as the Romans do.” A righteous moralist claims that a multinational’s home-country standards of ethics are the appropriate ones for companies to follow in Version 1

foreign countries. This approach is typically associated with managers from developed nations. While this seems reasonable at first blush, the approach can create problems. The main criticism of the righteous moralist approach is that its proponents go too far. While there are some universal moral principles that should not be violated, it does not always follow that the appropriate thing to do is adopt home-country standards. A naive immoralist asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either. The objection to naive immoralism is twofold. First, to say that an action is ethically justified if everyone is doing it is not sufficient. Second, a large multinational must recognize that it does have the ability to change the prevailing practice in a country. It can use its power for a positive moral purpose. 116) Cultural relativism believes that ethics are nothing more than the reflection of a culture—all ethics are culturally determined—and that accordingly, a firm should adopt the ethics of the culture in which it is operating. This approach is often summarized by the maxim "when in Rome do as the Romans do." Cultural relativism implicitly rejects the idea that universal notions of morality transcend different cultures. A righteous moralist claims that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. This approach is typically associated with managers from developed nations. The main criticism of the righteous moralist approach is that its proponents go too far. While there are some universal moral principles that should not be violated, it does not always follow that the appropriate thing to do is adopt home-country standards.

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117) Utilitarian approaches to ethics hold that the moral worth of actions or practices is determined by their consequences. An action is judged desirable if it leads to the best possible balance of good consequences over bad consequences. As a philosophy for business ethics, it focuses attention on the need to weigh carefully all of the social benefits and costs of a business action and to pursue only those actions where the benefits outweigh the costs. The best decisions, from a utilitarian perspective, are those that produce the greatest good for the greatest number of people. Utilitarian philosophy does have some serious drawbacks as an approach to business ethics. One problem is measuring the benefits, costs, and risks of a course of action. The second problem with utilitarianism is that the philosophy omits the consideration of justice. The action that produces the greatest good for the greatest number of people may result in the unjustified treatment of a minority. Such action cannot be ethical, precisely because it is unjust. 118) Rawls accepts that inequalities can be justified if the system that produces inequalities is to the advantage of everyone. More precisely, he formulates what he calls thedifference principle, which is that inequalities are justified if they benefit the position of the leastadvantaged person. So, for example, wide variations in income and wealth can be considered just if the market-based system that produces this unequal distribution also benefits the least-advantaged members of society. One can argue that a well-regulated, market-based economy and free trade, by promoting economic growth, benefit the least-advantaged members of society. In principle at least, the inequalities inherent in such systems are therefore just (in other words, the rising tide of wealth created by a market-based economy and free trade lifts all boats, even those of the most disadvantaged). Version 1

119) Many of the most vexing ethical problems arise because there are very real dilemmas inherent in them and no obvious correct action. Nevertheless, managers can and should do many things to make sure that basic ethical principles are adhered to and that ethical issues are routinely inserted into international business decisions. The seven things that an international business and its managers can do to make sure ethical issues are considered in business decisions are: (1) favor hiring and promoting people with a well-grounded sense of personal ethics; (2) build an organizational culture and exemplify leadership behaviors that place a high value on ethical behavior; (3) put decision-making processes in place that require people to consider the ethical dimension of business decisions; (4) institute ethical officers in the organization, (5) develop moral courage; (6) make corporate social responsibility a cornerstone of enterprise policy; and (7) pursue strategies that are sustainable. 120) A company pursuing a sustainable strategy would not adopt business practices that deplete the environment for short-term economic gain because doing so would impose a cost on future generations. In other words, international businesses that pursue sustainable strategies try to ensure that they do not precipitate or participate in a situation that results in a tragedy of the commons Thus, for example, a company pursuing a sustainable strategy would try to reduce its carbon footprint (CO2 emissions) so that it does not contribute to global warming. The core idea ofsustainability is that the organization—through its actions— does not exert a negative impact on the ability of future generations to meet their own economic needs and that its actions impart long-run economicand social benefits on stakeholders.

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121) The concept ofcorporate social responsibility (CSR) refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions and that there should be a presumption in favor of decisions that have both good economic and social consequences. In its purest form, corporate social responsibility can be supported for its own sake simply because it is the right way for a business to behave. Advocates of this approach argue that businesses, particularly large successful businesses, need to recognize theirnoblesse oblige and give something back to the societies that have made their success possible.Noblesse oblige is a French term that refers to honorable and benevolent behavior considered the responsibility of people of high (noble) birth. In a business setting, it is taken to mean benevolent behavior that is the responsibility ofsuccessful enterprises. This has long been recognized by many businesspeople, resulting in a substantial and venerable history of corporate giving to society, with businesses making social investments designed to enhance the welfare of the communities in which they operate.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The practice of mercantilism discouraged countries from exporting but encouraged them to import the goods they needed. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 1 Easy Topic : Mercantilism Learning Objective : 06-01 Understand why nations trade with each other. Gradable : automatic

2) Free trade exists when there is no government influence on what citizens can buy from another country or sell to another country. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Trade Theories and Their Implications Learning Objective : 06-01 Understand why nations trade with each other. Gradable : automatic

3) According to Adam Smith, government policy should determine a country's imports and exports. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Trade Theories and Their Implications Learning Objective : 06-01 Understand why nations trade with each other. Gradable : automatic

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4) The trade theories of Smith and Ricardo promote the idea that American consumers should buy products made in the United States whenever possible to help save jobs from foreign competition. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-01 Understand why nations trade with each other. Gradable : automatic

5) Mercantilism asserted that gold and silver were the mainstays of national wealth and essential to vigorous commerce. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Topic : Mercantilism Bloom's : Remember Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

6) Those who follow the mercantilist doctrine would not want government intervention to be the reason for a surplus in the balance of trade. ⊚ true ⊚ false

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Question Details Accessibility : Keyboard Navigation Bloom's : Understand Topic : Mercantilism Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

7) A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 1 Easy Topic : Trade Theories and Their Implications Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

8) Adam Smith supported the mercantilist assumption because he believed that countries differ in their ability to produce goods efficiently. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

9) According to the theory of comparative advantage, potential world production is greater with unrestricted free trade than it is with restricted trade. ⊚ true ⊚ false Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Trade Theories and Their Implications Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

10) The theory of free trade is enhanced by the idea that resources typically move easily from one economic activity to another and allow nations to adapt quickly. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

11) Free trade is likely to decrease a country's stock of resources and the efficiency with which it utilizes those resources. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

12) Factor endowments refer to the availability of land and labor which affect the ability of a country to produce goods. ⊚ true ⊚ false Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

13) The Heckscher-Ohlin theory is considered the best predictor of real-world international trade patterns. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Trade Theories and Their Implications Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

14) Raymond Vernon's product life-cycle theory was based on the observation that for most of the twentieth century a very large proportion of the world's new products were developed by firms situated in the United States and sold first in the U.S. market. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Trade Theories and Their Implications Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

15) According to the product life-cycle theory, as demand for a product grows rapidly in the United States, it will also grow rapidly in other advanced nations and diminish potential exports from the United States. Version 1

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true false

16) According to the product life-cycle theory, the locus of global production initially switches from developing countries to other advanced nations and then from those nations to the United States. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

17) According to the product life-cycle theory, the ultimate result is that production of goods becomes concentrated in the country where a product originated—typically, a developed nation. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

18)

Factor endowments are unit cost reductions associated with a large scale of output.

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true false

19)

New trade theory suggests that world trade will increase the average cost of goods. ⊚ true ⊚ false

20) First-mover advantages are gained by those companies that are the early entrants to an industry. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Trade Theories and Their Implications Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

21) Michael Porter argues that advanced factors are the most significant for competitive advantage.

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true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Porter's Diamond Model Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

22) According to Michael Porter, government can influence each of the four components of Porter's diamond—either positively or negatively. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Porter's Diamond Model Learning Objective : 06-04 Explain the arguments of those who maintain that government can play a pro Gradable : automatic

23) Porter's theory has been subjected to detailed empirical testing and it is proven that it accurately predicts international trade patterns. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Porter's Diamond Model Learning Objective : 06-04 Explain the arguments of those who maintain that government can play a pro Gradable : automatic

24) From the perspective of making a profit, it is sensible for a company to disperse production activities to countries where they can be performed most efficiently. Version 1

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Question Details Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium AACSB : Reflective Thinking Learning Objective : 06-05 Understand the important implications that international trade theory hold Gradable : automatic

25) Porter's theory suggests that it is in the best interest of business for a firm to invest in upgrading advanced factors of production. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Porter's Diamond Model Learning Objective : 06-05 Understand the important implications that international trade theory hold Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Michaela works in a country where the government does not set quotas or duties on what its citizens can buy from another country, or what they can produce and sell to another country. In other words, the country where Michaela lives practices A) free trade. B) mercantilism. C) socialism D) absolute advantage. E) a zero-sum game.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Learning Objective : 06-01 Understand why nations trade with each other. Gradable : automatic

27) The theory of __________ was the first to explain why unrestricted free trade benefits a country. A) Heckscher-Ohlin B) national competitive advantage C) free trade D) absolute advantage E) zero-sum game

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-01 Understand why nations trade with each other. Gradable : automatic

28) The geographical location of a Pacific island is advantageous for the seafood industry because it has access to a variety of aquatic life forms and also a number of freshwater sources. The lack of arable land drives local demand for seafood, and the island is one of the world’s major exporters of seafood products. Which theory of international trade best explains this island’s dominance as an exporter of seafood? A) new trade theory B) product life-cycle theory C) mercantilism D) Heckscher-Ohlin theory E) theory of national competitive advantage

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Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-01 Understand why nations trade with each other. Gradable : automatic

29) According to the Smith, Ricardo, and Heckscher-Ohlin theories, a country’s economy may gain if its citizens buy some products from other nations that could be produced in their home nation. What is the reasoning behind this idea? A) The natural resources of a country limit the types and quantities of items that can be produced. B) International trade is typically regulated by government forces that prevent a business from exporting. C) International trade allows a country to specialize in items that can be produced most efficiently in that country. D) First-mover advantages limit a country from producing every product that citizens need or want. E) Innovative products are typically produced in the home country, but high-demand products should be imported.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-01 Understand why nations trade with each other. Gradable : automatic

30) The government of a Central American country decides on the products that can be imported and ensures that any agricultural product that can be produced at home will not be imported. Instead, the government wants to maximize agricultural exports to achieve a surplus in the balance of trade. Which perspective likely influences this government’s approach to international trade?

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A) mercantilism B) Leontief's paradox C) product life-cycle theory D) new trade theory E) first-mover advantage

Question Details Accessibility : Keyboard Navigation Topic : Mercantilism AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

31) Many years ago, a South African Republic believed that it was in its best interests to maintain a trade surplus, in other words, to export more than it imports. In so doing, the Republic hoped to accumulate gold and silver, and consequently, increase its national wealth, prestige, and power. In this scenario, what influenced the approach to international trade? A) neo-Ricardian trade theory B) Leontief's paradox C) product life-cycle theory D) new trade theory E) mercantilism

Question Details Accessibility : Keyboard Navigation Topic : Mercantilism AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

32)

As a trade theory, mercantilism was based on the idea that a trade surplus would lead to

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A) absolute advantage among all trading partners. B) first-mover advantages. C) lower levels of inflation and a steady economy. D) accumulations of gold and silver. E) lower levels of national wealth.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Mercantilism Difficulty : 2 Medium Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

33) Which theory asserts that countries should simultaneously encourage exports and discourage imports? A) free trade B) capitalism C) new trade D) mercantilism E) socialism

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Topic : Mercantilism Bloom's : Remember Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

34) Which trade strategy is in a country's best interests, according to the main tenet of mercantilism?

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A) importing products from developing nations B) importing products even if they are efficiently produced at home C) importing less specialized goods rather than attempting to make them at home D) minimizing exports and maximizing imports E) maintaining a trade surplus

35) What was the principle currency of trade in the mid-sixteenth century when mercantilism came into favor in England? A) the pound B) gold and silver C) the U.S. dollar D) salt and spices E) human labor

36)

One of the central beliefs of mercantilism is that

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A) a country's government should intervene to achieve a surplus in the balance of trade. B) a large volume of trade is essential regardless of whether it comes from imports or exports. C) trade is a positive-sum game in which all countries benefit from trading with each other. D) a country that has an absolute advantage in the production of all goods derives no benefits from international trade. E) potential world production is greater with unrestricted free trade than it is with restricted trade.

37) A European nation exports fabric and fashion products and in turn imports products that it does not produce such as corn and wheat. As a result, it spends more on buying corn and wheat than it gains from exporting fabric. Which perspective would frown on this form of international trade? A) new trade theory B) product life-cycle theory C) mercantilism D) Heckscher-Ohlin theory E) theory of national competitive advantage

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38)

An inconsistency in the mercantilist doctrine, as pointed out by David Hume, is that

A) the volume of a country's imports increases as an indirect consequence of mercantilism. B) the exclusion of government influence in matters pertaining to trade is not ideal. C) in the long run, no country could sustain a surplus on the balance of trade. D) it was not backed by either sound political principles or social ideologies. E) trade is a zero-sum game rather than a positive-sum game as postulated by the theory.

39)

A zero-sum game occurs when A) the market mechanism determines what a country imports and what it exports. B) a country engages in international trade even for products it is able to produce for

itself. C) an economic gain by one country results in an economic loss by another. D) limits on imports are done in the interests of domestic producers, but not domestic consumers. E) one country has an absolute advantage in the production of all goods.

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40) While one European nation might experience a gain because of the high costs associated with the products it exports to another European nation, that second nation might experience a loss because it is trading fewer products that cost less. Which characteristic of the mercantilist theory does this reflect? A) factor endowments B) first-mover advantage C) zero-sum game D) late-mover advantage E) comparative advantage

41)

Neo-mercantilists equate political power with economic power and economic power with A) corruption. B) a balance-of-trade surplus. C) regional dominance. D) a trade monopoly. E) an absolute advantage.

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42)

A neo-mercantilist strategy would promote A) the equal distribution of exports and imports. B) boosting exports and limiting imports. C) boosting both imports and exports. D) limiting both imports and exports. E) boosting imports and limiting exports.

43) Canada exports oil, prepared food, and vegetables to the United States. The United States exports vehicles, plastics, and mineral fuels to Canada. Adam Smith would say this exchange occurs because A) tariff barriers determine the flow of goods and services between nations. B) countries are simultaneously encouraging exports and discouraging imports. C) first entrants to the industry ensure their nations have the first-mover advantages. D) nations with an absolute advantage in producing certain goods trade them for goods produced by other countries. E) gold and silver are the mainstays of national wealth and essential to vigorous commerce.

Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

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44) Garments are exported from China to the United States on a daily basis. In turn, the United States exports agricultural products like soybeans to China. Which statement best explains the trade equation between China and the United States? A) Tariff barriers determine the flow of goods and services between nations. B) Countries are simultaneously encouraging exports and discouraging imports. C) First entrants to the industry ensure their nations have the first-mover advantages. D) Nations with an absolute advantage in producing certain goods trade them for goods produced by other countries. E) Gold and silver are the mainstays of national wealth and essential to vigorous commerce.

Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

45) China and Germany specialize in the production of silk and automobiles respectively. They are considered the best at their specializations. Assume that China trades silk with Germany in exchange for automobiles. Which perspective is illustrated by this form of trade? A) product life-cycle theory B) Heckscher-Ohlin theory C) absolute advantage D) mercantilism E) theory of national competitive advantage

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46) India is the largest exporter of information technology services to the United States In turn, the United States exported $3 billion worth of aircraft to India. What theory is illustrated by this form of trade between India and the United States? A) product life-cycle theory B) Heckscher-Ohlin theory C) absolute advantage D) mercantilism E) theory of national competitive advantage

47) Country A specializes in the production of steel and produces steel more efficiently than any other country. It buys corn, which it produces less efficiently than steel, from Country B, even though it produces corn more efficiently than Country B. Which theory of international trade supports Country A’s decision to buy corn from Country B? A) Samuelson critique B) mercantilism C) Ricardo's theory of comparative advantage D) Adam Smith's theory of absolute advantage E) Leontief's paradox

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48) India specializes in business process outsourcing and does this more efficiently than any other country. It buys agricultural commodities, which it produces less efficiently than outsourcing activities, from the United States, even though it produces these agricultural commodities more efficiently than the United States Which international trade theory supports India's decision to buy agricultural commodities from the United States? A) Samuelson critique B) mercantilism C) Ricardo's theory of comparative advantage D) Adam Smith's theory of absolute advantage E) Leontief's paradox

49) According to Ricardo’s theory of comparative advantage, consumers in all nations can consume more if there are A) stronger restrictions on trade. B) more monopolistic businesses. C) fewer incentives for intellectual property. D) no restrictions on trade. E) fewer monopolistic businesses.

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50) Which trade theory suggests that trade is a positive-sum game in which all participating countries realize economic gains? A) Heckscher-Ohlin theory B) mercantilism C) comparative advantage D) Leontief's paradox E) Samuelson critique

51) Country X and Country Z specialize in the production of agricultural equipment and wheat respectively. Country X exports agricultural equipment to Country Z, which in turn exports wheat to Country X. According to the theory of comparative advantage, this mutually beneficial trade relationship is an example of A) the significance of trade barriers. B) a positive-sum game. C) a first-mover advantage. D) the advantages of mercantilism. E) a zero-sum game.

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52) A European nation specializes in engine parts, while its geographical neighbor specializes in automobiles. Each country exports the product it specializes in to the other country. According to the theory of comparative advantage, this mutually beneficial trade relationship best illustrates A) the significance of trade barriers. B) a positive-sum game. C) a first-mover advantage. D) the advantages of mercantilism. E) a zero-sum game.

53) In Country A, it takes 10 resources to produce 1 ton of tea and 13.5 resources to produce 1 ton of rice. In Country Z, it takes 40 resources to produce 1 ton of tea and 12 resources to produce 1 ton of rice. Country A has a comparative advantage over Country Z in A) both tea and rice. B) tea C) rice D) both tea and rice if combined. E) neither tea nor rice.

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Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

54) Consider two hypothetical countries of Parma and Zan. Parma is a major producer of cheese and wheat while Zan specializes in the production of cardboard and agricultural parts. Engaging in free trade benefits both countries since Parma is an agrarian nation and Zan lacks arable land. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it; however, this conclusion is based on which inaccurate assumption? A) We have assumed a simple world in which there are only two countries. B) We have assumed the prices of resources and exchange rates in the two countries are dynamic. C) We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. D) We have assumed that agrarian nations do not specialize in producing fertilizers. E) We have assumed diminishing returns to specialization.

Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

55) In Country T, it takes 10 resources to produce 1 ton of cocoa and 13.5 resources to produce 1 ton of rice. In Country Y, it takes 40 resources to produce 1 ton of cocoa and 20 resources to produce 1 ton of rice. Country T has a comparative advantage over Country Y in cocoa. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it; however, this conclusion stems from which of these inaccurate assumptions? Version 1

A) We have assumed constant returns to scale. B) We have assumed the prices of resources and exchange rates in the two countries are dynamic. C) We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. D) We have assumed that agrarian nations do not specialize in producing particular products. E) We have assumed diminishing returns to specialization.

Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

56) Based on the last quarterly report, Jarek realizes that it is now taking more resources to produce each of the refrigerators his company makes. What aspect of comparative advantage is Jarek noticing? A) increasing tariffs B) diminishing returns C) JIT inventory D) economies of scale E) constant returns

Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

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57) In the fictional nation of Simeon, it takes 10 units of resources to increase its output of flour from 12 tons to 13 tons, but 11 units of resources to increase output from 13 tons to 14 tons, and 12 units of resources to increase output from 14 tons and 15 tons, and so on. The need for increasing resources is an example of A) comparative advantage. B) diminishing returns to specialization. C) absolute advantage. D) economies of scale. E) Porter's diamond model.

Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

58)

Why do diminishing rather than constant returns to specialization sometimes occur? A) All resources are of the same quality. B) Resources can shift from the production of one good to another seamlessly. C) Each country has a fixed stock of resources. D) Different goods use different resources in different proportions. E) Trade does not affect the distribution of income within a country.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

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59) Paul Samuelson’s critique of free trade is based on the idea that the wealthier nation in the trade agreement might not recognize a net gain if the trade creates A) the development of a monopoly. B) a barrier from trading with other nations. C) more job opportunities in the wealthier nation. D) lower real wage rates in the wealthier nation. E) an economic downturn in the poorer nation.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

60)

One of the rebuttals to Samuelson's critique of the free trade model is that

A) the United States' ability to achieve constant returns to specialization is unparalleled. B) the strict immigration policies of the United States help insulate the economy from inward migration. C) introducing trade barriers may in fact be beneficial to developed nations to some extent. D) developing nations are unlikely to upgrade the skill level of their workforce rapidly enough. E) the developing nations are unlikely to run into diminishing returns in a near future.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

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61) Which statement best conceptualizes the relationship between trade and economic growth? A) Countries open to international trade display higher growth rates than those that close their economies to trade. B) Within a group of developing countries, closed economies grow faster than open economies. C) The Leontief paradox notes that adopting an open economy and embracing free trade does not reward a nation with higher economic growth. D) Free trade hampers economic growth and leads to lower living standards in the long run. E) Free trade has historically benefited poor counties and hence trade barriers should be introduced to protect rich countries from exploitation.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

62) According to the Heckscher-Ohlin theory, the pattern of international trade is affected by differences in A) labor productivity. B) diminishing returns. C) factor endowments. D) management practices. E) trade barriers.

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63) Country J and Country S specialize in the production of dairy and textiles respectively. While Country J doesn't produce textiles, Country S is not as technologically advanced as Country J. In this situation, according to the Heckscher-Ohlin theory A) Country J will import textiles from Country S and export dairy to it. B) Country J will invest more than Country S in the production of textiles to exploit its comparative advantage. C) Country J and Country S will raise their trade barriers to protect their economies. D) Country S will recruit experts from Country J to specialize in the production of dairy. E) Country J will recruit workers from Country S to improve its standing in the textile industry.

64) One difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory

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A) makes more simplifying assumptions. B) cannot be subjected to empirical tests. C) actually predicts trade patterns with greater accuracy. D) argues that the pattern of international trade is determined by differences in national factor endowments. E) suggests that trade is a positive-sum game in which all countries that participate realize economic gains.

65) Which theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce? A) mercantilism B) theory of absolute advantage C) Heckscher-Ohlin theory D) theory of comparative advantage E) Samuelson's critique

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66) The fictional country of Roston has long been a substantial exporter of grapes and wine, reflecting its unusual abundance of sandy soil and adequate rainfall; in contrast, its fictional continental neighbor, Jeston, has excelled in the export of goods produced in labor-intensive manufacturing industries. Based on this information, the export policies of the two countries is best explained by A) mercantilism. B) theory of absolute advantage. C) Heckscher-Ohlin theory. D) theory of comparative advantage. E) Samuelson's critique.

67) U.S. exports are less capital-intensive than U.S. imports, despite the relative abundance of capital in the country. This is in opposition to the Heckscher-Ohlin theory and is an example of A) a zero-sum game. B) Leontief's paradox. C) a positive-sum game. D) Samuelson's critique. E) a first-mover advantage.

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68) One explanation for the Leontief paradox observed in the case of the United States is that the United States A) imports goods that heavily use skilled labor and innovative entrepreneurship. B) has a special advantage in producing goods made with innovative technologies. C) exports heavy manufacturing products that use large amounts of capital. D) has a strong absolute advantage over other nations because of its advantageous factor endowments. E) imports goods that make intensive use of factors that are locally abundant.

69) Which trade theory grew out of the fact that for most of the twentieth century, the majority of the new products in the world were developed by U.S. firms and first sold in the U.S. market? A) new trade B) absolute advantage C) product life-cycle D) mercantilism E) comparative advantage

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Factor Proportions and International Product Life Cycle Theories Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

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70) According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to A) lower costs of services to offset a fall in demand. B) develop cost-saving process innovations. C) invite foreign direct investment in domestic industries. D) embrace and promote open market capitalism. E) import new consumer products and export agricultural products.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Factor Proportions and International Product Life Cycle Theories Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

71) Vernon argues that pioneering firms in the United States kept production facilities closer to the market and centers of decision making because A) of the uncertainty and risks inherent in introducing new products. B) they believed that foreign production facilities were inferior in technical skills. C) they believed that U.S. labor costs were much lower than those in foreign markets. D) the U.S. government was critical of outsourcing production to other countries. E) of the high trade barriers implemented by several Asian and European countries.

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72) Some of Vernon’s logic for the product life-cycle theory was based on the idea that the demand for most new products tends to be based on A) the cost of production. B) purely price factors. C) the cost of labor. D) nonprice factors. E) the cost of goods sold.

73) According to the product life-cycle theory, while demand for new products is starting to grow rapidly in the United States, demand in other advanced countries A) remains limited to high-income groups. B) necessitates production of that product in those countries. C) necessitates outsourcing of production to low-cost locations. D) raises the cost of production in the United States. E) causes a shift in the position of the United States from that of an exporter to an importer.

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74) Solar Auto Group, based in California, creates a new solar-powered car. The demand for the product in the United States is high but very low or nonexistent elsewhere. The company decides not to locate manufacturing facilities elsewhere and will simply meet the small foreign demand via exports. The theory that best explains the company's policy is A) product life-cycle theory. B) mercantilism. C) the Leontief paradox. D) Heckscher-Ohlin theory. E) free trade theory.

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Factor Proportions and International Product Life Cycle Theories Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

75) Vernon predicts that as the demand for a new product starts to grow in other advanced countries, in the long run A) the cost of labor in these advanced countries begins to increase. B) it becomes profitable for foreign firms to invest in production facilities in the United States. C) the firms in the United States begin to gain an absolute advantage. D) it begins to limit the potential for exports from the United States. E) the same product will begin to command a higher price.

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76) According to the product life-cycle theory, as the market in the United States and other advanced nations matures and the product becomes more standardized, __________ becomes the main competitive weapon. A) placement B) standardization C) marketing D) price E) customization

77) A business that follows the product life-cycle theory would agree that __________ influence the movement of the locus of global production from advanced countries to developing countries. A) cost considerations B) factor endowments C) domestic competition D) supporting industries E) firm structures

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78) According to the product life-cycle theory, the locus of global production initially switches from the United States to other advanced nations and then from those nations to developing countries. As a result, A) U.S. imports become less capital-intensive than U.S. exports. B) the pattern of international trade is affected by differences in factor endowments rather than differences in productivity. C) over time, the United States switches from being an exporter of a product to an importer of the product. D) the wage rates in the United States decrease. E) developing nations fail to upgrade their skill levels to compete with advanced countries.

79) For years, many U.S. corporations made photocopiers. Today, however, most photocopiers sold in the United States are imported from Japan and Great Britain and few are manufactured in the United States. Which trade theory does this demonstrate? A) product life-cycle B) Heckscher-Ohlin C) absolute advantage D) comparative advantage E) mercantilism

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Question Details Accessibility : Keyboard Navigation AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : Factor Proportions and International Product Life Cycle Theories Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

80) Cyrus works for a company that makes hairbrushes. Unlike many smaller companies, Cyrus’s company ships out such large quantities of hairbrushes that their unit cost is less than half that of the competition. What does this company benefit from? A) mercantilism B) diminishing returns C) economies of scale D) product life-cycle E) JIT inventory

Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

81) Economies of scale are achieved as the result of __________ that creates unit cost reductions. A) trade policies B) increased tariffs C) large scale output D) diminishing returns E) absolute advantages

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82) Intel spreads the huge fixed costs of developing new generation chips over the nearly 2 billion chips it sells to computer makers. Intel benefits from A) comparative advantages. B) factor endowments. C) economies of scale. D) diminishing returns. E) absolute advantages.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

83)

New trade theory argues that, through its impact on economies of scale, trade can A) streamline the variety of goods available to consumers. B) enable the global market to support a wide range of enterprises. C) negatively affect the first-mover advantage for all products D) decrease the average cost of goods. E) prevent diminishing of returns and promote constant returns to specialization.

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84) Which theory states that in those industries where the output required to attain economies of scale represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises? A) Heckscher-Ohlin B) comparative advantage C) product life-cycle D) new trade E) absolute advantage

85) Data security software is an expensive process, but manufacturers are able to spread out the costs of the software development over the hundreds of thousands of security programs sold to consumers. What is helping to drive down costs per unit in this situation? A) antidumping measures B) economies of scale C) diminishing returns D) labor productivity E) first-mover advantages

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86) According to new trade theory, trade, through its impact on economies of scale, is most likely to A) reduce the volume of the goods produced. B) increase the variety of goods available to consumers. C) increase the average costs of goods. D) inhibit first-mover advantages in all industries. E) benefit only nations that differ in resource endowments or technology.

87) What might result in the absence of trade, if certain products have small national markets? A) The variety of products available to consumers increases. B) Limited demand for such products leads to non-realization of economies of scale. C) Each nation will specialize in producing a narrower range of products than it would in the presence of trade. D) At low volumes of production, unit costs and prices would be lowered. E) The first movers in an industry may get a lock on the world market that discourages subsequent entry.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

88) According to new trade theory, what is most likely to be a result of market expansion due to trade? A) A wide variety of products is produced at greater unit costs than in the absence of trade. B) As the variety of products increases, demand for individual products decreases, leading to non-realization of economies of scale. C) Each nation may specialize in producing a narrower range of products, importing goods that it does not make. D) The ability to capture first-mover advantages is restricted in a world that allows trade. E) When countries do not differ in their resource endowments or technology, trade does not offer mutual benefits.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

89) New trade theory dictates that trade offers an opportunity for mutual gain when countries do not differ in their resource endowments or technology because trade

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A) results in a contraction of the size of the markets of individual firms. B) allows for production of products at higher prices. C) increases the variety of goods available to consumers and lowers the costs of those goods. D) allows countries to attain self-sufficiency in the production of all goods. E) guarantees first-mover advantages to all the countries that engage in trade.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

90) Soyung works for a company that produces computer notebook component parts. Her company developed a component that no competitor had and was soon enjoying economies of scale as the only producers of the part. Which trade theory is most reflected in the success of this company? A) product life-cycle B) absolute advantage C) new trade theory D) mercantilism E) comparative advantage

Question Details Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

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91) The economic and strategic advantages that accrue to early entrants in an industry are called A) first-mover advantages. B) comparative advantages. C) absolute advantages. D) economies of scale. E) factor endowments.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Trade Theories and Their Implications Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

92) Airbus pioneered the development of the new superjumbo jet at a cost of $15 billion. It quickly obtained contracts for many of the 400 units that are expected to be ordered in the next 20 years, thereby effectively shutting out its competitor, Boeing. Airbus benefits from A) first-mover advantages. B) comparative advantages. C) absolute advantages. D) economies of scale. E) factor endowments.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Trade Theories and Their Implications Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

93)

What is an advantage that is realized by a company as a part of first-mover advantages?

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A) increasing returns to specialization B) positive-sum game due to lack of competition C) ability to capture scale economies ahead of later entrants D) absolute advantage and higher efficiency E) ability to specialize in the production of a particular product

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

94)

One of the suggestions of new trade theory is that

A) differences in technology leads to differences in productivity, which in turn, drives international trade patterns. B) nations may benefit from trade irrespective of resource endowments or technology. C) the demand for most new products tends to be based on nonprice factors. D) globally dispersed production reduces the production costs of mature products. E) comparative advantage does not arrive from a difference in factor endowments but from a difference in productivity.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

95)

One barrier to subsequent entries in an industry dominated by first movers is

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A) a laissez-faire stance toward trade adopted by first movers. B) implementation of policies to maximize imports and minimize exports C) specializing in the production of goods for which firms have a comparative advantage D) the ability of first movers to benefit from increasing returns E) a decrease in the variety of goods available to consumers and increase in the cost of existing goods

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

96) The new trade theory is at variance with which theory, which suggests that a country will predominate in the export of a product when it is particularly well endowed with those factors used intensively in its manufacture? A) Heckscher-Ohlin B) product life-cycle C) comparative advantage D) absolute advantage E) national competitive advantage

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97) New trade theory supports the ideas that trade increases __________ and it also lowers average prices.

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A) specialization of production B) the number of available products C) government intervention D) factor endowments E) mercantilism

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

98) One of the most controversial aspects of __________ is that it supports government intervention and strategic trade policy. A) the theory of absolute advantage B) the theory of comparative advantage C) Heckscher-Ohlin theory D) new trade theory E) product life-cycle theory

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Trade Theories and Their Implications Learning Objective : 06-04 Explain the arguments of those who maintain that government can play a pro Gradable : automatic

99)

The new trade theory diverts from its advocacy of free trade by suggesting that

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A) the price of a new product increases along with the increase in the popularity of the product. B) nations benefit from trade even in the absence of resource endowments and technology. C) there is an economic rationale for a proactive trade policy. D) the role of luck, entrepreneurship, and innovation is important in giving a firm firstmover advantages. E) market expansion leads to better realization of economies of scale.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : automatic

100)

Michael Porter was interested in learning more about international trade in relation to A) the life cycle of a product. B) a particular industry. C) government intervention measures. D) pre-industrialization theories. E) the practice of mercantilism.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Porter's Diamond Model Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

101) Factor endowments, demand conditions, related and supporting industries, and __________ are the four broad attributes that make up Porter’s Diamond Model.

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A) firm strategy, structure, and rivalry B) diminishing returns C) government intervention policies D) first-mover advantages E) staff hierarchy and training

102)

What is a characteristic of the four attributes that make up Porter's diamond?

A) Absence of any single attribute does not impact effectiveness of the diamond. B) The effect of one attribute is contingent on the state of others. C) The diamond is not a mutually reinforcing system. D) Chance events, such as major innovations, do not affect Porter's diamond. E) Only in the absence of one of the four attributes can government policies influence Porter's diamond.

103) When Porter assessed U.S. firms and noticed that many were led by people with finance backgrounds, he was considering which attribute of Porter’s Diamond?

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A) purchasing power parity B) factor endowments C) economies of scale D) firm strategy, structure, and rivalry E) demand conditions

104)

Which factor endowment would be classified as a basic factor by Michael Porter? A) communication infrastructure B) research facilities C) climate D) skilled labor E) technological know-how

105) Porter believed that two additional variables can influence the national diamond along with the four original attributes. What are those two additional variables?

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A) education and geography B) nature and nurture C) competition and globalization D) chance and government E) geography and history

106) Which component of Porter's diamond is particularly important in shaping the attributes of domestically made products and in creating pressures for innovation and quality? A) basic factor endowments B) advanced factor endowments C) firm strategy D) demand conditions E) supporting industries

107)

Michael Porter would agree that __________ is an advanced factor of production.

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A) skilled labor B) geographic positioning C) climate D) consumer demographics E) natural resources

108) Porter, in his diamond model, suggested that there is a strong association between __________ and the creation and persistence of competitive advantage in an industry. A) trade barriers B) vigorous domestic rivalry C) purchasing power parity D) the availability of a captive market E) first-mover advantages

109) Geraldo is the owner of Big Cat Studios. He believes his film studio has a competitive advantage because it is located next to a wild animal preserve and is the only preserve in the world where a film crew is allowed access to the animals. Which aspect of Porter’s Diamond does the location of the studio represent?

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A) factor endowments B) demand conditions C) related and supporting industries D) firm strategy and structure E) domestic rivalry

Question Details Accessibility : Keyboard Navigation Topic : Porter's Diamond Model AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Gradable : automatic

110) If a company were to draw from the ideas proposed in the various theories of international trade, from a profit perspective, how would it go about selecting locations for its businesses? A) It would concentrate its productive activities mostly in developing countries. B) It would concentrate its productive activities in its home country. C) It would disperse its productive activities to those countries where they can be performed most efficiently. D) It would disperse its productive activities across all countries that serve as its market. E) It would concentrate its productive activities mostly in developed countries.

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111) What would help a firm to preempt available demand, gain cost advantages related to volume, and build an enduring brand ahead of later competitors?

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A) monopolistic practices B) comparative advantages C) absolute advantages D) first-mover advantages E) mercantilism

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Bloom's : Remember Topic : Trade Theories and Their Implications Learning Objective : 06-05 Understand the important implications that international trade theory hold Gradable : automatic

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 112) What is meant by the term free trade? Is free trade compatible with the concept of mercantilism?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Mercantilism Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-02 Summarize the different theories explaining trade flows between nations. Learning Objective : 06-01 Understand why nations trade with each other. Gradable : manual

113) Discuss how Adam Smith and David Ricardo turned the conversation and demonstrated that trade is a positive-sum game. How has the neo-mercantilist approach viewed trade?

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114)

Explain the concept of absolute advantage and provide an example of this concept.

115) List the unrealistic assumptions that are made when assuming that free trade is universally beneficial.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : manual

116) Discuss the concepts of constant returns to specialization and diminishing returns to specialization.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : manual

117)

Discuss Paul Samuelson’s critique of free trade between a rich and a poor country.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-03 Recognize why many economists believe that unrestricted free trade between Gradable : manual

118)

Describe the shortcomings of the product life-cycle theory in today’s trading climate.

119)

Discuss the two important points of new trade theory.

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120)

Define economies of scale and provide an example.

121)

Identify and briefly describe the four broad attributes that constitute Porter's diamond.

122)

Explain Porter’s approach to factors of production.

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123) How does Porter's theory predict patterns in international trade? Do his predictions turn out to be accurate in a real-world scenario?

Question Details Accessibility : Keyboard Navigation Topic : Porter's Diamond Model AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Learning Objective : 06-04 Explain the arguments of those who maintain that government can play a pro Gradable : manual

124) Discuss how many government policies on trade have been self-defeating—in particular, the restriction placed on machine tool imports in 1985.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Trade Theories and Their Implications Difficulty : 2 Medium Learning Objective : 06-05 Understand the important implications that international trade theory hold Gradable : manual

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125)

Discuss the policy implications of Porter's theory of national competitive advantage.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Porter's Diamond Model Learning Objective : 06-05 Understand the important implications that international trade theory hold Gradable : manual

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Answer Key Test name: Hill_6 1) FALSE 2) TRUE 3) FALSE 4) FALSE The theories of Smith, Ricardo, and Heckscher–Ohlin go beyond this commonsense notion, however, to show why it is beneficial for a country to engage in international tradeeven for products it is able to produce for itself. 5) TRUE 6) FALSE 7) TRUE 8) FALSE 9) TRUE 10) FALSE 11) FALSE 12) TRUE Factor endowments refer to the extent to which a country is endowed with such resources as land, labor, and capital. 13) FALSE 14) TRUE 15) FALSE 16) FALSE 17) FALSE 18) FALSE 19) FALSE Version 1

20) TRUE 21) TRUE 22) TRUE 23) FALSE 24) TRUE 25) TRUE 26) A Free trade refers to a situation in which a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country. 27) D Adam Smith’s theory of absolute advantage was the first to explain why unrestricted free trade is beneficial to a country. 28) E Michael Porter developed a theory referred to as the theory of national competitive advantage. This attempts to explain why particular nations achieve international success in particular industries. In addition to factor endowments, Porter points out the importance of country factors such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products. 29) C The theories of Smith, Ricardo, and Heckscher–Ohlin tell us that a country’s economy may gain if its citizens buy certain products from other nations that could be produced at home. The gains arise because international trade allows a country tospecialize in the manufacture and export of products that can be produced most efficiently in that country, while importing products that can be produced more efficiently in other countries.

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30) A Mercantilism makes a crude case for government involvement in promoting exports and limiting imports. The main tenet of mercantilism is that it is in a country's best interests to maintain a trade surplus, to export more than it imports. 31) E Mercantilism makes a crude case for government involvement in promoting exports and limiting imports. The main tenet of mercantilism is that it is in a country's best interests to maintain a trade surplus, to export more than it imports. 32) D The main tenet of mercantilism was that it was in a country’s best interests to maintain a trade surplus, to export more than it imported. By doing so, a country would accumulate gold and silver and, consequently, increase its national wealth, prestige, and power. 33) D Propagated in the sixteenth and seventeenth centuries, mercantilism advocated that countries should simultaneously encourage exports and discourage imports. 34) E The main tenet of mercantilism was that it was in a country's best interests to maintain a trade surplus, to export more than it imported. By doing so, a country would accumulate gold and silver and, consequently, increase its national wealth, prestige, and power. 35) B

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The principal assertion of mercantilism was that gold and silver were the mainstays of national wealth and essential to vigorous commerce. Gold and silver were the currency of trade between countries; a country could earn gold and silver by exporting goods, whereas importing goods from other countries would result in an outflow of gold and silver to those countries. 36) A The main tenet of mercantilism was that it was in a country's best interests to maintain a trade surplus, to export more than it imported. By doing so, a country would accumulate gold and silver and, consequently, increase its national wealth, prestige, and power. Consistent with this belief, the mercantilist doctrine advocated government intervention to achieve a surplus in the balance of trade. 37) C The main tenet of mercantilism was that it was in a country's best interests to maintain a trade surplus, to export more than it imported. The mercantilists saw no virtue in a large volume of trade. Rather, they recommended policies to maximize exports and minimize imports. To achieve this, imports were limited by tariffs and quotas, while exports were subsidized. 38) C The classical economist David Hume pointed out an inherent inconsistency in the mercantilist doctrine in 1752. According to Hume, in the long run no country could sustain a surplus on the balance of trade and so accumulate gold and silver as the mercantilists had envisaged. 39) C

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A situation in which gain by one of the parties results in loss by another is called a zero-sum game. This contrasts with a positive-sum game where all countries can benefit by trading with each other. 40) C A situation in which gain by one of the parties results in loss by another is called a zero-sum game. This is in contrast to a positive-sum game where all countries can benefit by trading with each other. 41) B The mercantilist doctrine is by no means dead in the modern world. Neo-mercantilists equate political power with economic power and economic power with a balance-of-trade surplus. 42) B Neo-mercantilists equate political power with economic power and economic power with a balance-of-trade surplus. Critics argue that several nations have adopted a neo-mercantilist strategy that is designed to simultaneously boost exports and limit imports. 43) D According to Adam Smith, countries differ in their ability to produce goods efficiently. A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. Smith demonstrates that, by specializing in the production of goods in which each has an absolute advantage, both countries benefit by engaging in trade. 44) D

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According to Adam Smith, countries differ in their ability to produce goods efficiently. A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. Smith demonstrates that, by specializing in the production of goods in which each has an absolute advantage, both countries benefit by engaging in trade. 45) C A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries. 46) C A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries. 47) C According to Ricardo's theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to buy the goods that it produces less efficiently from other countries, even if this means buying goods from other countries that it could produce more efficiently itself. 48) C

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According to Ricardo's theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to buy the goods that it produces less efficiently from other countries, even if this means buying goods from other countries that it could produce more efficiently itself. 49) D Ricardo's theory of comparative advantage suggests that consumers in all nations can consume more if there are no restrictions on trade even if they lack an absolute advantage in the production of any goods. 50) C Ricardo's theory of comparative advantage suggests that consumers in all nations can consume more if there are no restrictions on trade even if they lack an absolute advantage in the production of any goods. In other words, to an even greater degree than the theory of absolute advantage, the theory of comparative advantage suggests that trade is a positivesum game in which all countries that participate realize economic gains. 51) B The basic message of the theory of comparative advantage is that potential world production is greater with unrestricted free trade than it is with restricted trade. The theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains. 52) B The basic message of the theory of comparative advantage is that potential world production is greater with unrestricted free trade than it is with restricted trade. The theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains. Version 1

53) B The theory of comparative advantage suggests that it makes sense for a country to specialize in producing those goods that it can produce most efficiently, while buying goods that it can produce relatively less efficiently from other countries—even if that means buying goods from other countries that it could produce more efficiently itself. Country A can produce 4 times as much tea as Country Z with the same resources. 54) A The conclusion that free trade is universally beneficial is a rather bold one to draw from such a simple model as we have unrealistically assumed a simple world in which there are only two countries and two goods. In the real world, there are many countries and many goods. 55) A The conclusion that free trade is universally beneficial is a rather bold one to draw from such a simple model as we have unrealistically assumed constant returns to scale. In reality, both diminishing and increasing returns to specialization exist. The amount of resources required to produce a good might decrease or increase as a nation specializes in production of that good. 56) B Diminishing returns to specialization occur when more units of resources are required to produce each additional unit. 57) B Diminishing returns to specialization occur when more units of resources are required to produce each additional unit. 58) D

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Constant returns to specialization means the units of resources required to produce a good are assumed to remain constant no matter where one is on a country's production possibility frontier (PPF). It is more realistic to assume diminishing returns to specialization as not all resources are of the same quality and different goods use resources in different proportions. 59) D Paul Samuelson's model suggests that in certain cases, the lower prices that consumers in rich countries pay for goods imported from poor countries following the introduction of a free trade regime may not be enough to produce a net gain for the richer economy if the dynamic effect of free trade is to lower real wage rates in the rich country. 60) D While not questioning Samuelson's analysis, some economists note that developing nations are unlikely to be able to upgrade the skill level of their workforce rapidly enough to give rise to the situation in Samuelson's model. In other words, the countries will quickly run into diminishing returns. 61) A Many economic studies have looked at the relationship between trade and economic growth. In general, these studies suggest that, as predicted by the standard theory of comparative advantage, countries that adopt a more open stance toward international trade enjoy higher growth rates than those that close their economies to trade. 62) C Unlike Ricardo's theory, the Heckscher-Ohlin theory argues that the pattern of international trade is determined by differences in factor endowments, rather than differences in productivity. Version 1

63) A Heckscher and Ohlin argued that comparative advantage arises from differences in national factor endowments. Their theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce. 64) D Unlike Ricardo's theory, the Heckscher-Ohlin theory argues that the pattern of international trade is determined by differences in factor endowments, rather than differences in productivity. 65) C The Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce. Thus, the Heckscher-Ohlin theory attempts to explain the pattern of international trade that we observe in the world economy. 66) C The Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce. Thus, the Heckscher-Ohlin theory attempts to explain the pattern of international trade that we observe in the world economy. 67) B

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Using the Heckscher-Ohlin theory, Wassily Leontief postulated that since the United States was relatively abundant in capital compared to other nations, the United States would be an exporter of capital-intensive goods and an importer of labor-intensive goods. However, he found that U.S. exports were less capital-intensive than U.S. imports and this has become known as the Leontief paradox. 68) B No one is quite sure why we observe the Leontief paradox. One possible explanation of the Leontief paradox is that the United States has a special advantage in producing new products or goods made with innovative technologies. 69) C Raymond Vernon initially proposed the product life-cycle theory in the mid-1960s. Vernon's theory was based on the observation that for most of the twentieth century a very large proportion of the world's new products had been developed by U.S. firms and sold first in the U.S. market. To explain this, Vernon argued that the wealth and size of the U.S. market gave U.S. firms a strong incentive to develop new consumer products. 70) B Vernon's theory was based on the observation that for most of the twentieth century a very large proportion of the world's new products had been developed by U.S. firms and sold first in the U.S. market. In addition, the high cost of U.S. labor gave U.S. firms an incentive to develop cost-saving process innovations. 71) A

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Just because a new product is developed by a U.S. firm and first sold in the U.S. market, it does not follow that the product must be produced in the United States. It could be produced abroad at some low-cost location and then exported back into the United States. Apparently, pioneering firms believed it was better to keep production facilities close to the market and to the firm's center of decision making, given the uncertainty and risks inherent in introducing new products. 72) D The demand for most new products tends to be based on nonprice factors. Consequently, firms can charge relatively high prices for new products, which obviates the need to look for low-cost production sites in other countries. 73) A Vernon argues that early in the life cycle of a typical new product, while demand is growing rapidly in the United States, demand in other advanced countries is limited to high-income groups. The limited initial demand in other advanced countries does not make it worthwhile for firms in those countries to start producing the new product, but it does necessitate some exports from the United States to those countries. 74) A Vernon argues that early in the life cycle of a typical new product, while demand is growing rapidly in the United States, demand in other advanced countries is limited to high-income groups. The limited initial demand in other advanced countries does not make it worthwhile for firms in those countries to start producing the new product, but it does necessitate some exports from the United States to those countries. 75) D

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Over time, demand for a new product starts to grow in other advanced countries. As it does, it becomes worthwhile for foreign producers to begin producing for their home markets. Consequently, production within other advanced countries begins to limit the potential for exports from the United States. 76) D As the market in the United States and other advanced nations matures, the product becomes more standardized, and price becomes the main competitive weapon. 77) A As the market in the United States and other advanced nations matures, cost considerations start to play a greater role in the competitive process. The locus of global production initially switches from the United States to other advanced nations and then from those nations to developing countries. 78) C The consequence of the trends for the pattern of world trade, as determined by the product life-cycle theory, is that over time the United States switches from being an exporter of the product to an importer of the product as production becomes concentrated in lower-cost foreign locations. 79) A The product life-cycle theory is based on the idea that the product, while originally manufactured in the U.S. and exported to other countries has now become only an import for the U.S. 80) C

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Economies of scale are unit cost reductions associated with a large scale of output. Economies of scale have a number of sources, including the ability to spread fixed costs over a large volume and the ability of largevolume producers to utilize specialized employees and equipment that are more productive than less specialized employees and equipment. 81) C Economies of scale are unit cost reductions or cost advantages associated with a large scale of output. 82) C Economies of scale are unit cost reductions or cost advantages associated with a large scale of output. 83) D New trade theory argues that, through its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease the average costs of those goods. 84) D New trade theory states that in those industries where the output required to attain economies of scale represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises. 85) B Microsoft realizes economies of scale by spreading the fixed costs of developing new versions of its Windows operating system, which runs to about $10 billion, over the 2 billion or so personal computers on which each new system is ultimately installed. Similarly, automobile companies realize economies of scale by producing a high volume of automobiles from an assembly line where each employee has a specialized task. Version 1

86) B New trade theory argues that, through its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease the average costs of those goods. 87) B In the absence of trade, if a national market is small, there may not be enough demand to enable producers to realize economies of scale for certain products. 88) C As the size of the market expands due to trade, individual firms may be able to better attain economies of scale. The implication is that each nation may be able to specialize in producing a narrower range of products than it would in the absence of trade, yet by buying goods that it does not make from other countries, each nation can simultaneously increase the variety of goods available to its consumers and lower the costs of those goods. 89) C As the size of the market expands due to trade, individual firms may be able to better attain economies of scale. The implication, according to new trade theory, is that each nation may be able to specialize in producing a narrower range of products, buying goods that it does not make from other countries. Thus, each nation can simultaneously increase the variety of goods available to its consumers and lower the costs of those goods—thus trade offers an opportunity for mutual gain even when countries do not differ in their resource endowments or technology. 90) C

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A second theme in new trade theory is that the pattern of trade we observe in the world economy may be the result of economies of scale and first-mover advantages.First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. 91) A First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. The ability to capture scale economies ahead of later entrants, and thus benefit from a lower cost structure, is an important first-mover advantage. 92) A First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. The ability to capture scale economies ahead of later entrants, and thus benefit from a lower cost structure, is an important first-mover advantage. 93) C First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. The ability to capture scale economies ahead of later entrants, and thus benefit from a lower cost structure, is an important first-mover advantage. 94) B The new trade theory suggests that nations may benefit from trade even when they do not differ in resource endowments or technology. 95) D Because they are able to gain economies of scale, the first movers in an industry may get a lock on the world market that discourages subsequent entry. First movers' ability to benefit from increasing returns creates a barrier to entry.

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96) A New trade theory is at variance with the Heckscher-Ohlin theory, which suggests that a country will predominate in the export of a product when it is particularly well endowed with those factors used intensively in its manufacture. The new trade theory suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good. 97) A This theory is quite useful in explaining trade patterns. Empirical studies seem to support the predictions of the theory that trade increases the specialization of production within an industry, increases the variety of products available to consumers, and results in lower average prices. 98) D Perhaps the most contentious implication of the new trade theory is the argument that it generates for government intervention and strategic trade policy. 99) C By stressing first-mover advantages in certain industries, new trade theory provides a rationale for government intervention to increase the chances of its domestic firms becoming first movers in newly emerging industries, as the U.S. government apparently did with Boeing. 100) B Like the work of the new trade theorists, Porter's work was driven by a belief that existing theories of international trade told only part of the story. For Porter, the essential task was to explain why a nation achieves international success in a particular industry. 101) A

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Porter theorizes that four broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage. These attributes are Factor endowments, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. 102) B Porter theorizes that four broad attributes of a nation shape the environment in which local firms compete, and these attributes constitute the diamond. The diamond is a mutually reinforcing system in which the effect of one attribute is contingent on the state of others. 103) D The four factors in Porter's diamond are factor endowments, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. Firm strategy, structure, and rivalry refer to the conditions governing how companies are created, organized, and managed and the nature of domestic rivalry. 104) C Porter recognizes hierarchies among factors, distinguishing between basic factors (e.g., natural resources, climate, location, and demographics) and advanced factors (e.g., communication infrastructure, sophisticated and skilled labor, research facilities, and technological know-how). 105) D

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Porter maintains that two additional variables can influence the national diamond in important ways: chance and government. Chance events, such as major innovations, can reshape industry structure and provide the opportunity for one nation’s firms to supplant another’s. Government, by its choice of policies, can detract from or improve national advantage. 106) D The characteristics of home demand are particularly important in shaping the attributes of domestically made products and in creating pressures for innovation and quality. Porter argues that a nation's firms gain competitive advantage if their domestic consumers are sophisticated and demanding and pressure local firms to meet high standards of product quality and to produce innovative products. 107) A While Porter does not propose anything radically new, he does analyze the characteristics of factors of production. He recognizes hierarchies among factors, distinguishing betweenbasic factors (e.g., natural resources, climate, location, and demographics) andadvanced factors (e.g., communication infrastructure, sophisticated and skilled labor, research facilities, and technological know-how). 108) B Porter asserts that there is a strong association between vigorous domestic rivalry and the creation and persistence of competitive advantage in an industry. Vigorous domestic rivalry induces firms to look for ways to improve efficiency, which makes them better international competitors. 109) A

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While Porter does not propose anything radically new, he does analyze the characteristics of factors of production. He recognizes hierarchies among factors, distinguishing betweenbasic factors (e.g., natural resources, climate, location, and demographics) andadvanced factors (e.g., communication infrastructure, sophisticated and skilled labor, research facilities, and technological know-how). He argues that advanced factors are the most significant for competitive advantage. 110) C Underlying most of the theories is the notion that different countries have particular advantages in different productive activities. Thus, from a profit perspective, it makes sense for a firm to disperse its productive activities to those countries where, according to the theory of international trade, they can be performed most efficiently. 111) D For the individual firm, the clear message is that it pays to invest substantial financial resources in trying to build a first-mover or earlymover advantage even if that means several years of losses before a new venture becomes profitable. The idea is to preempt the available demand, gain cost advantages related to volume, build an enduring brand ahead of later competitors, and, consequently, establish a longterm sustainable competitive advantage.

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112) Free trade refers to the absence of government barriers to the free flow of goods and services between countries. Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country. The concept of mercantilism is not compatible with the concept of free trade. The main tenet of mercantilism is that it is in a country's best interests to maintain a trade surplus by exporting more than it imports. Consistent with this belief, the mercantilist doctrine advocated government intervention to achieve a surplus in the balance of trade through policies to maximize exports and minimize imports. To achieve this, imports were limited by tariffs and quotas, while exports were subsidized. 113)Mercantilism viewed trade as a zero-sum game, where a gain by one country results in a loss by another. Adam Smith and David Ricardo demonstrated the shortsightedness of this approach and argued that trade is a positive-sum game, or a situation in which all countries can benefit. However, the mercantilist doctrine is by no means dead. Neomercantilists equate political power with economic power and economic power with a balance-of-trade surplus. Critics argue that many nations have adopted a neo-mercantilist strategy that is designed to simultaneously boost exports and limit imports. For example, critics charge that China is pursuing a neo-mercantilist policy, deliberately keeping its currency value low against the U.S. dollar in order to sell more goods to the United States, and thus amass a trade surplus and foreign exchange reserves.

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114)According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade those goods for the goods produced by other countries. For instance, during Smith's time, England had an absolute advantage in the production of textiles, and France had an absolute advantage in the production of wine. According to the concept of absolute advantage, it then only makes sense for England to produce textiles (and export them to France), and France to produce wine (and export it to England). Smith's basic argument, therefore, was that a country should never produce goods at home that it can buy at a lower cost from other countries. Moreover, Smith argued that by specializing in the production of goods in which each has an absolute advantage, both countries benefit by engaging in trade.

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115)● We have assumed a simple world in which there are only two countries and two goods. In the real world, there are many countries and many goods. ● We have assumed away transportation costs between countries. ● We have assumed away differences in the prices of resources in different countries. We have said nothing about exchange rates, simply assuming that cocoa and rice could be swapped on a one-to-one basis. ● We have assumed that resources can move freely from the production of one good to another within a country. In reality, this is not always the case. ● We have assumed constant returns to scale; that is, that specialization by Ghana or South Korea has no effect on the amount of resources required to produce one ton of cocoa or rice. In reality, both diminishing and increasing returns to specialization exist. The amount of resources required to produce a good might decrease or increase as a nation specializes in production of that good. ● We have assumed that each country has a fixed stock of resources and that free trade does not change the efficiency with which a country uses its resources. This static assumption makes no allowances for the dynamic changes in a country’s stock of resources and in the efficiency with which the country uses its resources that might result from free trade. ● We have assumed away the effects of trade on income distribution within a country.

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116) The simple comparative advantage model developed above assumes constant returns to specialization. Byconstant returns to specialization we mean the units of resources required to produce a good (cocoa or rice) are assumed to remain constant no matter where one is on a country’s production possibility frontier (PPF). Thus, we assumed that it always took Ghana 10 units of resources to produce 1 ton of cocoa. However, it is more realistic to assume diminishing returns to specialization. Diminishing returns to specialization occur when more units of resources are required to produce each additional unit. While 10 units of resources may be sufficient to increase Ghana’s output of cocoa from 12 tons to 13 tons, 11 units of resources may be needed to increase output from 13 to 14 tons, 12 units of resources to increase output from 14 tons to 15 tons, and so on. Diminishing returns imply a convex PPF for Ghana, rather than a straight line. It is more realistic to assume diminishing returns for two reasons. First, not all resources are of the same quality. A second reason for diminishing returns is that different goods use resources in different proportions.

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117) Paul Samuelson’s critique looks at what happens when a rich country—the United States—enters into a free trade agreement with a poor country—China—that rapidly improves its productivity after the introduction of a free trade regime (i.e., there is a dynamic gain in the efficiency with which resources are used in the poor country). Samuelson’s model suggests that in such cases, the lower prices that U.S. consumers pay for goods imported from China following the introduction of a free trade regimemay not be enough to produce a net gain for the U.S. economy if the dynamic effect of free trade is to lower real wage rates in the United States. As he stated in aNew York Times interview, “Being able to purchase groceries 20 percent cheaper at WalMart (due to international trade) does not necessarily make up for the wage losses (in America).”Samuelson was particularly concerned about the ability to offshore service jobs that traditionally were not internationally mobile, such as software debugging, call-center jobs, accounting jobs, and even medical diagnosis of MRI scans (see the opening case for details). Advances in communications technology since the development of the World Wide Web in the early 1990s have made this possible, effectively expanding the labor market for these jobs to include educated people in places such as India, the Philippines, and China. When coupled with rapid advances in the productivity of foreign labor due to better education, the effect on middle-class wages in the United States, according to Samuelson, may be similar to mass inward migration into the country: It will lower the market clearing wage rate,perhaps by enough to outweigh the positive benefits of international trade. Having said this, it should be noted that Samuelson concedes that free trade has historically benefited rich countries (as data discussed later seem to confirm). Moreover, he notes that introducing protectionist measures (e.g., trade barriers) to guard against the theoretical possibility Version 1

that free trade may harm the United States in the future may produce a situation that is worse than the disease they are trying to prevent. To quote Samuelson: “Free trade may turn out pragmatically to be still best for each region in comparison to lobbyist-induced tariffs and quotas which involve both a perversion of democracy and non-subtle deadweight distortion losses. 118)Viewed from an Asian or European perspective, the assertion of the product life-cycle theory that most new products are developed and introduced in the United States seems ethnocentric and increasingly dated. Although it may be true that during U.S. dominance of the global economy (from 1945 to 1975), most new products were introduced in the United States, there have always been important exceptions. With the increased globalization and integration of the world economy, a growing number of new products are now introduced simultaneously in the United States, Japan, and the advanced European nations. This may be accompanied by globally dispersed production, with particular components of a new product being produced in those locations around the globe where the mix of factor costs and skills is most favorable. In sum, although Vernon's theory may be useful for explaining the pattern of international trade during the brief period of American global dominance, its relevance in the modern world seems more limited.

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119)The new trade theory began to emerge in the 1970s when a number of economists pointed out that the ability of firms to attain economies of scale might have important implications for international trade. Economies of scale are unit cost reductions associated with a large scale of output. New trade theory makes two important points: First, through its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease the average costs of those goods. Second, in those industries where the output required to attain economies of scale represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises. Thus, world trade in certain products may be dominated by countries whose firms were first movers in their production. 120)Economies of scale are unit cost reductions associated with a large scale of output. Economies of scale have a number of sources, including the ability to spread fixed costs over a large volume and the ability of large-volume producers to utilize specialized employees and equipment that are more productive than less specialized employees and equipment. Economies of scale are a major source of cost reductions in many industries, from computer software to automobiles and from pharmaceuticals to aerospace. Automobile companies realize economies of scale by producing a high volume of automobiles from an assembly line where each employee has a specialized task.

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121)Porter theorizes that four broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage. These attributes are: (1) Factor Endowments: A nation's position in factors of production such as skilled labor or the infrastructure necessary to compete in a given industry. (2) Demand Conditions: The nature of home demand for the industry's product or service. (3) Related and Supporting Industries: The presence or absence in a nation of supplier industries and related industries that are internationally competitive. (4) Firm Strategy, Structure, and Rivalry: The conditions in the nation governing how companies are created, organized, and managed and the nature of domestic rivalry. Porter speaks of these four attributes as constituting the diamond. He argues that firms are most likely to succeed in industries or industry segments where the diamond is most favorable. He also argues that the diamond is a mutually reinforcing system. The effect of one attribute is contingent on the state of others.

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122) Factor endowments lie at the center of the Heckscher-Ohlin theory. While Porter does not propose anything radically new, he does analyze the characteristics of factors of production. He recognizes hierarchies among factors, distinguishing betweenbasic factors (e.g., natural resources, climate, location, and demographics) andadvanced factors (e.g., communication infrastructure, sophisticated and skilled labor, research facilities, and technological know-how). He argues that advanced factors are the most significant for competitive advantage. Unlike the naturally endowed basic factors, advanced factors are a product of investment by individuals, companies, and governments. Thus, government investments in basic and higher education, by improving the general skill and knowledge level of the population and by stimulating advanced research at higher education institutions, can upgrade a nation’s advanced factors. The relationship between advanced and basic factors is complex. Basic factors can provide an initial advantage that is subsequently reinforced and extended by investment in advanced factors. Conversely, disadvantages in basic factors can create pressures to invest in advanced factors. 123)According to Porter's model of international trade, countries should be exporting products from those industries where all four components of the diamond are favorable, while importing in those areas where the components are not favorable. However, we do not know if he is correct. Porter's theory has not been subjected to detailed empirical testing. Much about the theory rings true, but the same can be said for the new trade theory, the theory of comparative advantage, and the HeckscherOhlin theory.

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124)As predicted by international trade theory, many of these agreements have been self-defeating, such as the voluntary restriction on machine tool imports agreed to in 1985. Shielded from international competition by import barriers, the U.S. machine tool industry had no incentive to increase its efficiency. Consequently, it lost many of its export markets to more efficient foreign competitors. Because of this misguided action, the U.S. machine tool industry shrunk during the period when the agreement was in force. For anyone schooled in international trade theory, this was not surprising. 125)Porter's theory of national competitive advantage suggests that it is in the best interest of business for a firm to invest in upgrading advanced factors of production; for example, to invest in better training for its employees and to increase its commitment to research and development. It is also in the best interests of business to lobby the government to adopt policies that have a favorable impact on each component of the national diamond. Thus, according to Porter, businesses should urge government to increase investment in education, infrastructure, and basic research (since all these enhance advanced factors) and to adopt policies that promote strong competition within domestic markets (since this makes firms stronger international competitors, according to Porter's findings).

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A specific tariff is levied as a fixed charge for each unit of an imported good. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

Import tariffs are put in place to increase foreign competition. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

Export tariffs are not as common as import tariffs. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

4) When the government provides a low-interest loan to a failing industry to bolster business, it is an example of a subsidy. Version 1

⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

In most countries, the retail industry tends to be the largest recipient of subsidies. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

6) Quota rent refers to the extra profit that producers make when supply is artificially limited by an import quota. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

7) Under a tariff rate quota, a higher tariff rate is applied to imports within the quota than those over the quota.

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⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

8) Dumping occurs when companies sell goods in a foreign market at below their costs of production. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

9) Governments can protect consumers from unsafe products by issuing a limit or a ban on such products. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

10) Governments sometimes rely on trade policy to try to improve the human rights policies of trading partners. Version 1

⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

11) The Trump Administration justified tariffs on foreign steel imports in 2018 by saying it was a national security issue. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

12) The infant industry argument is the oldest economic argument that promotes government intervention. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

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13) Alexander Hamilton promoted the idea that government should support a new industry with government intervention tactics until the industry is strong enough to face international competition. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

14) Paul Krugman believed that a trade policy aimed at establishing domestic firms in a dominant position boosts national income but at the expense of other countries. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-03 Summarize and explain the arguments against strategic trade policy.

15)

Krugman advocated the idea that strategic trade policies can eliminate trade wars. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Theories and Their Implications Gradable : automatic Learning Objective : 07-03 Summarize and explain the arguments against strategic trade policy.

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16) The Smoot-Hawley Act aimed to liberalize trade by eliminating tariffs, subsidies, and import quotas. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

17) After the Great Depression, there was a favorable shift in the U.S. government toward free trade. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

18) One of the reasons for the trend toward greater protectionism during the 1980s and 1990s was that many countries found ways to get around GATT regulations. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The World Trading System, GATT, and the WTO Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

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19) In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The World Trading System, GATT, and the WTO Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

20) The World Trade Organization’s TRIPS agreement focuses on intellectual property rights. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The World Trading System, GATT, and the WTO Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

21) Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The World Trading System, GATT, and the WTO Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

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22) In general, tariff rates on manufactured products tend to be much lower than tariff rates on agricultural products. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The World Trading System, GATT, and the WTO Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

23) The British decision to withdraw from the European Union suggests that there isn’t a global consensus on the issue of free trade. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The World Trading System, GATT, and the WTO Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

24) The threat of antidumping action enhances the ability of a firm to use aggressive pricing to gain market share in a country. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-05 Explain the implications for managers of developments in the world trading

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25) Government intervention can be self-defeating because it tends to protect the inefficient rather than help firms become efficient global competitors. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-05 Explain the implications for managers of developments in the world trading

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) There are seven main instruments used in trade policy with __________ being the oldest and the simplest. A) local content requirements B) tariffs C) subsidies D) voluntary export restraints E) import quotas

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Government Policies Affecting Trade Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

27) The United States has raised the taxes on tomatoes imported from Mexico. These taxes are an example of a(n)

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A) subsidy B) referendum C) antidumping policy. D) local content requirement. E) tariff.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Government Policies Affecting Trade Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

28) A charge of 16 percent is levied by the government of a foreign nation on the value of refrigerator and freezer components imported from a neighboring country. This results in an increase in the price of those imported appliances for the consumer. This foreign nation is using a(n) A) local content tariff. B) ad valorem tariff. C) subsidy D) import quota. E) antidumping duty.

Question Details Accessibility : Keyboard Navigation Topic : Government Policies Affecting Trade AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

29) In some years, the U.S. government has paid soybean farmers an additional $1.65 on every bushel of soybeans they sell. This money is an example of a(n)

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A) local content tariff. B) ad valorem tariff. C) subsidy D) import quota. E) antidumping duty.

30) A nation that imposes a fixed charge of $3 per barrel of oil imported into the country is relying on which instrument of trade? A) specific tariff B) GATT tariff C) subsidies D) import quotas E) antidumping duties

31)

One objective of export tariffs is to

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A) abide by the rules enforced by the WTO. B) curb the competition offered by foreign firms to domestic firms. C) reduce exports from a sector to ensure a sufficient supply. D) maintain a positive trade deficit. E) increase the flow of capital in the international market.

32) Following the global financial downturn in 2008–2009, some developed nations subsidized automobile makers to help them survive the economic climate. One negative consequence of this action was that A) the companies had an unfair competitive advantage in the global industry. B) most of these companies implemented export quotas that drove up prices. C) more companies attempted to enter the industry and sales flattened. D) it wasn’t possible for these companies to meet local content requirements. E) agricultural producers lost all subsidies they were promised.

33)

The group that benefits the most from receiving subsidies is

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A) government B) international organizations such as the WTO. C) domestic producers. D) importers E) foreign competitors.

34) a(n)

Some countries limit the amount of sugar that can be imported. This restriction is called

A) voluntary export restraint. B) ad valorem tariff. C) import quota. D) local content requirement. E) government subsidy.

35) A tiny South Pacific island nation produces large quantities of honey-based products. To protect this industry, the island government mandates that only designated trading companies can import the crop, each of which is allocated the right to import a maximum number of pounds of honey each year. This is an example of a(n)

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A) import duty. B) subsidy C) import tariff. D) local content requirement. E) import quota.

Question Details Accessibility : Keyboard Navigation Topic : Government Policies Affecting Trade Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

36) A(n) __________ is in place when a lower tariff rate is applied to imports within the government quota than those over the quota. A) tariff rate quota B) voluntary import restraint C) import duty D) quota rent E) import quota

37) A South American nation imposes an ad valorem tariff of 10 percent on 1 million tons of wheat imports, after which an out-of-quota tariff of 80 percent is applied. What trade policy instrument is this nation using?

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A) subsidy B) tariff rate quota C) voluntary export restraint D) tariff ceiling E) local content requirement

38) If a country is experiencing a surge of construction machinery from a trading partner, it might ask that country to set a limit on how much can be exported. This limit is known as a A) tariff rate quota. B) quota rent. C) voluntary export restraint (VER). D) quota share. E) export embargo.

Question Details Accessibility : Keyboard Navigation Difficulty : 2 Medium Topic : Government Policies Affecting Trade Bloom's : Apply AACSB : Reflective Thinking Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

39)

How do voluntary export restraints affect the prices of goods?

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A) VERs do not affect the price of goods for consumers. B) VERs always reduce the domestic price of an imported good. C) VERs always raise the domestic price of an imported good. D) Typically, VERs will lower the price of goods while the quota is in place. E) VERs will always raise the export price of domestic goods.

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Topic : Government Policies Affecting Trade Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

40) Domestic producers experience limited import competition when a VER is in place. As a result, these producers make extra profit because supply is artificially limited by the import quota. This extra profit is called A) net profit. B) quota rent. C) trade surplus. D) profit margin E) quota share.

41) For many years, there have been limits set on the amount of sugar that foreign producers can sell in the U.S. market. This is mandated by a

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A) net profit. B) tariff rate quota system. C) trade surplus. D) subsidy agreement. E) quota share.

42) One way to ensure that there is sufficient supply of a good within a country is to enact a(n) __________, which discriminates against producers from exporting goods. A) local content requirement B) tariff rate quota system C) trade surplus D) subsidy agreement E) export tariff

43) In 1975, OPEC did not allow the export of U.S. crude oil in order to drive up the price of oil. This action is an example of a(n)

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A) local content requirement. B) export ban. C) trade surplus. D) subsidy agreement. E) export tariff.

44) For years, the world used a small nation in Central America as a place to assemble goods and benefit from inexpensive labor. The nation decided to shift its base from simple assembly to a full-fledged manufacture of components and finished goods. It introduced a policy that stated 65 percent of the value of a product must be produced locally. This is an example of a(n) A) international allocation requirement. B) local content requirement. C) specific quota requirement. D) ad valorem portion requirement. E) domestic sales requirement.

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45) On Track Limited has an order to sell 50,000 pieces of fitness equipment to Brazil, but the Brazilian government stipulated that 35 percent of the component parts of the equipment must be produced in Brazil. This stipulation is an example of a(n) A) voluntary export restraint. B) quota rent. C) import quota. D) local content requirement. E) antidumping policy.

46) According to the __________, U.S. government agencies must give preference to U.S. products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. A) Dodd-Frank Act B) Helms-Burton Act C) Hawley-Burton Act D) Buy America Act E) Volcker Rule

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47) The U.S. Department of Education put out a contract for 250,000 SmartBoards and the contract stated that preference would be given to bids that declared at least 51 percent of the materials by value in the SmartBoards were produced in the United States. Which legislative act is this stipulation based on? A) Export Administration Act B) Helms-Burton Act C) Hawley-Burton Act D) Buy America Act E) Volcker Rule

48)

__________ are put in place to make it difficult for imports to enter a country. A) Free trade policies B) Consumer regulations C) Subsidies D) Administrative trade policies E) Open market plans

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49) If Switzerland decides it wants to make it difficult for other countries to export cheese to Swiss businesses and creates pasteurization standards that don’t exist anywhere else in the world, it would be implementing __________ policies as a way to restrict these imports. A) antidumping B) voluntary export restraint C) administrative trade D) monopolistic competition E) tariff rent

50) If Italy exports vast quantities of footwear to Germany, selling them at below their costs of production, it would be an example of A) monopolism. B) dumping. C) offshoring. D) nearshoring. E) subsidizing.

Question Details Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

51)

Dumping takes place when foreign producers

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A) attempt hostile takeovers of domestic firms and usurp the available resources for production. B) indiscriminately exploit the natural resources of a foreign country to create a later demand that can be met only by imports. C) unload excess production of a good in foreign markets. D) capture the niche market rather than the masses. E) export only a small quantity of their products into an importing country.

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52) Jenson Electronics believes that a foreign producer of component parts is dumping production in the U.S. market and the company filed a complaint with the government. If the government determines that the complain has merit, which governmental agency may impose an antidumping duty on the foreign producer? A) Commerce Department B) Consumer Products Safety Commission C) National Labor Relations Board D) Federal Trade Commission E) Food and Drug Administration

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53)

Ultimately, antidumping policies are put in place to A) protect consumers from high prices B) prevent domestic firms from unloading their excess production in domestic markets C) protect domestic producers from unfair foreign competition D) protect consumers from substandard and hazardous products E) prevent foreign products from entering domestic market

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54)

Arguments for international trade typically focus on political and __________ reasons. A) theoretical B) social C) economic D) ethical E) human rights

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

55)

Economic arguments for government intervention in trade are usually concerned with

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A) protecting the interests of certain consumer groups. B) protecting the interests of certain producer groups. C) boosting the overall wealth of a nation. D) protecting the environment. E) enhancing human rights.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

56)

Why is retaliation by government intervention a risky strategy?

A) It encourages dumping by foreign companies. B) It could result in increased tariff barriers by the country that is being pressured. C) It may expose certain industries that are important for national security to foreign competition. D) It allows firms to sell goods in the foreign market at below their fair market value. E) It makes it difficult for domestic firms to make any investments by borrowing money from the domestic capital market.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Gradable : automatic Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

57) Paint products containing lead are banned from entering the United States. This ban is in place to

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A) protect domestic businesses from unfair pricing. B) protest the pricing of paint below its costs of production. C) protect consumers from unsafe products. D) increase the trade surplus of the United States. E) reduce dumping of lead paint.

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58) is to

The principal function of the trade sanctions the United States has in place against Cuba

A) prevent other countries from trading with Cuba. B) aid Cuba in creating a direct trade route to the United States C) create a nearby dumping site for large businesses. D) impoverish Cuba to lead to the downfall of the communist government. E) force Cuba to enter into the NATO agreement.

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59) During the 1980s and 1990s, trade sanctions were put in place by Western governments against South Africa in response to the apartheid policies in place there. These trade sanctions were a response to

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A) voluntary export restraints. B) excess tariffs on imports. C) decreasing birth rates. D) human rights violations. E) environmental abuses.

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60) Many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries. This demonstrates the A) economic development argument. B) comparative advantage theory. C) national security argument. D) infant industry argument. E) mixed economy theory.

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61) Indonesia might have a potential comparative advantage in manufacturing textiles but is unable to compete with established textile manufacturing in Japan, at least for the near future. Indonesia could claim the

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A) economic development argument. B) comparative advantage theory. C) national security argument. D) infant industry argument. E) mixed economy theory.

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62) One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that A) protection of manufacturing from foreign competition is harmful. B) absolute advantage cannot sustain productivity of an industry. C) foreign firms too come under the definition of infant industry when they newly enter a foreign market. D) firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets. E) foreign competition will eventually cause domestic firms to improve the quality of their products.

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63) A major reason why many economists remain critical of the infant industry argument is because it A) makes the domestic industry inefficient. B) does not provide guaranteed employment for citizens. C) affects the standards of living and per capita income of the people. D) promotes foreign direct investment. E) leads to reduced prices in domestic markets.

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64) According to __________, a government should use subsidies to support promising firms that are active in newly emerging industries. A) strategic trade policy B) public policy C) absolute advantage D) product life-cycle theory E) industrialization

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65) Paul Krugman believed that a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry, is most likely to

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A) dominate the industry. B) move away from protectionism. C) provoke retaliation. D) incur huge financial debts. E) upset the special-interest groups within the economy.

66) Krugman advocated that government should help establish the rules of the game that minimize the use of trade-distorting subsidies. Which entity takes on that role? A) International Monetary Fund B) Commerce Commission C) World Trade Organization D) Doha Round E) World Bank

67) Solar Tech Corp., based in Phoenix, believes the ideal way for the United States to respond when foreign competitors are already being supported by government subsidies is not to retaliate but to establish rules that help minimize trade-distorting subsidies. Which theorist does Solar Tech’s management agree with?

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A) Krugman B) Hofstede C) Hamilton D) Heckscher Ohlin E) Ricardo

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68) Another basis for Krugman’s argument is that strategic trade policy can be captured by __________, which will distort the policy so it benefits their own needs. A) consumers B) special-interest groups C) government committees D) state-owned businesses E) national leaders

69)

The first official government policy for free trade occurred in which country?

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A) China B) Great Britain C) United States D) Germany E) Argentina

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70)

The Smoot-Hawley Act tried to divert consumer demand away from foreign products by A) subsidizing domestic businesses. B) establishing tariff barriers. C) exporting more products to Europe. D) demanding local content requirements. E) creating a trade deal with Canada and Mexico.

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71)

The Smoot-Hawley Act had a damaging effect on

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A) the balance-of-payment of the United States. B) cash flow in the domestic economy of the United States. C) prices of natural resources in the United States. D) employment abroad. E) accrued liabilities of the United States.

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72) Which multilateral trade agreement was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like? A) General Agreement on Tariffs and Trade (GATT) B) North American Free Trade Agreement (NAFTA) C) Central American Free Trade Agreement (CAFTA) D) Free Trade Areas of the Americas (FTAA) E) North Atlantic Treaty Organization (NATO)

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73)

The ultimate purpose of GATT was to

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A) promote U.S. imports of electronics. B) diminish U.S. exports. C) subsidize agricultural workers. D) safeguard intellectual property rights. E) eliminate barriers to free trade.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The World Trading System, GATT, and the WTO Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

74) One of the reasons why protectionist pressures arose around the world during the 1980s was the A) different ways many countries found to get around GATT regulations. B) opening up of national markets to cheap products from China. C) fall of the Soviet Union. D) persistent trade lead taken by the United States. E) Japanese failure in industries such as automobiles and semiconductors that strained the world trading system.

75) The economic prosperity enjoyed by __________ during the 1980s and 1990s strained the world trading system and created the demand for increased protectionist measures.

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A) the United States B) India C) the Soviet Union D) Japan E) China

76)

Bilateral voluntary export restraints, or VERs, circumvented GATT agreements, because

A) these nations withdrew their membership to the GATT. B) the member nations had ceased to recognize GATT as a regulatory body for international trade. C) VERs were not a recognized trade barrier under the GATT constitution. D) neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action. E) member nations erected a wall of tariff barriers.

77)

What is one provision of the Uruguay Round Agreement?

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A) A wide range of services were to be excluded from GATT fair trade and market access rules. B) Tariffs on industrial goods were to be raised by more than one-third, and tariffs were to be scrapped on more than 50 percent on a wide range of services. C) The International Monetary Fund (IMF) was to be created to implement the GATT agreement. D) Agricultural subsidies were to be substantially reduced. E) Average tariff rates imposed by developed nations on manufactured goods were to be raised by 20 percent of the value, the highest level in modern history.

78) What is one major advantage the World Trade Organization has over the GATT agreement? A) Disagreements with the GATT policy are punishable by law. B) Procedures under the WTO have strict time limits. C) The WTO was not allowed to make rulings on intellectual property. D) The WTO procedures have to be mandated by the federal government. E) The procedures under GATT could only be between two nations.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The World Trading System, GATT, and the WTO Gradable : automatic Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

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79)

The focus of the TRIPS agreement is to A) promote the elimination of VERs from European nations. B) increase agricultural subsidies in the U.S. C) have common international rules for intellectual property rights. D) extend free trade agreements to services. E) create more import tariffs on goods traded retroactively.

80) GATS, a sister body of the World Trade Organization, is responsible for extending free trade agreements in what area? A) services B) commodities C) intellectual property D) agriculture E) start-up companies

81) Why did telecommunications companies welcome the telecommunication deal brokered by WTO in 1997?

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A) It enhanced protection of patents, copyrights, and trademarks (intellectual property). B) It helped resolve deadlock situations arising out of the unwillingness to lower trade barriers between neighboring countries. C) It offered a greater ability for companies to offer a global, seamless service for all their corporate needs. D) It liberalized trade policies by eliminating tariffs, subsidies, import quotas, antidumping duties, and local content requirements. E) It reduced the export of pirated imitations of patented innovations pioneered in a different country.

82) The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something GATT had never done. Two of the first industries targeted for this reform were A) global telecommunication and financial services industries. B) scientific research and defense sector. C) pharmaceuticals and heavy metal industry. D) pharmaceuticals and biotechnology. E) scientific research and agriculture.

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83) CoverColor makes high-end hair color for women. This hair color is manufactured and patented in France. Manufacturers in Indonesia create counterfeit CoverColor hair color and sell it in local markets at nearly similar prices to the original CoverColor hair color sold in other countries. This lack of intellectual property protection is like to result in A) expansion of the world market for CoverColor products. B) reduction in the export opportunities for CoverColor hair color in Indonesia. C) reduction in import of all Indonesian goods. D) increase in the prices of hair color produced by CoverColor. E) reduction in export opportunities from Indonesia to other countries.

Question Details Accessibility : Keyboard Navigation Topic : The World Trading System, GATT, and the WTO AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

84)

The WTO rules say that a country can impose antidumping duties on A) violators of intellectual property laws. B) farmers who receive subsidies for more than two years. C) foreign governments that replicate products made by a foreign producer. D) foreign goods being sold cheaper than at home. E) nations that don’t cooperate with trade agreements.

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85)

A bound tariff rate is A) the lowest rate that can be charged. B) equal to the spot exchange rate. C) based on the forward exchange rate. D) the average tariff rate a country sets within a year. E) the highest rate that can be charged.

86) President Trump has voiced his opposition to many free trade deals. Because of this, some say that he maintains a(n) __________ view on trade. A) comparative advantage B) expansionist C) absolute advantage D) open economy E) mercantilist

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade AACSB : Reflective Thinking Gradable : automatic Learning Objective : 07-04 Describe the development of the world trading system and the current trade

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87) A loophole in antidumping laws that is being exploited by many countries to pursue protectionism is the A) slackness of enforcement agencies. B) WTO's noncommittal approach to antidumping laws. C) bilateral VERs which subvert antidumping laws. D) vague definition of what constitutes "dumping." E) lack of consensus among member nations.

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88)

What is one drawback of government intervention in international trade?

A) Intervention tends to protect the efficient firm rather than the inefficient firm which results in higher prices. B) Intervention is not welcome in the agricultural sector. C) Intervention can be dangerous and lead to retaliation efforts. D) Intervention ultimately closes all markets to foreign competition. E) Intervention can lead to the dispersion of production activities.

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89)

What is the result of the threat of antidumping action?

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A) It helps the firm raise capital in the primary market. B) It limits the ability of a firm to raise prices in response to high demand. C) It enhances the firm's ability to disperse its productive activities in an efficient manner. D) It limits the ability of a firm to use aggressive pricing to gain market share in a country. E) It enhances a firm's competitive advantage to indigenous competitors in that country.

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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 90) Define a tariff and describe specific tariffs and ad valorem tariffs. Explain how tariffs play a role in the U.S. government.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

91)

Discuss import quotas and provide an example.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

92) What is a voluntary export restraint? Why do exporting countries agree to VERs? Explain with an example.

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93) Explain why a government would implement a local content requirement and discuss the role of the Buy America Act in the United States.

Question Details Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Learning Objective : 07-01 Identify the policy instruments used by governments to influence internati

94) What are the political arguments for government intervention into international trade? Give examples.

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Question Details Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

95) An important element of foreign policy is protecting human rights. Provide examples of how democratic nations have responded to this political argument.

Question Details Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

96) What is the infant industry argument? What are its implications for the world economy? What are the criticisms of this argument?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

97)

Briefly describe the two components of strategic trade policy.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Learning Objective : 07-02 Understand why governments sometimes intervene in international trade.

98)

Discuss Krugman’s views on strategic trade policy.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Theories and Their Implications Learning Objective : 07-03 Summarize and explain the arguments against strategic trade policy.

99) Briefly describe the early history of free trade as it was embraced by Great Britain. How did the Smoot-Hawley Act affect Britain’s attempt to stimulate free trade?

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100) Explain why there was greater pressure under GATT for protectionism around the world during the 1980s and 1990s.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The World Trading System, GATT, and the WTO Learning Objective : 07-04 Describe the development of the world trading system and the current trade

101)

List the provisions of the Uruguay Round.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The World Trading System, GATT, and the WTO Learning Objective : 07-04 Describe the development of the world trading system and the current trade

102)

Briefly discuss the four issues at the forefront of the current agenda of the WTO.

103) Explain the effect of antidumping actions on a firm’s pricing capabilities. Provide an example to illustrate your conclusions.

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Question Details Accessibility : Keyboard Navigation Topic : Trade Policy and Government Intervention in International Trade Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Learning Objective : 07-05 Explain the implications for managers of developments in the world trading

104) How does the increasing integration of the world economy and internationalization of production affect the selection of a trade policy?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trade Policy and Government Intervention in International Trade Learning Objective : 07-05 Explain the implications for managers of developments in the world trading

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Answer Key Test name: Hill_7 1) TRUE Specific tariffs are levied as a fixed charge for each unit of a good imported (e.g., $3 per barrel of oil).Ad valorem tariffs are levied as a proportion of the value of the imported good. 2) FALSE Domestic producers gain with import tariffs, because the tariff affords them some protection against foreign competitors by increasing the cost of imported foreign goods. 3) TRUE 4) TRUE Asubsidy is a government payment to a domestic producer. Subsidies take many forms, including cash grants, low-interest loans, tax breaks, and government equity participation in domestic firms. 5) FALSE 6) TRUE When imports are limited to a low percentage of the market by a quota or VER, the price is bid up for that limited foreign supply. The extra profit that producers make when supply is artificially limited by an import quota is referred to as aquota rent. 7) FALSE A common hybrid of a quota and a tariff is known as a tariff rate quota. Under atariff rate quota, a lower tariff rate is applied to imports within the quota than those over the quota. 8) TRUE Version 1

9) TRUE 10) TRUE 11) TRUE 12) TRUE Theinfant industry argument is by far the oldest economic argument for government intervention. Alexander Hamilton proposed it in 1792. 13) TRUE Theinfant industry argument is by far the oldest economic argument for government intervention. Alexander Hamilton proposed it in 1792. According to this argument, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries. To allow manufacturing to get a toehold, the argument is that governments should temporarily support new industries (with tariffs, import quotas, and subsidies) until they have grown strong enough to meet international competition. 14) TRUE 15) FALSE 16) FALSE 17) TRUE 18) TRUE 19) FALSE 20) TRUE 21) TRUE 22) TRUE 23) TRUE 24) FALSE 25) TRUE 26) B Version 1

Tariffs are the oldest and simplest instrument of trade policy. Tariffs are also the instrument that the GATT and WTO have been most successful in limiting. 27) E Atariff is a tax levied on imports (or exports). Tariffs fall into two categories.Specific tariffs are levied as a fixed charge for each unit of a good imported (e.g., $3 per barrel of oil).Ad valorem tariffs are levied as a proportion of the value of the imported good. 28) B Ad valorem tariffs are levied as a proportion of the value of the imported good. In most cases, tariffs are placed on imports to protect domestic producers from foreign competition by raising the price of imported goods. 29) C A subsidy is a government payment to a domestic producer. Subsidies take many forms, including cash grants, low-interest loans, tax breaks, and government equity participation in domestic firms. Agriculture tends to be one of the largest beneficiaries of subsidies in most countries. The European Union has been paying out about €44 billion annually ($55 billion) in farm subsidies. The farm bill that passed the U.S. Congress in 2018 contained subsidies of $25 billion for the next 10 years. 30) A Specific tariffs are levied as a fixed charge for each unit of a good imported. In most cases, tariffs are placed on imports to protect domestic producers from foreign competition by raising the price of imported goods. 31) C

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In general, export tariffs have two objectives: first, to raise revenue for the government, and second, to reduce exports from a sector, often for political reasons. For example, in 2004 China imposed a tariff on textile exports. The primary objective was to moderate the growth in exports of textiles from China, thereby alleviating tensions with other trading partners. China also had tariffs on steel exports but removed many of those in late 2015. 32) A In response to a severe sales slump following the global financial crisis, between mid-2008 and mid-2009, some developed nations gave $45 billion in subsidies to their automobile makers. While the purpose of the subsidies was to help them survive a very difficult economic climate, one of the consequences was to give subsidized companies an unfair competitive advantage in the global auto industry. 33) C The main gains from subsidies accrue to domestic producers, whose international competitiveness is increased as a result. Advocates of strategic trade policy favor subsidies to help domestic firms achieve a dominant position in those industries in which economies of scale are important and the world market is not large enough to profitably support more than a few firms. 34) C

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An import quota is a direct restriction on the quantity of some good that may be imported into a country. The restriction is usually enforced by issuing import licenses to a group of individuals or firms. Import quotas benefit domestic producers by limiting import competition. An import quota always raises the domestic price of an imported good. If a domestic industry lacks the capacity to meet demand, an import quota can raise prices forboth the domestically produced and the imported good. 35) E An import quota is a direct restriction on the quantity of some good that may be imported into a country. The restriction is usually enforced by issuing import licenses to a group of individuals or firms. Import quotas benefit domestic producers by limiting import competition. 36) A A common hybrid of a quota and a tariff is known as a tariff rate quota. Under a tariff rate quota, a lower tariff rate is applied to imports within the quota than those over the quota. 37) B A common hybrid of a quota and a tariff is known as a tariff rate quota. Under a tariff rate quota, a lower tariff rate is applied to imports within the quota than those over the quota. 38) C A voluntary export restraint (VER) is a quota on trade imposed by the exporting country, typically at the request of the importing country's government. 39) C

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VERs always raise the domestic price of an imported good. When imports are limited to a low percentage of the market by a quota or VER, the price is bid up for that limited foreign supply. 40) B The extra profit that producers make when supply is artificially limited by an import quota is referred to as a quota rent. 41) B If a domestic industry lacks the capacity to meet demand, an import quota can raise prices forboth the domestically produced and the imported good. This happened in the U.S. sugar industry, in which a tariff rate quota system has long limited the amount foreign producers can sell in the U.S. market. 42) E Anexport tariff is a tax placed on the export of a good. The goal behind an export tariff is to discriminateagainst exporting in order to ensure that there is sufficient supply of a good within a country. 43) B Anexport ban is a policy that partially or entirely restricts the export of a good. One well-known example was the ban on exports of U.S. crude oil production that was enacted by Congress in 1975. At the time, Organization of the Petroleum Exporting Countries (OPEC) was restricting the supply of oil in order to drive up prices and punish Western nations for their support of Israel during conflicts between Arab nations and Israel. 44) B A local content requirement is a requirement that some specific fraction of a good be produced domestically. The requirement can be expressed either in physical terms or in value terms. Version 1

45) D A local content requirement is a requirement that some specific fraction of a good be produced domestically. The requirement can be expressed either in physical terms (e.g., 15 percent of component parts for this product must be produced locally) or in value terms (e.g., 15 percent of the value of this product must be produced locally). 46) D A little-known law in the United States, the Buy America Act, specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. The law specifies a product as "American" if 51 percent of the materials by value are produced domestically. 47) D A little-known law in the United States, the Buy America Act, specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. The law specifies a product as "American" if 51 percent of the materials by value are produced domestically. 48) D Administrative trade policies are bureaucratic rules designed to make it difficult for imports to enter a country. 49) C Administrative trade policies are bureaucratic policies designed to make it difficult for imports to enter a country. 50) B

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In the context of international trade, dumping is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value. 51) C Dumping is viewed as a method by which firms unload excess production in foreign markets. Some dumping may be the result of predatory behavior, with producers using substantial profits from their home markets to subsidize prices in a foreign market with a view to driving indigenous competitors out of that market. Once this has been achieved, so the argument goes, the predatory firm can raise prices and earn substantial profits. 52) A If a domestic producer believes that a foreign firm is dumping production in the U.S. market, it can file a petition with two government agencies, the Commerce Department and the International Trade Commission (ITC). If a complaint has merit, the Commerce Department may impose an antidumping duty on the offending foreign imports. 53) C Antidumping policies are designed to punish foreign firms that engage in dumping. The ultimate objective is to protect domestic producers from unfair foreign competition. 54) C

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Arguments for government intervention take two paths: political and economic. Political arguments for intervention are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers), or with achieving some political objective that lies outside the sphere of economic relationships, such as protecting the environment or human rights. Economic arguments for intervention are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers). 55) C Political arguments for intervention are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers), or with achieving some political objective that lies outside the sphere of economic relationships, such as protecting the environment or human rights. Economic arguments for intervention are typically concerned with boosting the overall wealth of a nation. 56) B Retaliation is a risky strategy. A country that is being pressured may not back down and instead may respond to the imposition of punitive tariffs by raising trade barriers of its own. 57) C Many governments have long had regulations to protect consumers from unsafe products. The indirect effect of such regulations often is to limit or ban the importation of such products. 58) D

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The principal function of the long-running trade sanctions the United States has against Cuba is to create economic hardship in Cuba which will lead to the downfall of Cuba's communist government and replace it with a more democratically-inclined regime. 59) D In the 1980s and 1990s, Western governments used trade sanctions against South Africa as a way of pressuring that nation to drop its apartheid policies, which were seen as a violation of basic human rights. 60) D According to the infant industry argument, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries. To allow manufacturing to get a toehold, the argument is that governments should temporarily support new industries (with tariffs, import quotas, and subsidies) until they have grown strong enough to meet international competition. 61) D According to the infant industry argument, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries. To allow manufacturing to get a toehold, the argument is that governments should temporarily support new industries (with tariffs, import quotas, and subsidies) until they have grown strong enough to meet international competition. 62) D

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In spite of GATT recognizing the infant industry argument as a legitimate reason for protectionism, many economists remain critical of this argument as it relies on the assumption that firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market. 63) A Protection of manufacturing from foreign competition does no good unless the protection helps make the industry efficient. In case after case, however, protection seems to have done little more than foster the development of inefficient industries that have little hope of ever competing in the world market. 64) A The strategic trade policy argument has two components. First, it is argued that by appropriate actions, a government can help raise national income if it can somehow ensure that the firm or firms that gain firstmover advantages in an industry are domestic rather than foreign enterprises. Thus, according to the strategic trade policy argument, a government should use subsidies to support promising firms that are active in newly emerging industries. 65) C Paul Krugman argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggarthy-neighbor policy that boosts national income at the expense of other countries. A country that attempts to use such policies will probably provoke retaliation. 66) C

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According to Krugman, the answer is probably not to engage in retaliatory action but to help establish rules of the game that minimize the use of trade-distorting subsidies. This is what the World Trade Organization seeks to do. 67) A Krugman may be right about the danger of a strategic trade policy leading to a trade war. The problem, however, is how to respond when one's competitors are already being supported by government subsidies. According to Krugman, the answer is probably not to engage in retaliatory action but to help establish rules of the game that minimize the use of trade-distorting subsidies. 68) B Governments do not always act in the national interest when they intervene in the economy; politically important interest groups often influence them. Thus, a further reason for not embracing strategic trade policy, according to Krugman, is that such a policy is almost certain to be captured by special-interest groups within the economy, who will distort it to their own ends. 69) B Free trade as a government policy was first officially embraced by Great Britain in 1846, when the British Parliament repealed the Corn Laws. 70) B Aimed at avoiding rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products, the Smoot-Hawley Act erected an enormous wall of tariff barriers. 71) D

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Aimed at avoiding rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products, the Smoot-Hawley Act erected an enormous wall of tariff barriers. Almost every industry was rewarded with its “made-to-order” tariff. The Smoot-Hawley Act had a damaging effect on employment abroad. Other countries reacted by raising their own tariff barriers. 72) A Under U.S. leadership, the GATT was established in 1947. The GATT was a multilateral agreement whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like. 73) E The GATT was a multilateral agreement whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like. 74) A During the 1980s and early 1990s, the world trading system erected by the GATT came under strain as pressures for greater protectionism increased around the world. One of the reasons for this was that many countries found ways to get around GATT regulations. Bilateral voluntary export restraints, or VERs, circumvent GATT agreements, because neither the importing country nor the exporting country complain to the GATT bureaucracy in Geneva—and without a complaint, the GATT bureaucracy can do nothing. 75) D

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During the 1980s and early 1990s, the trading system erected by the GATT came under strain as pressures for greater protectionism increased around the world. There were three reasons for the rise in such pressures during the 1980s. First, the economic success of Japan during that time strained the world trading system (much as the success of China has created strains today). 76) D Bilateral voluntary export restraints, or VERs, circumvent GATT agreements, because neither the importing country nor the exporting country complains to the GATT bureaucracy in Geneva—and without a complaint, the GATT bureaucracy can do nothing. 77) D Some of the provisions of the Uruguay Round included the following: Tariffs on industrial goods were to be reduced by more than one-third, and tariffs were to be scrapped on more than 40 percent of manufactured goods. Average tariff rates imposed by developed nations on manufactured goods were to be reduced to less than 4 percent of value, the lowest level in modern history. Agricultural subsidies were to be substantially reduced. GATT fair trade and market access rules were to be extended to cover a wide range of services. Barriers on trade in textiles were to be significantly reduced over 10 years. 78) B Every stage of the procedure is subject to strict time limits. Thus, the WTO has something that the GATT never had—teeth. 79) C

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The WTO acts as an umbrella organization that encompasses the GATT along with two new sister bodies, one on services and the other on intellectual property. The WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an attempt to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under common international rules. 80) A The WTO acts as an umbrella organization that encompasses the GATT along with two new sister bodies, one on services and the other on intellectual property. The WTO’s General Agreement on Trade in Services (GATS) has taken the lead to extending free trade agreements to services. The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an attempt to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under common international rules. 81) C In February 1997, the WTO brokered a deal to get countries to agree to open their telecommunication markets to competition, allowing foreign operators to purchase ownership stakes in domestic telecommunication providers and establishing a set of common rules for fair competition. Most of the world's biggest markets—including the United States, European Union, and Japan—were fully liberalized by January 1, 1998, when the pact went into effect. All forms of basic telecommunication service are covered, including voice telephony, data, and satellite and radio communications. Many telecommunication companies responded positively to the deal, pointing out that it would give them a much greater ability to offer their business customers one-stop shopping—a global, seamless service for all their corporate needs and a single bill. 82) A Version 1

The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something the GATT had never done. Two of the first industries targeted for reform were the global telecommunication and financial services industries. 83) B Inadequate protections for intellectual property reduce the incentive for innovation. Because innovation is a central engine of economic growth and rising living standards, the argument has been that a multilateral agreement is needed to protect intellectual property. Without such an agreement it is feared that producers in a country might market imitations of patented innovations pioneered in a different country. This can affect international trade in two ways. First, it reduces the export opportunities in Indonesia for the original innovator in France. Second, to the extent that the Indonesian producer is able to export its pirated imitation to additional countries, it also reduces the export opportunities in those countries for the French inventor. 84) D Antidumping actions proliferated during the 1990s and 2000s. WTO rules allow countries to impose antidumping duties on foreign goods that are being sold cheaper than at home or below their cost of production when domestic producers can show that they are being harmed. 85) E Australia and South Korea, both OECD countries, still have bound tariff rates of 15.1 percent and 24.6 percent, respectively, on imports of transportation equipment (bound tariff rates are the highest rate that can be charged, which is often, but not always, the rate that is charged). 86) E

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Trump appears to hold mercantilist views on trade. He seems opposed to many free trade deals. 87) D WTO rules allow countries to impose antidumping duties on foreign goods that are being sold cheaper than at home, or below their cost of production, when domestic producers can show that they are being harmed. Unfortunately, the rather vague definition of what constitutes "dumping" has proved to be a loophole that many countries are exploiting to pursue protectionism. 88) C Government intervention has three drawbacks. Intervention can be selfdefeating because it tends to protect the inefficient rather than help firms become efficient global competitors. Intervention is dangerous; it may invite retaliation and trigger a trade war. Finally, intervention is unlikely to be well executed, given the opportunity for such a policy to be captured by special-interest groups. 89) D The threat of antidumping action limits the ability of a firm to use aggressive pricing to gain market share in a country. Firms in a country also can make strategic use of antidumping measures to limit aggressive competition from low-cost foreign producers.

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90) Atariff is a tax levied on imports (or exports). Tariffs fall into two categories.Specific tariffs are levied as a fixed charge for each unit of a good imported (e.g., $3 per barrel of oil).Ad valorem tariffs are levied as a proportion of the value of the imported good. In most cases, tariffs are placed on imports to protect domestic producers from foreign competition by raising the price of imported goods. However, tariffs also produce revenue for the government. Until the income tax was introduced, for example, the U.S. government received most of its revenues from tariffs. 91) Animport quota is a direct restriction on the quantity of some good that may be imported into a country. The restriction is usually enforced by issuing import licenses to a group of individuals or firms. For example, the United States has a quota on cheese imports. The only firms allowed to import cheese are certain trading companies, each of which is allocated the right to import a maximum number of pounds of cheese each year. In some cases, the right to sell is given directly to the governments of exporting countries.

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92)A voluntary export restraint is a quota on trade imposed by the exporting country, typically at the request of the importing country's government. One of the most famous historical examples is the limitation on auto exports to the United States enforced by Japanese automobile producers in 1981. A response to direct pressure from the U.S. government, this VER limited Japanese imports to no more than 1.68 million vehicles per year. The agreement was revised in 1984 to allow 1.85 million Japanese vehicles per year. The agreement was allowed to lapse in 1985, but the Japanese government indicated its intentions at that time to continue to restrict exports to the United States to 1.85 million vehicles per year. Foreign producers agree to VERs because they fear more damaging punitive tariffs or import quotas might follow if they do not. Agreeing to a VER is seen as a way to make the best of a bad situation by appeasing protectionist pressures in a country. Student examples will vary.

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93) Alocal content requirement (LCR) is a requirement that some specific fraction of a good be produced domestically. The requirement can be expressed either in physical terms (e.g., 75 percent of component parts for this product must be produced locally) or in value terms (e.g., 75 percent of the value of this product must be produced locally). Local content regulations have been widely used by developing countries to shift their manufacturing base from the simple assembly of products whose parts are manufactured elsewhere into the local manufacture of component parts. They have also been used in developed countries to try to protect local jobs and industry from foreign competition. For example, a little-known law in the United States, the Buy America Act, specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. The law specifies a product as “American” if 51 percent of the materials by value are produced domestically. This amounts to a local content requirement. If a foreign company, or an American one for that matter, wishes to win a contract from a U.S. government agency to provide some equipment, it must ensure that at least 51 percent of the product by value is manufactured in the United States.

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94) Political arguments for government intervention are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers), or with achieving some political objective that lies outside the sphere of economic relationships, such as protecting the environment or human rights. They cover a range of issues, including preserving jobs, protecting industries deemed important for national security, retaliating against unfair foreign competition, protecting consumers from "dangerous" products, furthering the goals of foreign policy, and advancing the human rights of individuals in exporting countries.1.For example, the CAP was designed to protect the jobs of Europe's politically powerful farmers by restricting imports and guaranteeing prices. 2.Those in favor of protecting the U.S. semiconductor industry from foreign competition, for example, argue that semiconductors are now such important components of defense products that it would be dangerous to rely primarily on foreign producers for them. 3.The U.S. government has used the threat of punitive trade sanctions to try to get the Chinese government to enforce its intellectual property laws. 4.In 2003 several countries, including Japan and South Korea, decided to ban imports of American beef after a single case of mad cow disease was found in Washington State. 5.Iraq labored under extensive trade sanctions after the UN coalition defeated the country in the 1991 Gulf War until the 2003 invasion of Iraq by U.S.-led forces. 6.In late 2012 the United States said that it would ease trade sanctions against Myanmar in response to democratic reforms in that country.

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95) Protecting and promoting human rights in other countries is an important element of foreign policy for many democracies. Governments sometimes use trade policy to try to improve the human rights policies of trading partners. For example, as discussed in Chapter 5, the U.S. government long had trade sanctions in place against the nation of Myanmar, in no small part due to the poor human rights practices in that nation. In late 2012, the United States said that it would ease trade sanctions against Myanmar in response to democratic reforms in that country. Similarly, in the 1980s and 1990s, Western governments used trade sanctions against South Africa as a way of pressuring that nation to drop its apartheid policies, which were seen as a violation of basic human rights.

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96)The infant industry argument is by far the oldest economic argument for government intervention. Alexander Hamilton proposed it in 1792. According to this argument, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries. To allow manufacturing to get a toehold, the argument is that governments should temporarily support new industries (with tariffs, import quotas, and subsidies) until they have grown strong enough to meet international competition. This argument has had substantial appeal for the governments of developing nations during the past 50 years, and the GATT has recognized the infant industry argument as a legitimate reason for protectionism. Nevertheless, many economists remain critical of this argument for two main reasons. First, protection of manufacturing from foreign competition does no good unless the protection helps make the industry efficient. In case after case, however, protection seems to have done little more than foster the development of inefficient industries that have little hope of ever competing in the world market. Second, the infant industry argument relies on an assumption that firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market. Consequently, governments have been required to subsidize long-term investments. Given the development of global capital markets over the past 20 years, this assumption no longer looks as valid as it once did.

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97)The strategic trade policy argument has two components. First, it is argued that by appropriate actions, a government can help raise national income if it can somehow ensure that the firm or firms that gain firstmover advantages in an industry are domestic rather than foreign enterprises. Thus, according to the strategic trade policy argument, a government should use subsidies to support promising firms that are active in newly emerging industries. The second component of the strategic trade policy argument is that it might pay a government to intervene in an industry by helping domestic firms overcome the barriers to entry created by foreign firms that have already reaped first-mover advantages. If these arguments are correct, they support a rationale for government intervention in international trade. Governments should target technologies that may be important in the future and use subsidies to support development work aimed at commercializing those technologies. Furthermore, government should provide export subsidies until the domestic firms have established first-mover advantages in the world market. Government support may also be justified if it can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors and emerge as viable competitors in the world market.

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98)Krugman argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggarthy-neighbor policy that boosts national income at the expense of other countries. A country that attempts to use such policies will probably provoke retaliation. In many cases, the resulting trade war between two or more interventionist governments will leave all countries involved worse off than if a hands-off approach had been adopted in the first place. According to Krugman, the answer is probably not to engage in retaliatory action but to help establish rules of the game that minimize the use of trade-distorting subsidies. This is what the World Trade Organization seeks to do. It should also be noted that antidumping policies can be used to target competitors supported by subsidies who are selling goods at prices that are below their costs of production.

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99) Free trade as a government policy was first officially embraced by Great Britain in 1846, when the British Parliament repealed the Corn Laws. The Corn Laws placed a high tariff on imports of foreign corn. The objectives of the Corn Laws tariff were to raise government revenues and to protect British corn producers. There had been annual motions in Parliament in favor of free trade since the 1820s, when David Ricardo was a member. However, agricultural protection was withdrawn only as a result of a protracted debate when the effects of a harvest failure in Great Britain were compounded by the imminent threat of famine in Ireland. Faced with considerable hardship and suffering among the populace, Parliament narrowly reversed its long-held position.During the next 80 years or so, Great Britain, as one of the world’s dominant trading powers, pushed the case for trade liberalization, but the British government was a voice in the wilderness. Its major trading partners did not reciprocate the British policy of unilateral free trade. The only reason Britain kept this policy for so long was that as the world’s largest exporting nation, it had far more to lose from a trade war than did any other country. By the 1930s, the British attempt to stimulate free trade was buried under the economic rubble of the Great Depression. Economic problems were compounded in 1930, when the U.S. Congress passed the Smoot– Hawley tariff. Aimed at avoiding rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products, the Smoot–Hawley Act erected an enormous wall of tariff barriers. Almost every industry was rewarded with its “made-to-order” tariff. The Smoot–Hawley Act had a damaging effect on employment abroad. Other countries reacted by raising their own tariff barriers. U.S. exports tumbled in response, and the world slid further into the Great Depression.

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100)During the 1980s and early 1990s, the trading system erected by the GATT came under strain as pressures for greater protectionism increased around the world. There were three reasons for the rise in such pressures during the 1980s. First, the economic success of Japan during that time strained the world trading system. Japan was in ruins when the GATT was created. By the early 1980s, however, it had become the world's second largest economy and its largest exporter. Japan's success in such industries as automobiles and semiconductors might have been enough to strain the world trading system. Things were made worse by the widespread perception in the West that despite low tariff rates and subsidies, Japanese markets were closed to imports and foreign investment by administrative trade barriers. Second, the world trading system was strained by the persistent trade deficit in the world's largest economy, the United States. The consequences of the U.S. deficit included painful adjustments in industries such as automobiles, machine tools, semiconductors, steel, and textiles, where domestic producers steadily lost market share to foreign competitors. The resulting unemployment gave rise to renewed demands in the U.S. Congress for protection against imports. A third reason for the trend toward greater protectionism was that many countries found ways to get around GATT regulations. Bilateral voluntary export restraints, or VERs, circumvent GATT agreements, because neither the importing country nor the exporting country complains to the GATT bureaucracy in Geneva—and without a complaint, the GATT bureaucracy can do nothing. Exporting countries agreed to VERs to avoid more damaging punitive tariffs. One of the best-known examples is the automobile VER between Japan and the Version 1

United States, under which Japanese producers promised to limit their auto imports into the United States as a way of defusing growing trade tensions. According to a World Bank study, 16 percent of the imports of industrialized countries in 1986 were subjected to nontariff trade barriers such as VERs. 101) The Uruguay Round contained the following provisions:1.Tariffs on industrial goods were to be reduced by more than one-third, and tariffs were to be scrapped on more than 40 percent of manufactured goods. 2.Average tariff rates imposed by developed nations on manufactured goods were to be reduced to less than 4 percent of value, the lowest level in modern history. 3.Agricultural subsidies were to be substantially reduced. 4.GATT fair trade and market access rules were to be extended to cover a wide range of services. 5.GATT rules also were to be extended to provide enhanced protection for patents, copyrights, and trademarks (intellectual property). 6.Barriers on trade in textiles were to be significantly reduced over 10 years. 7.The World Trade Organization was to be created to implement the GATT agreement.

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102)Four issues at the forefront of the current agenda of the WTO are antidumping policies, the high level of protectionism in agriculture, the lack of strong protection for intellectual property rights in many nations, and continued high tariff rates on nonagricultural goods and services in many nations. The WTO is clearly worried by the use of antidumping policies, suggesting that it reflects persistent protectionist tendencies and pushing members to strengthen the regulations governing the imposition of antidumping duties. WTO argues that removing tariff barriers and subsidies could significantly boost the overall level of trade, lower prices to consumers, and raise global economic growth by freeing consumption and investment resources for more productive uses. 103)The threat of antidumping action limits the ability of a firm to use aggressive pricing to gain market share in a country. Firms in a country also can make strategic use of antidumping measures to limit aggressive competition from low-cost foreign producers. For example, the U.S. steel industry has been very aggressive in bringing antidumping actions against foreign steelmakers, particularly in times of weak global demand for steel and excess capacity. In 1998 and 1999, the United States faced a surge in low-cost steel imports as a severe recession in Asia left producers there with excess capacity. The U.S. producers filed several complaints with the International Trade Commission. One argued that Japanese producers of hot rolled steel were selling it at below cost in the United States. The ITC agreed and levied tariffs ranging from 18 to 67 percent on imports of certain steel products from Japan.

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104) We live in a world where many firms of all national origins increasingly depend for their competitive advantage on globally dispersed production systems. Such systems are the result of freer trade. Freer trade has brought great advantages to firms that have exploited it and to consumers who benefit from the resulting lower prices. Given the danger of retaliatory action, business firms that lobby their governments to engage in protectionism must realize that by doing so they may be denying themselves the opportunity to build a competitive advantage by constructing a globally dispersed production system. By encouraging their governments to engage in protectionism, their own activities and sales overseas may be jeopardized if other governments retaliate.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) When a firm exports its products to a foreign country, foreign direct investment occurs. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Overview of Foreign Direct Investment Gradable : automatic Learning Objective : 08-01 Recognize current trends regarding foreign direct investment (FDI) in the

2) The flow of foreign direct investment refers to the amount of FDI undertaken over a given period of time—normally a year. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-01 Recognize current trends regarding foreign direct investment (FDI) in the

The globalization of the world economy is having a negative effect on the volume of FDI. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-01 Recognize current trends regarding foreign direct investment (FDI) in the

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4) Over the last decade, there has been an increase in FDI directed at the developed nations of the world. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Overview of Foreign Direct Investment Gradable : automatic Learning Objective : 08-01 Recognize current trends regarding foreign direct investment (FDI) in the

Mergers and acquisitions take longer to execute than a greenfield investment. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Overview of Foreign Direct Investment Gradable : automatic Learning Objective : 08-01 Recognize current trends regarding foreign direct investment (FDI) in the

6) The process of exporting grants a foreign entity the right to produce and sell a firm’s product. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

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7) The attractiveness of exporting is reduced when a product can easily be produced in almost any location. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

8) According to internalization theory, one drawback of licensing is that it might result in a firm giving away technological know-how to a competitor. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

9) Assume that there are only four firms that control 90 percent of the cell phone service industry in the U.S. This would be an example of an oligopoly. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

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10) The eclectic paradigm is based on the idea that intellectual property is of considerable importance in explaining the direction of FDI. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

11) According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

12) A country that follows the pragmatic nationalist view would agree that FDI can benefit a host country through capital, skills, and jobs but these come at a cost. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

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13) In terms of employment, the indirect effects of FDI are often as large as, if not larger than, the direct effects. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Benefits and Challenges of Foreign Direct Investment Gradable : automatic Learning Objective : 08-04 Describe the benefits and costs of FDI to home and host countries.

14) A resource-transfer effect of FDI is that it can result in a positive contribution to a host economy by supplying capital and technology which boost the country’s economy. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Benefits and Challenges of Foreign Direct Investment Gradable : automatic Learning Objective : 08-04 Describe the benefits and costs of FDI to home and host countries.

15)

An acquisition does not result in a net increase in the number of players in a market. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Benefits and Challenges of Foreign Direct Investment Gradable : automatic Learning Objective : 08-04 Describe the benefits and costs of FDI to home and host countries.

16)

Offshore production refers to FDI undertaken to serve the host market.

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⊚ ⊚

true false

17) Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk like the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Government Intervention in Foreign Direct Investment Gradable : automatic Learning Objective : 08-05 Explain the range of policy instruments that governments use to influence

18) Historically, countries have occasionally manipulated the tax rules as a way to encourage domestic companies to invest at home. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Government Intervention in Foreign Direct Investment Gradable : automatic Learning Objective : 08-05 Explain the range of policy instruments that governments use to influence

19)

Ownership restraints are one method host countries use to restrict FDI.

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⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Government Intervention in Foreign Direct Investment Gradable : automatic Learning Objective : 08-05 Explain the range of policy instruments that governments use to influence

20) The United Nations was the first multinational institution to govern FDI beginning in the 1930s. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Government Intervention in Foreign Direct Investment Gradable : automatic Learning Objective : 08-05 Explain the range of policy instruments that governments use to influence

21) The location-specific advantages argument associated with John Dunning helps explain why firms prefer FDI to licensing or to exporting. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : automatic Learning Objective : 08-06 Identify the implications for managers of the theory and government polici

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22) Licensing is not a good option if the competitive advantage of a firm is based upon managerial or marketing knowledge that is embedded in the routines of the firm or the skills of its managers, and that is difficult to codify in a "book of blueprints." ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Basic Issues in International Licensing Gradable : automatic Learning Objective : 08-06 Identify the implications for managers of the theory and government polici

23) A business that allows franchising licenses its brand name to a foreign firm in return for a percentage of the profits. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Basic Issues in International Franchising Gradable : automatic Learning Objective : 08-06 Identify the implications for managers of the theory and government polici

24) Despite the move toward a free market stance in recent years, many countries still have a rather pragmatic stance toward FDI. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trends in Foreign Direct Investment Gradable : automatic Learning Objective : 08-06 Identify the implications for managers of the theory and government polici

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25) A firm's bargaining power is low when the host government places a low value on what the firm has to offer. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trends in Foreign Direct Investment Gradable : automatic Learning Objective : 08-06 Identify the implications for managers of the theory and government polici

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) A high-fashion clothing firm from the United States invests in a fabric processing plant in Indonesia. This is an example of A) an absolute advantage. B) stock consolidation. C) foreign direct investment. D) product differentiation. E) market segmentation.

Question Details Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 08-01 Recognize current trends regarding foreign direct investment (FDI) in the

27) According to the U.S. Department of Commerce, what occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity?

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A) multilateral investment B) foreign direct investment C) privatization D) an absolute advantage E) isolationism

28) Timely Trends Inc., a U.S. business, took a 27 percent equity interest in Borst Group, a family business based in Germany. According to the U.S. Department of Commerce, this would be an example of A) multilateral investment. B) foreign direct investment. C) reciprocal foreign investment. D) international divestment. E) asset divestment.

29)

Once it undertakes FDI, a firm becomes a(n)

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A) outsourcer. B) retail chain. C) offshore company. D) multinational enterprise. E) national corporation.

30) Selena asked her assistant to determine the amount of foreign direct investment the company had taken over the past year. Selena is interested in the A) state of GNI. B) flow of FDI. C) flow of GDP. D) stock of FDI. E) status of JIT.

31) Rather than acquire an existing machine parts manufacturer in Mexico, Robertson Corp., based in Ohio, chose to establish new operations in a northern Mexico city. This form of FDI is called

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A) consolidation. B) a greenfield investment. C) an acquisition. D) a licensing agreement. E) mass customization.

32) Pure Valley Foods currently has $470,000 in foreign-owned assets. This represents the __________ of the company. A) net value B) gross national income C) flow of FDI D) stock of FDI E) gross domestic product

33) The __________ of FDI refers to the amount of FDI undertaken over a given period (normally a year).

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A) portfolio B) flow C) status D) stock E) fragment

34) At the end of 2019, companies from one country collectively owned $18 billion in assets in the neighboring country. The $18 billion represents the __________ of FDI. A) stock B) flow C) outflow D) trend E) exchange

35)

Compared to the growth in world trade and world output since 1990, FDI has

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A) grown at about the same rate. B) grown more rapidly. C) failed to match the growth of world trade. D) grown at a slower rate. E) remained stagnant.

36)

Business executives view foreign direct investment as a way to A) erase the fear of protectionist pressures. B) circumvent future trade barriers. C) promote totalitarian political institutions. D) diminish privatization. E) shift toward centrally planned command economies.

37)

The United States has been an attractive target for FDI partly because of its

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A) abundance of cheap and skilled labor. B) large and wealthy domestic markets. C) commitment to environmental issues. D) low corporate tax rates. E) high trade barriers.

38)

Which two nations have historically been the largest recipients of inward FDI? A) Japan and China B) Italy and Germany C) Argentina and Brazil D) the United Kingdom and France E) the United States and Canada

39) Countries such as the United States, the United Kingdom, France, Germany, the Netherlands, and Japan dominate in the share of total global stock of FDI and FDI outflows and in rankings of the world's largest multinationals because they

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A) were the most developed countries post-war and home to the largest and best capitalized enterprises. B) pursued a policy of blocking or restricting FDI inflow into their own economies. C) provided subsidies for their domestic firms to protect them from foreign competition. D) control much of the operating structure of the WTO which governs international trade. E) were the governing body of the International Monetary Fund.

40) a(n)

Global Medical Supply built an operation from scratch in Spain. This is an example of

A) merger. B) acquisition. C) strategic alliance. D) FDI stock. E) greenfield investment.

41) Kitchen Supply Corp. produces its entire line of restaurant-grade kitchen utensils and serving dishes at its manufacturing facility in the United States and then ships its products to various companies in Europe to sell. Kitchen Supply Corp. is involved in

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A) outsourcing. B) licensing. C) franchising. D) exporting. E) diversifying.

Question Details Accessibility : Keyboard Navigation Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Topic : Overview of Importing and Exporting Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

42) Edu-Tech Inc. grants a foreign entity the right to produce and sell the firm's online coursework products in return for a royalty fee on every course sold. Edu-Tech Inc.'s approach to FDI is called A) outsourcing. B) licensing. C) franchising. D) exporting. E) diversifying.

Question Details Accessibility : Keyboard Navigation Topic : Basic Issues in International Licensing AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

43) Quicker Cleats Inc., based in Italy, obtained the right to produce and sell a U.S.-based company's running shoes. Quicker Cleats has to pay a royalty fee to the U.S. company for every pair of shoes it sells. In this example, Quicker Cleats Inc. is the

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A) franchisor. B) franchisee. C) licensor. D) licensee. E) competitor.

44) 3M, an American firm, manufactures adhesive tape in St. Paul, Minnesota, and ships the tape to South Korea for sale. According to this information, 3M uses __________ to deliver this product. A) exporting B) licensing C) franchising D) insourcing E) outsourcing

Question Details Accessibility : Keyboard Navigation AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Overview of Importing and Exporting Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

45) As a company policy, Kelvin Appliance Corp. periodically grants foreign entities the right to produce and sell its products in return for a royalty fee on every unit sold. Kelvin Appliance Corp.’s approach to FDI is

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A) outsourcing. B) exporting. C) licensing. D) diverging. E) hedging.

46) When it comes to FDI, Morrison Lighting Inc. makes greenfield investments in various foreign countries and fully manages the established foreign operations on its own rather than relying on host-country staff. This approach to FDI is risky because of the problems associated with A) sharing a valuable technological know-how with a potential competitor. B) an increase in transportation costs, especially for those products that have a low valueto-weight ratio. C) doing business in a different culture where the rules of the game may be very different. D) the possibility of an increase in trade barriers such as import tariffs or quotas. E) increased production costs.

Question Details Accessibility : Keyboard Navigation Topic : Benefits and Challenges of Foreign Direct Investment Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

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47) Solar Power Inc. identifies licensees in various countries who produce and sell the company's solar panels in their countries in return for a royalty fee on every unit sold. Solar Power’s approach is risky because of the problems associated with A) sharing valuable technological know-how with a potential competitor. B) an increase in transportation costs, especially for those products that have a low valueto-weight ratio. C) doing business in a different culture where the rules of the game may be very different. D) the possibility of an increase in trade barriers such as import tariffs or quotas. E) increased production costs.

Question Details Accessibility : Keyboard Navigation Topic : Basic Issues in International Licensing Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

48) Cattle Supply Inc. is a market leader in dairy farming equipment, which is typically large, bulky, and very heavy. In order to compete, Cattle Supply sells its products at very low prices. Although these products can be produced anywhere, the company is considering exporting as a way to grow in overseas markets. The viability of Cattle Supply’s exporting strategy could be constrained by transportation costs, particularly of products that can be produced in almost any location and have a A) high local content requirement. B) low total landed cost. C) low value-to-weight ratio. D) low licensing tariff. E) high marginal cost.

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49)

The __________ is one reason a company might prefer FDI over exporting.

A) presence or threat of trade barriers B) costs of acquiring a foreign enterprise C) costs of establishing production facilities in a foreign country D) risk of giving away valuable technological know-how to a potential foreign competitor E) possibility of diminishing returns

50)

A firm will favor FDI over exporting as an entry strategy when A) the costs of establishing production facilities are high. B) the transportation costs or trade barriers are high. C) there are problems associated with doing business in a different culture. D) the products involved have a high value-to-weight ratio. E) the firm wants to occupy a position that falls inside the efficiency frontier.

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51) Clear the Way Glass, a leading manufacturer of heavy, oversized glass blocks in the United States, is considering exporting as its FDI strategy. Exporting may not be a good option for Clear the Way Glass because of the glass blocks’ A) unattractiveness in foreign markets. B) high value-to-weight ratio. C) high cost of manufacture. D) low weight-to-value ratio. E) low value-to-weight ratio.

52) Akansha Floor Coverings, a U.S.-based firm does not want to bear the costs of establishing production facilities in a foreign country. For this reason, the company should avoid A) exporting. B) FDI. C) licensing. D) franchising. E) outsourcing.

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53)

Governments impose quotas to limit A) FDI. B) importing. C) franchising. D) outsourcing. E) licensing.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Government Intervention in Foreign Direct Investment Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

54) The management team at Pass the Ketchup Brands has decided not to license its product because of concerns that this will create opportunities for another company to have access to their secret recipe. For this reason, the company decides that FDI is their best course of action. Which economic theory does their choice represent? A) comparative advantage B) distribution theory C) new trade theory D) internalization theory E) difference principle

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Question Details Accessibility : Keyboard Navigation Topic : Theories of Foreign Direct Investment Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

55) Robertson’s Fertilizers Inc. has decided against licensing its products because it wants to have control over the manufacturing and marketing processes. The company decides to focus on FDI instead. This decision is representative of the A) comparative advantage theory. B) distribution theory. C) new trade approach. D) market imperfections approach. E) licensing theory.

Question Details Accessibility : Keyboard Navigation Topic : Theories of Foreign Direct Investment AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

56)

The market imperfections approach seeks to explain

A) the disadvantages associated with the adoption of a completely free market view. B) why different nations import goods from other countries even when they are more capable of producing them efficiently. C) the preference for FDI over licensing by firms as a strategy to enter foreign markets. D) the benefits of exercising protectionism coupled with partial adoption of free market approach. E) the pattern of sale of products from one country to another.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : automatic Learning Objective : 08-02 Explain the different theories of FDI.

57) The top management team at Missouri-based Parker Products collectively support the market imperfections approach. This means Parker Products' top management team is most likely to A) adopt a completely free market view. B) understand why different nations import goods from other countries even when they are more capable of producing them efficiently. C) express a preference for FDI over licensing as a strategy to enter foreign markets. D) propagate the benefits of exercising protectionism coupled with partial adoption of free market approach. E) abandon going overseas.

58)

One drawback associated with internalization theory is that

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A) licensing gives a firm tight control over manufacturing, marketing, and strategy in a foreign country. B) licensing may result in a firm giving away valuable technological know-how to a potential foreign competitor. C) licensing has no major drawbacks as a strategy for exploiting foreign market opportunities. D) a problem with licensing arises when the firm's competitive advantage is based on its products rather than on the manufacturing capabilities that produce those products. E) licensing is always more profitable than FDI.

59)

According to internalization theory, one of the drawbacks of licensing is that

A) it may result in a firm's technological know-how being restricted to a limited knowledge base and stifles any future development. B) it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. C) when a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks. D) its use is restricted by the government through the imposition of tariffs and quotas. E) it is less cost-effective than FDI.

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60)

A firm is most likely to favor foreign direct investment over exporting when

A) the firm wants its technological know-how to be widely disseminated. B) the firm wishes to maintain control over its operations and business strategy. C) the transportation costs are low. D) there are no trade barriers. E) the firm wants to customize its products as per the tastes and preferences of foreign consumers.

61) Which theory of FDI flows is concerned with how FDI interacts with oligopolistic industries? A) eclectic paradigm B) externalities C) strategic behavior D) difference principle E) location-specific

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62) The oil and gas industry in a foreign country is dominated by just three firms and these firms control at least 80 percent of the domestic market. The market structure in this country is a(n) A) perfect competition. B) democracy. C) oligopoly. D) monopoly. E) monarchy.

63) A critical competitive feature of an oligopoly that allows one firm to force another to take similar actions such as a price cut is the A) lack of interaction among the major players. B) presence of a domestic market which is open for foreign firms. C) desire of all the major players to avoid the phenomenon of diminishing returns. D) interdependence of the major players. E) lack of imitative behavior among the major players.

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64) Luxury Leather Group is one of four major companies that control the leather industry in a foreign country. Luxury Leather wants to deplete some of its inventory and has cut all prices by 20 percent. Since the company is part of an oligopoly, how will the other three companies probably respond to this decision? A) They will increase production levels. B) They will make similar price cuts. C) They will raise prices. D) They will seek additional market share. E) They will not respond to the price cuts.

65)

The interdependence between firms in an oligopoly leads to A) trade wars. B) a decrease in the supply. C) imitative behavior. D) higher demand. E) increased domestic consumption.

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66) Yum Tum, a brand of low-fat yogurt, launched a drinkable yogurt. Immediately after this, another brand, Looking Good, also announced the launch of a new drinkable yogurt. Then Spoon Fulls, a third brand of yogurt, reduced the price of its product. What is most likely to happen in this oligopolistic market setup? A) Yum Tum and Looking Good will reduce the prices of their respective drinks. B) Looking Good will launch another new drink. C) Yum Tum will link up with Spoon Fulls to launch a completely new product. D) Looking Good and Spoon Fulls will collaborate against Yum Tum. E) Yum Tum will have an increased domestic consumption.

67) When two or more enterprises encounter each other in different regional markets, national markets, or industries it creates A) a monopoly. B) a planned economy. C) immediate trade wars. D) multipoint competition. E) the market imperfections approach.

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68) Michelin and Goodyear compete against each other not only in the United States, but also all across Europe and Asia. These two tire companies are A) a monopoly. B) engaged in cooperation. C) a cartel. D) engaged in multipoint competition. E) an oligopsony.

69) Knickerbocker’s concept of multipoint competition enhances the strategic behavior theory by making sure that A) a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere. B) the competitors cooperate with each other to establish a cartel. C) no other competitors can enter the market unless they resort to licensing or franchising with the initial pioneers. D) growing technologies or business methods in new markets are transferred to established markets. E) the firms in an industry prefer FDI over licensing or exporting.

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70) Some countries have oil as a natural resource and Capstone Engineering based in Iowa, is considering building a facility in one of those countries since it does not have easy access to oil near its manufacturing plant. Which theory of foreign direct investment provides an explanation for this decision? A) eclectic paradigm B) protectionism argument C) product life-cycle theory D) new trade theory E) infant industry argument

71)

Location-specific advantages for a firm are those that arise from

A) acquiring the home markets of foreign firms that threaten a firm's domestic market. B) gaining a commanding position in one market and using them to subsidize competitive attacks in other markets. C) preferring exporting over licensing in order to retain control over know-how, manufacturing, marketing, and strategy. D) utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm's own unique assets. E) franchising and licensing.

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72) Hotel Linen Supply Group decides to move its manufacturing facility from Boston, Massachusetts, to Nogales, Mexico, because it will have access to highly skilled labor but at a much lower cost. This choice reflects the concept of A) a planned economy. B) supply-and-demand. C) location-specific advantages. D) an oligopoly. E) a comparative advantage.

73) Silicon Valley in California is the world center for the computer and semiconductor industry and has many of the world's major computer and semiconductor companies located close to each other there. This provides the location-specific advantage of A) multipoint competition. B) an oligopoly. C) first movers. D) externalities. E) free riders.

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74)

Dunning's theory helps explain

A) how firms try to match each other's moves in different markets to try to hold each other in check. B) the prevalence of imitative behavior among rivals. C) why a greenfield investment in a new facility is better than an acquisition. D) the problems associated with doing business in a different culture. E) how location factors affect the direction of FDI.

75)

The __________ view of FDI traces its roots to Marxist political and economic theory. A) radical B) free market C) pragmatic nationalism D) comparative advantage E) pluralist

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Overview of Foreign Direct Investment Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

76) Tonja works in the São Paulo, Brazil office of Classroom Concepts, a Tallahassee-based online learning business. She is frustrated because she wanted to interview for a management position that recently opened up in her office, but the home-country office offered the job to a home-country employee. This isn’t the first time that host-country employees were bypassed for jobs. Which political ideology would be used to explain this decision? A) pragmatic nationalism B) comparative advantage C) mercantilism D) radical view E) free market

Question Details Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

77) According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a country should be A) immediately nationalized. B) made to pay higher taxes. C) converted into publicly traded companies. D) banned from obtaining finance from the financial institutions in the host country. E) immediately privatized.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

78)

The radical view of FDI declined in popularity by the early 1990s because of A) rising communism in Eastern Europe. B) generally steady economic growth in countries that embraced the radical position. C) a growing belief in many countries that FDI leads to loss of jobs. D) a strong economic performance in developing countries that embraced capitalism. E) the collapse of capitalism in the newly independent nations of Asia.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

79) The free market view argues that international production should be distributed among countries according to A) the law of supply and demand. B) the level of multipoint competition. C) the theory of comparative advantage. D) the relative ease of licensing agreements. E) available factors of production.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

80)

One way to describe the free market view is to say that

A) a country should specialize in the production of a good that it can produce most efficiently. B) a country should focus on importing goods that it can also produce if those goods are produced at a higher cost elsewhere. C) an MNE is an instrument of imperialist domination. D) host-country nations of a company are never given the same consideration as a homecountry nation. E) less-developed nations are kept relatively backward and dependent on advanced capitalist nations for employment.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

81)

The free market view would argue that

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A) MNEs decrease the overall efficiency of the world economy. B) FDI is a benefit to both the source country and the host country. C) MNEs can never be instruments of economic development, only of economic domination. D) FDI is beneficial to the host country of an MNE but it is harmful for the home country of the MNE. E) FDI in a mercantilist society would not benefit the home country.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

82)

The pragmatic nationalist view regarding FDI is that

A) FDI benefits only the host country. B) FDI does not make any positive contribution to the host economy. C) every country should adopt the free market view. D) FDI should not be allowed by any country as it is an instrument of economic domination rather than economic development. E) FDI has both benefits and costs.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

83) A country that has the pragmatic nationalism view would agree that foreign direct investment should be allowed as long as

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A) both home and host country benefit. B) it takes place within a planned economy. C) the benefits outweigh the costs. D) location-specific advantages are available. E) there is evidence of a comparative advantage.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

84) Countries within the European Union all compete with one another to attract business from the United States. These countries are willing to offer tax breaks and other incentives in order to beat out other nations. This tendency to court FDI because it is in the national interest is a reflection of A) pragmatic nationalism. B) multipoint competition. C) the free market vie. D) imitative theory. E) the eclectic paradigm.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

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85) Liza told the management team that investing capital in the Chilean-based manufacturing plant would not only benefit their company in terms of labor costs but would also promote significant economic development in Chile. What type of host-country benefit is Liza referring to? A) resource-transfer effect B) balance-of-payments effect C) effects on competition D) effects on foreign exchange rate E) technology effect

Question Details Accessibility : Keyboard Navigation Topic : Benefits and Challenges of Foreign Direct Investment AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 08-04 Describe the benefits and costs of FDI to home and host countries.

86) Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in a host country, whether those operations are acquired or greenfield developments. This benefit of FDI falls into the category of A) employment effects. B) balance-of-payments effects. C) effects on competition. D) resource-transfer effects. E) autonomy effects.

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87) Most developing countries do not have access to the technology available in developed nations, but these developing nations need technology to create new jobs and stimulate the economy. Which aspect of inward FDI do these developing nations rely on to have access to needed technology? A) balance-of-payments effects B) employment effects C) effects on foreign exchange rate D) effects on competition E) resource-transfer effects

88)

Direct effects of FDI on employment in the host country arise when a foreign MNE

A) brings in managers trained in the latest management techniques from the home country. B) creates jobs because of increased local spending by employees of the MNE. C) employs a number of host country citizens. D) causes local suppliers to hire more people. E) creates jobs in the supporting industries.

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89)

Which situation represents an indirect effect of FDI on employment in a host country?

A) Neptune Inc. is a foreign MNE and employs a number of host-country citizens. B) The employees of Seven Sons Inc. have more money to spend and as a result, more home construction jobs are being created in the country. C) Earth Rollers brought in managers from the home country for its operations in the host country. D) The Miner Group recruits people from the host country for research and development. E) Trends and Topics Inc. sends home-country employees to host countries for training.

90) A(n) __________ account is a national account that tracks both payments to and receipts from other countries. A) equity B) dematerialized C) balance of trade D) asset E) balance-of-payments

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Benefits and Challenges of Foreign Direct Investment Gradable : automatic Learning Objective : 08-04 Describe the benefits and costs of FDI to home and host countries.

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91) Nate needs to track which goods have been exported by the United States and which goods have been imported. To learn this, he should use the __________ account. A) current B) payments C) internal D) tariff E) savings

92)

A current account deficit is also known as a(n) __________ deficit. A) stock B) inventory C) external D) tariff E) trade

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93) When a country in Africa is importing more goods and services than it is exporting, it is incurring a(n) A) trade surplus. B) current account deficit. C) positive balance of payment. D) outward FDI. E) net capital inflow.

94) A current account surplus is favored over a deficit. If a country is faced with a current account deficit it would have to __________ in order to support this situation. A) borrow from the IMF B) sell assets to foreigners C) divest stock in domestic corporations D) purchase stocks, bonds, and real estate in other countries E) issue negotiable instruments like bills of exchange

95)

A possible effect of FDI in the form of a greenfield investment in a host country is that it

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A) drives down prices and increases the economic welfare of consumers. B) raises unemployment levels. C) causes firms to fight for scarce capital investments. D) leads to an oligopolistic market and unfair pricing. E) leads to decreased productivity, product and process innovations, and lesser economic growth.

96) the

The most important concerns regarding the costs of FDI for the home country center on

A) balance-of-payments and employment effects of outward FDI. B) technology capture effect and the perceived loss of national sovereignty. C) reverse-resource transfer effect and the exposure to foreign markets caused by FDI. D) import of substantial input from abroad and being held to "economic ransom." E) exposure to foreign markets and the decreased costs of production.

97) If the United States invests in paper towel production facilities in Mexico, it would be engaging in

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A) a domestic transfer. B) offshore production. C) franchising. D) the difference principle. E) an acquisition.

98) Sani-Supply Group, a U.S. company, invests in a manufacturing facility in Canada. The production of hand sanitizer and antibacterial wipes from the Canadian facility is used entirely to serve the company's U.S. customers. Sani-Supply Group’s activity is called A) onboard production. B) offshore production. C) licensing. D) contract manufacturing. E) vertical integration.

99) __________ are a major type of foreign investment risk that is insurable through government-backed programs.

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A) Lack of funds B) Risk of transaction loss C) Poor strategic tie-ups D) Risks of expropriation E) Losses due to natural calamities

100) have

As an incentive to encourage domestic firms to undertake FDI, many advanced countries

A) eliminated double taxation of foreign income. B) started imposing local content requirements. C) imposed higher import tariffs. D) abolished the use of custom duties. E) eliminated subsidies.

101)

One example of a home-country policy for restricting outward FDI is

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A) eliminating double taxation of foreign income. B) manipulating tax rules to encourage the firms to invest at home. C) withdrawing government-backed insurance programs provided to local investors. D) reducing interest rates earned on domestic investments. E) prohibiting organizations from entering into an oligopoly.

102) The Argentinian government decides to offer tax concessions to foreign companies that agree to build a manufacturing facility in Argentina. This tax concession is a way to A) encourage inward FDI. B) discourage inward FDI. C) encourage outward FDI. D) discourage outward MNE. E) discourage inward MNE.

Question Details Accessibility : Keyboard Navigation Topic : Government Intervention in Foreign Direct Investment AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 08-05 Explain the range of policy instruments that governments use to influence

103) are

Host governments use a range of controls to restrict inward FDI. The two most common

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A) monetary restraints and prohibition on investing in certain countries. B) voluntary export restrictions and employment restraints. C) ownership restraints and performance requirements. D) tax concessions and government-backed insurance. E) employment restraints and tax deductions.

104) What form of FDI is NOT an option in the service industry, due to the fact that many services have to be produced where they are sold? A) FDI B) franchising C) greenfield investment D) exporting E) outsourcing

105)

Firms for which licensing is not a good option include those

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A) based in low-technology industries. B) that have valuable know-how. C) characterized by low cost pressures. D) where transportation costs are high. E) which need to have low control over foreign operations.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Basic Issues in International Licensing Gradable : automatic Learning Objective : 08-06 Identify the implications for managers of the theory and government polici

106) Although it normally involves much longer-term commitments, franchising is essentially the service industry version of A) exporting. B) licensing. C) foreign direct investment. D) greenfield investment. E) diversifying.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Basic Issues in International Franchising Gradable : automatic Learning Objective : 08-06 Identify the implications for managers of the theory and government polici

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 107) Describe the difference between the flow of foreign direct investment and the stock of foreign direct investment.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Overview of Foreign Direct Investment Gradable : manual Learning Objective : 08-01 Recognize current trends regarding foreign direct investment (FDI) in the

108)

Explain why FDI has grown more rapidly than world trade and world output.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : manual Learning Objective : 08-01 Recognize current trends regarding foreign direct investment (FDI) in the

109)

Describe the rise of China in FDI.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Foreign Direct Investment Bloom's : Understand Difficulty : 2 Medium Gradable : manual Learning Objective : 08-01 Recognize current trends regarding foreign direct investment (FDI) in the

110)

Discuss the most common limitations of exporting as compared to FDI.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : manual Learning Objective : 08-02 Explain the different theories of FDI.

111) Discuss the three major drawbacks identified by the internationalization theory regarding licensing as a method of FDI.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : manual Learning Objective : 08-02 Explain the different theories of FDI.

112)

Discuss the role of strategic rivalry in FDI and describe the effects of an oligopoly.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : manual Learning Objective : 08-02 Explain the different theories of FDI.

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113)

Discuss location-specific advantages and provide an example of this advantage.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Theories of Foreign Direct Investment Gradable : manual Learning Objective : 08-02 Explain the different theories of FDI.

114) In the context of FDI, compare and contrast the political ideologies of the radical view, the free market view, and pragmatic nationalism.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Theories of Foreign Direct Investment Bloom's : Apply Difficulty : 3 Hard Gradable : manual Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

115) Briefly describe how Bolivia and Venezuela have taken steps that indicate a hostile approach to FDI.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Trends in Foreign Direct Investment Gradable : manual Learning Objective : 08-03 Understand how political ideology shapes a government's attitudes toward F

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116) Briefly describe the benefits of inward FDI for a host country that arise from employment effects and balance-of-payments effects.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Benefits and Challenges of Foreign Direct Investment Gradable : manual Learning Objective : 08-04 Describe the benefits and costs of FDI to home and host countries.

117)

Discuss the possible effects of FDI on a country’s national sovereignty and autonomy.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Benefits and Challenges of Foreign Direct Investment Gradable : manual Learning Objective : 08-04 Describe the benefits and costs of FDI to home and host countries.

118)

Describe the role of the WTO in the liberalization of FDI.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Government Intervention in Foreign Direct Investment Gradable : manual Learning Objective : 08-05 Explain the range of policy instruments that governments use to influence

119)

Identify which types of industries should not rely on licensing as a form of FDI.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Basic Issues in International Licensing Gradable : manual Learning Objective : 08-06 Identify the implications for managers of the theory and government polici

120) Discuss the factors that affect the bargaining power of a firm. Explain how these factors affect the firm in various types of negotiations.

Question Details Accessibility : Keyboard Navigation Topic : Basic Issues in International Franchising Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : manual Learning Objective : 08-06 Identify the implications for managers of the theory and government polici

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Answer Key Test name: Hill_8 1) FALSE 2) TRUE Theflow of FDI refers to the amount of FDI undertaken over a given time period (normally a year). 3) FALSE 4) FALSE 5) FALSE 6) FALSE Exporting involves producing goods at home and then shipping them to the receiving country for sale.Licensing involves granting a foreign entity (the licensee) the right to produce and sell the firm’s product in return for a royalty fee on every unit sold. 7) TRUE 8) TRUE 9) TRUE Anoligopoly is an industry composed of a limited number of large firms (e.g., an industry in which four firms control 80 percent of a domestic market would be defined as an oligopoly). 10) FALSE 11) TRUE 12) TRUE 13) TRUE 14) TRUE 15) TRUE

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16) FALSE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) FALSE 22) TRUE 23) TRUE 24) TRUE 25) TRUE 26) C Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a product in a foreign country. 27) B Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a product in a foreign country. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity. 28) B Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a product in a foreign country. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity. 29) D Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a product in a foreign country. Once a firm undertakes FDI, it becomes a multinational enterprise. Version 1

30) B Theflow of FDI refers to the amount of FDI undertaken over a given time period (normally a year). Thestock of FDI refers to the total accumulated value of foreign-owned assets at a given time. 31) B FDI takes on two main forms. The first is a greenfield investment, which involves the establishment of a new operation in a foreign country. The second involves acquiring or merging with an existing firm in the foreign country. 32) D Thestock of FDI refers to the total accumulated value of foreign-owned assets at a given time 33) B The flow of FDI refers to the amount of FDI undertaken over a given time period (normally a year). We also talk of outflows of FDI, meaning the flow of FDI out of a country, and inflows of FDI, the flow of FDI into a country. 34) A The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time. 35) B In general, however, over the past 30 years the flow of FDI has accelerated faster than the growth in world trade and world output. 36) B

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FDI has grown more rapidly than world trade and world output for several reasons. First, despite the general decline in trade barriers over the past 30 years, firms still fear protectionist pressures. Executives see FDI as a way of circumventing future trade barriers. 37) B The United States has been an attractive target for FDI because of its large and wealthy domestic markets, its dynamic and stable economy, a favorable political environment, and the openness of the country to FDI. Investors include firms based in Great Britain, Japan, Germany, Holland, and France. Inward investment into the United States remained high during the 2000s and stood at $255 billion in 2019. 38) D The developed nations of Europe have also been recipients of significant FDI inflows, principally from the United States and other European nations. In 2019, inward investment into Europe was $274 billion. The United Kingdom and France have historically been the largest recipients of inward FDI. 39) A The United States and other developed nations dominate in total global stock of FDI, FDI outflows, and rankings of largest multinationals primarily because they were the most developed nations with the largest economies during much of the postwar period and therefore home to many of the largest and best capitalized enterprises. 40) E FDI takes on two main forms. The first is a greenfield investment, which involves the establishment of a new operation in a foreign country. The second involves acquiring or merging with an existing firm in a foreign country. Version 1

41) D Exporting, as opposed to importing, involves producing goods at home and then shipping them to the receiving country for sale. 42) B Licensing involves granting a foreign entity (the licensee) the right to produce and sell the firm's product in return for a royalty fee on every unit sold. 43) D Licensing involves granting a foreign entity (the licensee) the right to produce and sell the firm's product in return for a royalty fee on every unit sold. 44) A Exporting involves producing goods at home and then shipping them to the receiving country for sale. 45) C Licensing involves granting a foreign entity (the licensee) the right to produce and sell the firm's product in return for a royalty fee on every unit sold. 46) C FDI is risky because of the problems associated with doing business in a different culture where the rules of the game may be very different. Relative to indigenous firms, there is a greater probability that a foreign firm undertaking FDI in a country for the first time will make costly mistakes due to its ignorance. 47) A Licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor.

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48) C The viability of an exporting strategy is often constrained by transportation costs. When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that have a low value-toweight ratio and that can be produced in almost any location. 49) A Some firms undertake foreign direct investment as a response to actual or threatened trade barriers such as import tariffs or quotas. The desire to reduce the threat that trade barriers might be imposed is enough to justify foreign direct investment as an alternative to exporting. 50) B The viability of an exporting strategy is often constrained by transportation costs and trade barriers. When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. The desire to reduce the threat that trade barriers might be imposed is enough to justify foreign direct investment as an alternative to exporting. 51) E Heavy glass blocks would have a low value-to-weight ratio. When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that have a low value-to-weight ratio and that can be produced in almost any location. 52) B FDI, as opposed to exporting or licensing, is expensive because a firm must bear the costs of establishing production facilities in a foreign country or of acquiring a foreign enterprise. Version 1

53) B By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing. Similarly, by limiting imports through quotas, governments increase the attractiveness of FDI and licensing. 54) D A branch of economic theory known as internalization theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets (this approach is also known as the market imperfections approach). It argues that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing. 55) D A branch of economic theory known as internalization theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets (this approach is also known as the market imperfections approach). It argues that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing. 56) C A branch of economic theory known as internalization theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets. This approach is also known as the market imperfections approach. 57) C

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A branch of economic theory known as internalization theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets. This approach is also known as the market imperfections approach. 58) B According to internalization theory, licensing has three major drawbacks as a strategy for exploiting foreign market opportunities. First, licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor. A second problem is that licensing does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. A third problem with licensing arises when the firm's competitive advantage is based not as much on its products as on the management, marketing, and manufacturing capabilities that produce those products. The problem here is that such capabilities are often not amenable to licensing. 59) B A problem with licensing is that it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. The rationale for wanting control over the strategy of a foreign entity is that, unlike a wholly owned subsidiary, a licensee would probably not accept impositions, because it would likely reduce the licensee's profit, or it might even cause the licensee to take a loss. 60) B

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It follows that a firm will favor foreign direct investment over exporting as an entry strategy when transportation costs or trade barriers make exporting unattractive. Furthermore, the firm will favor foreign direct investment over licensing (or franchising) when it wishes to maintain control over its technological know-how, or over its operations and business strategy, or when the firm's capabilities are simply not amenable to licensing, as may often be the case. 61) C Strategic behavior theory is based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace. An early variant of this argument was expounded by F. T. Knickerbocker, who looked at the relationship between FDI and rivalry in oligopolistic industries. 62) C An oligopoly is an industry composed of a limited number of large firms (e.g., an industry in which four firms control 80 percent of a domestic market would be defined as an oligopoly). 63) D A critical competitive feature of oligopolistic industries is the interdependence of the major players: What one firm does can have an immediate impact on the major competitors, forcing a response in kind. 64) B

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A critical competitive feature of oligopolistic industries is the interdependence of the major players: What one firm does can have an immediate impact on the major competitors, forcing a response in kind. By cutting prices, one firm in an oligopoly can take market share away from its competitors, forcing them to respond with similar price cuts to retain their market share. Thus, the interdependence between firms in an oligopoly leads to imitative behavior; rivals often quickly imitate what a firm does in an oligopoly. 65) C A critical competitive feature of oligopolistic industries is interdependence of the major players. By cutting prices, one firm in an oligopoly can take market share away from its competitors, forcing them to respond with similar price cuts to retain their market share. Thus, the interdependence between firms in an oligopoly leads to imitative behavior; rivals often quickly imitate what a firm does in an oligopoly. 66) A A critical competitive feature of oligopolistic industries is interdependence of the major players. By cutting prices, one firm in an oligopoly can take market share away from its competitors, forcing them to respond with similar price cuts to retain their market share. Thus, the interdependence between firms in an oligopoly leads to imitative behavior; rivals often quickly imitate what a firm does in an oligopoly. 67) D Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. Economic theory suggests that rather like chess players jockeying for advantage, firms will try to match each other's moves in different markets to try to hold each other in check.

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68) D Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. Economic theory suggests that rather like chess players jockeying for advantage, firms will try to match each other's moves in different markets to try to hold each other in check. 69) A Economic theory suggests that rather like chess players jockeying for advantage, firms will try to match each other's moves in different markets to try to hold each other in check. The idea is to ensure that a rival does not gain a commanding position in one market and then use the profits generated there to subsidize competitive attacks in other markets. 70) A The eclectic paradigm has been championed by the British economist John Dunning who argues that location-specific advantages are of considerable importance in explaining both the rationale for and the direction of foreign direct investment. He argues that combining location-specific assets or resource endowments with the firm’s own unique capabilities often requires foreign direct investment. That is, it requires the firm to establish production facilities where those foreign assets or resource endowments are located. 71) D According to British economist John Dunning, location-specific advantages mean the advantages that arise from utilizing resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management capabilities).

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72) C The cost and skill of labor varies from country to country. Since labor is not internationally mobile, according to Dunning it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes. Bylocation-specific advantages, Dunning means the advantages that arise from utilizing resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm’s technological, marketing, or management capabilities). 73) D Silicon Valley is the world center for the computer and semiconductor industry. Many of the world's major computer and semiconductor companies, such as Apple Computer, Hewlett-Packard, Oracle, Google, and Intel, are located close to each other here. According to Dunning, Silicon Valley has a location-specific advantage in the generation of knowledge related to the computer and semiconductor industries. Economists refer to such knowledge "spillovers" as externalities, and a well-established theory suggests that firms can benefit from such externalities by locating close to their source. 74) E

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Evidence suggests that European, Japanese, South Korean, and Taiwanese computer and semiconductor firms are investing in the Silicon Valley region, precisely because they wish to benefit from the externalities that arise there. Others have argued that direct investment by foreign firms in the U.S. biotechnology industry has been motivated by desires to gain access to the unique location-specific technological knowledge of U.S. biotechnology firms. Dunning's theory, therefore, seems to be a useful addition to those outlined previously, because it helps explain how location factors affect the direction of FDI. 75) A The radical view traces its roots to Marxist political and economic theory. Radical writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. They see the MNE as a tool for exploiting host countries to the exclusive benefit of their capitalistimperialist home countries. 76) D

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The radical view traces its roots to Marxist political and economic theory. Radical writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. They see the MNE as a tool for exploiting host countries to the exclusive benefit of their capitalistimperialist home countries. They argue that MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange. According to the radical view, FDI by the MNEs of advanced capitalist nations keeps the less developed countries of the world relatively backward and dependent on advanced capitalist nations for investment, jobs, and technology. Thus, according to the extreme version of this view, no country should ever permit foreign corporations to undertake FDI, because they can never be instruments of economic development, only of economic domination. Where MNEs already exist in a country, they should be immediately nationalized. 77) A According to the extreme version of the radical view, no country should ever permit foreign corporations to undertake FDI, since they can never be instruments of economic development, only of economic domination. Where MNEs already exist in a country, they should be immediately nationalized. 78) D By the early 1990s, the radical position was in retreat almost everywhere due to: (1) the collapse of communism in eastern Europe; (2) the generally abysmal economic performance of those countries that embraced the radical position, and their growing belief that FDI can stimulate economic growth; and (3) the strong economic performance of those developing countries that embraced capitalism. 79) C Version 1

The free market view traces its roots to classical economics and the international trade theories of Adam Smith and David Ricardo and argues that international production should be distributed among countries according to the theory of comparative advantage. Countries should specialize in the production of those goods and services that they can produce most efficiently. 80) A The free market view argues that countries should specialize in the production of those goods and services that they can produce most efficiently. Within this framework, the MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe. Viewed this way, FDI by the MNE increases the overall efficiency of the world economy. 81) B The free market view stresses that transfer of resources such as technology, skills, and capital benefits the host country and stimulates its economic growth. Thus, the free market view argues that FDI is a benefit to both the source country and the host country. 82) E In practice, many countries have adopted neither a radical policy nor a free market policy toward FDI, but instead a policy that can best be described as pragmatic nationalism. The pragmatic nationalist view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost. 83) C

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The pragmatic nationalist view is that FDI has both benefits and costs. According to this view, FDI should be allowed so long as the benefits outweigh the costs. 84) A One aspect of pragmatic nationalism is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants. The countries of the European Union often seem to be competing with each other to attract U.S. and Japanese FDI by offering large tax breaks and subsidies. 85) A The main benefits of inward FDI for a host country arise from resourcetransfer effects, employment effects, balance-of-payments effects, and effects on competition and economic growth. In regard to resourcetransfer effects, foreign direct investment can make a positive contribution to a host economy by supplying capital, technology, and management resources that would otherwise not be available and thus boost that country’s economic growth rate. 86) D Foreign direct investment can make a positive contribution to a host economy by supplying capital, technology, and management resources that would otherwise not be available and thus boost that country's economic growth rate. Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in the host country, whether those operations are acquired or greenfield developments, thus rendering benefits through a resource transfer effect. 87) E

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These countries rely on resource-transfer effects to obtain the technology. As for technology, you will recall that technology can stimulate economic development and industrialization. Technology can take two forms, both of which are valuable. Technology can be incorporated in a production process (e.g., the technology for discovering, extracting, and refining oil), or it can be incorporated in a product (e.g., personal computers). However, many countries lack the research and development resources and skills required to develop their own indigenous product and process technology. This is particularly true in less developed nations. Such countries must rely on advanced industrialized nations for much of the technology required to stimulate economic growth, and FDI can provide it. 88) C The effects of FDI on employment are both direct and indirect. Direct effects arise when a foreign MNE employs a number of host-country citizens. Indirect effects arise when jobs are created in local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE. 89) B The effects of FDI on employment are both direct and indirect. Indirect effects arise when jobs are created with local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE. 90) E FDI's effect on a country's balance-of-payments accounts is an important policy issue for most host governments. A country's balance-ofpayments accounts track both its payments to and its receipts from other countries.

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91) A The current account tracks the export and import of goods and services. Governments normally are concerned when their country is running a deficit on the current account of their balance of payments. 92) E The current account tracks the export and import of goods and services. A current account deficit, or trade deficit as it is often called, arises when a country is importing more goods and services than it is exporting. 93) B A current account deficit, or trade deficit as it is often called, arises when a country is importing more goods and services than it is exporting. Governments typically prefer to see a current account surplus rather than a deficit. 94) B Governments typically prefer to see a current account surplus rather than a deficit. The only way in which a current account deficit can be supported in the long run is by selling assets to foreigners. For example, the persistent U.S. current account deficit since the 1980s has been financed by a steady sale of U.S. assets (stocks, bonds, real estate, and whole corporations) to foreigners. 95) A

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The efficient functioning of markets depends on an adequate level of competition between producers. When FDI takes the form of a greenfield investment, the result is to establish a new enterprise, increasing the number of players in a market and thus consumer choice. In turn, this can increase the level of competition in a national market, thereby driving down prices and increasing the economic welfare of consumers. 96) A The most important concerns center on the balance-of-payments and employment effects of outward FDI. The home country’s balance of payments may suffer in three ways. With regard to employment effects, the most serious concerns arise when FDI is seen as a substitute for domestic production. 97) B The term offshore production refers to FDI undertaken to serve the home market. Far from reducing home-country employment, such FDI may actually stimulate economic growth (and hence employment) in the home country by freeing home-country resources to concentrate on activities where the home country has a comparative advantage. 98) B The term offshore production refers to FDI undertaken to serve the home market. Far from reducing home-country employment, such FDI may actually stimulate economic growth (and hence employment) in the home country by freeing home-country resources to concentrate on activities where the home country has a comparative advantage. 99) D

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Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk. The types of risks insurable through these programs include the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home. Such programs are particularly useful in encouraging firms to undertake investments in politically unstable countries. 100) A As an incentive to encourage domestic firms to undertake FDI, many countries have eliminated double taxation of foreign income (i.e., taxation of income in both the host country and the home country). A number of investor countries (including the United States) have also used their political influence to persuade host countries to relax their restrictions on inbound FDI. 101) B Virtually all investor countries, including the United States, have exercised some control over outward FDI from time to time. Countries have occasionally manipulated tax rules to try to encourage their firms to invest at home. The objective behind such policies is to create jobs at home rather than in other nations. 102) A It is common for governments to offer incentives to foreign firms to invest in their countries. Such incentives take many forms, but the most common are tax concessions, low-interest loans, and grants or subsidies. 103) C

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The two most common types of control exercised by host governments to restrict FDI are: (1) ownership restraints, often in the form of excluding foreign firms from specific fields or limiting foreign ownership stake in local subsidiaries, and (2) performance requirements related to local content, exports, technology transfer, and local participation in top management. 104) D Since many services have to be produced where they are sold, exporting is not an option (for example, one cannot export McDonald's hamburgers or consumer banking services). 105) B Although licensing may work, it is not an attractive option when one or more of the following conditions exist: (1) the firm has valuable knowhow that cannot be adequately protected by a licensing contract, (2) the firm needs tight control over a foreign entity to maximize its market share and earnings in that country, and (3) a firm’s skills and capabilities are not amenable to licensing. 106) B Franchising is essentially the service-industry version of licensing, although it normally involves much longer-term commitments than licensing. With franchising, the firm licenses its brand name to a foreign firm in return for a percentage of the franchisee's profits.

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107)Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a product in a foreign country. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity. Once a firm undertakes FDI, it becomes a multinational enterprise. The flow of foreign direct investment refers to the amount of FDI undertaken over a given period (normally a year). The stock of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time. 108)FDI has grown more rapidly than world trade and world output for several reasons. First, despite the general decline in trade barriers over the past 30 years, firms still fear protectionist pressures. Executives see FDI as a way of circumventing future trade barriers. Given the rising pressures for protectionism associated with the election of Donald Trump as president in the United States and the decision by the British to leave the European Union, this seems likely to continue for some time. Second, much of the increase in FDI has been driven by the political and economic changes that have been occurring in many of the world’s developing nations. The general shift toward democratic political institutions and free market economies that we discussed earlier has encouraged FDI. Across much of Asia, eastern Europe, and Latin America, economic growth, economic deregulation, privatization programs that are open to foreign investors, and removal of many restrictions on FDI have made these countries more attractive to foreign multinationals. According to the United Nations, some 80 percent of the 1,500 changes made worldwide since 2000 in the laws governing foreign direct investment created a more favorable environment for FDI.

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109)The dramatic rise of China, particularly since 2010 when outward investment by Chinese multinationals started to surge, may soon upset this long established narrative. In 2005, Chinese firms invested some $12 billion internationally. Since then, the figure has risen steadily, reaching a record $196 billion in 2016 before slipping back to $117 billion in 2019. Firms based in Hong Kong accounted for another $82 billion of outward FDI in 2018 and $60 billion in 2019. Much of the outward investment by Chinese firms has been directed at extractive industries in less developed nations (e.g., China has been a major investor in African countries). A major motive for these investments has been to gain access to raw materials, of which China is one of the world’s largest consumers. There are signs, however, that Chinese firms are starting to turn their attention to more advanced nations. Chinese firms invested around $46 billion in the United States in 2016, and another $30 billion in 2017, up very little prior to 2010. In 2018 and 2019, however, Chinese investment in the United States slumped to around $5 billion as the ongoing trade conflict between the two nations soured relations.

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110)The viability of an exporting strategy is often constrained by transportation costs and trade barriers. When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that have a low value-to-weight ratio and that can be produced in almost any location. For such products, the attractiveness of exporting decreases, relative to FDI.Transportation costs aside, some firms undertake foreign direct investment as a response to actual or threatened trade barriers such as import tariffs or quotas. By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing. Similarly, by limiting imports through quotas, governments increase the attractiveness of FDI. Trade barriers do not have to be physically in place for FDI to be favored over exporting. Often, the desire to reduce the threat that trade barriers might be imposed is enough to justify foreign direct investment as an alternative to exporting. 111)According to internalization theory, licensing has three major drawbacks as a strategy for exploiting foreign market opportunities. First, licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor. Second, licensing does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. With licensing, control over manufacturing, marketing, and strategy are granted to a licensee in return for a royalty fee. However, for both strategic and operational reasons, a firm may want to retain control over these functions. A third problem with licensing arises when the firm's competitive advantage is based not as much on its products as on the management, marketing, and manufacturing capabilities that produce those products. The problem is that such capabilities are often not amenable to licensing. Version 1

112) One theory is based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace. An early variant of this argument was expounded by F. T. Knickerbocker, who looked at the relationship between FDI and rivalry in oligopolistic industries. Anoligopoly is an industry composed of a limited number of large firms (e.g., an industry in which four firms control 80 percent of a domestic market would be defined as an oligopoly). A critical competitive feature of such industries is interdependence of the major players: What one firm does can have an immediate impact on the major competitors, forcing a response in kind. By cutting prices, one firm in an oligopoly can take market share away from its competitors, forcing them to respond with similar price cuts to retain their market share. Thus, the interdependence between firms in an oligopoly leads to imitative behavior; rivals often quickly imitate what a firm does in an oligopoly. Imitative behavior can take many forms in an oligopoly. One firm raises prices, and the others follow; one expands capacity, and the rivals imitate lest they be left at a disadvantage in the future. Knickerbocker argued that the same kind of imitative behavior characterizes FDI.

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113)The eclectic paradigm was championed by the British economist John Dunning. Dunning argued that location-specific advantages were also of considerable importance in explaining both the rationale for and the direction of foreign direct investment. By location specific advantages, Dunning meant the advantages that arise from utilizing resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management capabilities). Dunning accepted the argument of internalization theory that it is difficult for a firm to license its own unique capabilities and know-how. Therefore, he argued that combining location-specific assets or resource endowments with the firm's own unique capabilities often requires foreign direct investment. That is, it requires the firm to establish production facilities where those foreign assets or resource endowments are located. An obvious example of Dunning’s arguments are natural resources, such as oil and other minerals, which are—by their character—specific to certain locations. Dunning suggested that to exploit such foreign resources, a firm must undertake FDI.

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114)The radical view of FDI traces its roots to Marxist political and economic theory. Radical writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. They argue that MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange. Because of this, according to the radical view, FDI by the MNEs of advanced capitalist nations keeps the less developed countries of the world relatively backward and dependent on advanced capitalist nations for investment, jobs, and technology. The free market view of FDI traces its roots to classical economics and the international trade theories of Adam Smith and David Ricardo. The free market view argues that international production should be distributed among countries according to the theory of comparative advantage. Countries should specialize in the production of those goods and services that they can produce most efficiently. Within this framework, the MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe. Viewed this way, FDI by the MNE increases the overall efficiency of the world economy. In practice, many countries have adopted neither a radical policy nor a free market policy toward FDI, but instead a policy that can best be described as pragmatic nationalism. The pragmatic nationalist view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost. Recognizing this, countries adopting a pragmatic stance pursue policies designed to maximize the national benefits and minimize the national costs. According to this view, FDI should be allowed so long as the benefits outweigh the costs.

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115)There is some evidence of a shift to a more hostile approach to foreign direct investment in some nations. Venezuela and Bolivia have become increasingly hostile to foreign direct investment. In 2005 and 2006, the governments of both nations unilaterally rewrote contracts for oil and gas exploration, raising the royalty rate that foreign enterprises had to pay the government for oil and gas extracted in their territories. Following his election victory in 2006, Bolivian president Evo Morales nationalized the nation’s gas fields and stated that he would evict foreign firms unless they agreed to pay about 80 percent of their revenues to the state and relinquish production oversight.

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116)The main benefits of inward FDI for a host country are the resource-transfer effects, the employment effects, the balance-ofpayments effect, and effects on competition and economic growth. A beneficial employment effect claimed for FDI is that it brings jobs to a host country that would otherwise not be created there. The effects of FDI on employment are both direct and indirect. Direct effects arise when a foreign MNE employs a number of host-country citizens. Indirect effects arise when jobs are created in local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE. The indirect employment effects are often as large as, if not larger than, the direct effects. FDI's effect on a country's balance-of-payments accounts is an important policy issue for most host governments. Governments typically prefer to see a current account surplus than a deficit. The only way in which a current account deficit can be supported in the long run is by selling off assets to foreigners. Because national governments invariably dislike seeing the assets of their country fall into foreign hands, they prefer their nation to run a current account surplus. There are two ways in which FDI can help a country to achieve this goal. First, if the FDI is a substitute for imports of goods or services, the effect can be to improve the current account of the host country's balance of payments. A second potential benefit arises when the MNE uses a foreign subsidiary to export goods and services to other countries.

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117)Some host governments worry that FDI is accompanied by some loss of economic independence. The concern is that key decisions that can affect the host country’s economy will be made by a foreign parent that has no real commitment to the host country and over which the host country’s government has no real control. Most economists dismiss such concerns as groundless and irrational. Political scientist Robert Reich has noted that such concerns are the product of outmoded thinking because they fail to account for the growing interdependence of the world economy. In a world in which firms from all advanced nations are increasingly investing in each other’s markets, it is not possible for one country to hold another to “economic ransom” without hurting itself.

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118)Until the 1990s, there was no consistent involvement by multinational institutions in the governing of FDI. This changed with the formation of the World Trade Organization in 1995. The WTO embraces the promotion of international trade in services. Because many services have to be produced where they are sold, exporting is not an option (e.g., one cannot export McDonald's hamburgers or consumer banking services). Given this, the WTO has become involved in regulations governing FDI. As might be expected for an institution created to promote free trade, the thrust of the WTO's efforts has been to push for the liberalization of regulations governing FDI, particularly in services. Under the auspices of the WTO, two extensive multinational agreements were reached in 1997 to liberalize trade in telecommunications and financial services. Both these agreements contained detailed clauses that require signatories to liberalize their regulations governing inward FDI, essentially opening their markets to foreign telecommunications and financial services companies. The WTO has had less success trying to initiate talks aimed at establishing a universal set of rules designed to promote the liberalization of FDI. Led by Malaysia and India, developing nations have so far rejected efforts by the WTO to start such discussions.

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119)Firms for which licensing is not a good option tend to be clustered in three types of industries: (1) High-technology industries in which protecting firm-specific expertise is of paramount importance and licensing is hazardous. (2) Global oligopolies, in which competitive interdependence requires that multinational firms maintain tight control over foreign operations so that they have the ability to launch coordinated attacks against their global competitors. (3) Industries in which intense cost pressures require that multinational firms maintain tight control over foreign operations (so that they can disperse manufacturing to locations around the globe where factor costs are most favorable in order to minimize costs). 120) To a large degree, the outcome of any negotiated agreement depends on the relative bargaining power of both parties. Each side’s bargaining power depends on three factors:● The value each side places on what the other has to offer. ● The number of comparable alternatives available to each side. ● Each party’s time horizon. From the perspective of a firm negotiating the terms of an investment with a host government, the firm’s bargaining power is high when the host government places a high value on what the firm has to offer, the number of comparable alternatives open to the firm is greater, and the firm has a long time in which to complete the negotiations. The converse also holds. The firm’s bargaining power is low when the host government places a low value on what the firm has to offer, the number of comparable alternatives open to the firm is fewer, and the firm has a short time in which to complete the negotiations.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) In recent decades there have been fewer trade blocs established to promote regional economic integration. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Economic and Political Arguments Surrounding Regional Economic Integration Gradable : automatic Learning Objective : 09-01 Describe the different levels of regional economic integration.

2) In a free trade area, all barriers to the trade of goods and services among member countries are removed and a common external trade policy is adopted. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Overview of Regional Economic Integration and its Different Levels Gradable : automatic Learning Objective : 09-01 Describe the different levels of regional economic integration.

3) The North American Free Trade Agreement is the most enduring free trade area in the world. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Overview of Regional Economic Integration and its Different Levels Gradable : automatic Learning Objective : 09-01 Describe the different levels of regional economic integration.

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4) A common market has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Overview of Regional Economic Integration and its Different Levels Gradable : automatic Learning Objective : 09-01 Describe the different levels of regional economic integration.

5) A customs union creates a central source for coordinating the economic, social, and foreign policy of member states. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Overview of Regional Economic Integration and its Different Levels Gradable : automatic Learning Objective : 09-01 Describe the different levels of regional economic integration.

6) Economic theories suggest that free trade and investment is a zero-sum game, in which all participating countries stand to lose. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Economic and Political Arguments Surrounding Regional Economic Integration Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-02 Understand the economic and political arguments for regional economic inte

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7) While the World Trade Organization and other institutions have been working toward achieving a free trade regime, complete success has not yet occurred. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Economic and Political Arguments Surrounding Regional Economic Integration Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-02 Understand the economic and political arguments for regional economic inte

8) Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The Debate Concerning Global and Regional Economic Integration Gradable : automatic Learning Objective : 09-03 Understand the economic and political arguments against regional economic

9) The scope of the WTO covers all tariff and nontariff barriers to regional economic integration. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The World Trading System, GATT, and the WTO Gradable : automatic Learning Objective : 09-03 Understand the economic and political arguments against regional economic

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10) The European Union was established to help Europe build up its armed defenses in response to World War I. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Western Europe's Marketplace in the World Economy Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

11)

Today, the European Community is responsible for proposing EU legislation. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Western Europe's Marketplace in the World Economy Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

12) The European Council is composed of one representative from the government of each member-state, but the membership varies depending on the topic being discussed. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Western Europe's Marketplace in the World Economy Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

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13) Members of the European Parliament are directly elected by the populations of the member states. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Western Europe's Marketplace in the World Economy Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

14) The European Parliament, which meets in Strasbourg, France, is primarily a consultative rather than legislative body. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Western Europe's Marketplace in the World Economy Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

15)

As of 2020, all members of the European Union have adopted the euro as their currency. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Western Europe's Marketplace in the World Economy Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

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16) The adoption of a common currency, the euro, makes it easier to compare prices across Europe, which has resulted in increased competition. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Western Europe's Marketplace in the World Economy Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

17)

One advantage to adopting the euro is that is represents an optimal currency area. ⊚ true ⊚ false

18) Since its establishment on January 1, 1999, the euro has more than tripled in appreciation against the U.S. dollar, reaffirming the ability of the European Central Bank to manage monetary policy within the euro zone. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Western Europe's Marketplace in the World Economy Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

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19) The United States–Mexico–Canada Agreement (USMCA) reduced how much of an automobile’s content needed to be produced in the United States. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : History and Implications Regional Economic Agreements Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

20) The Andean Community was based on the EU model and was far more successful at achieving its goals. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : History and Implications Regional Economic Agreements Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

21) The free trade pact known as Mercosur has been successful at creating a full customs union between Brazil and Argentina. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : History and Implications Regional Economic Agreements Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

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22)

Political turmoil in Africa has prevented the success of regional trade blocs. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : History and Implications Regional Economic Agreements Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

23) The failure of the Doha Round of talks helped foster renewed emphasis on bilateral trade agreements. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : History and Implications Regional Economic Agreements Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

24) Today, developments in the EU and NAFTA/USMCA carry the biggest implications for business practices. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : History and Implications Regional Economic Agreements Gradable : automatic Learning Objective : 09-05 Understand the implications for management practice that are inherent in r

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25)

One threat that firms outside of trading areas face is the creation of a “trade fortress.” ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : History and Implications Regional Economic Agreements Gradable : automatic Learning Objective : 09-05 Understand the implications for management practice that are inherent in r

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Four countries in Central America agreed to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. The agreement among these countries is referred to as A) regional economic integration. B) cross-cultural integration. C) a zoning agreement. D) administrative trade policies. E) a balance-of-trade equilibrium.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Overview of Regional Economic Integration and its Different Levels Gradable : automatic Learning Objective : 09-01 Describe the different levels of regional economic integration.

27) What is the successor agreement enacted by the Trump administration that aims to remove all barriers to the free flow of goods between Canada, the United States, and Mexico?

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A) TRIPS B) USMCA C) NAFTA D) EU E) ASEAN

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Overview of Regional Economic Integration and its Different Levels Gradable : automatic Learning Objective : 09-01 Describe the different levels of regional economic integration.

28)

Where has the movement toward regional economic integration been most ambitious? A) Africa B) South America C) North America D) Europe E) Asia

29) Assume that France and Italy agree to remove all barriers to the trade of goods between them. However, the countries agree that each would be allowed to determine its own trade policies with regard to nonmembers. The economic integration between these countries is called a(n)

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A) free trade area. B) customs union. C) common market. D) economic union. E) political union.

Question Details Accessibility : Keyboard Navigation Topic : Overview of Regional Economic Integration and its Different Levels AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-01 Describe the different levels of regional economic integration.

30) While the countries of Canada and Mexico are committed to removing all barriers to the free flow of goods and services between each other, they are independent in their trade policy dealings with other countries. This represents a(n) A) free trade area. B) customs union. C) common market. D) economic union. E) political union.

31) In a(n) __________, a group of countries are committed to removing all barriers to the free flow of goods and services between each other but pursue independent external trade policies.

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A) free trade area B) command economy C) efficient market D) foreign exchange market E) location economy

32)

What is a defining characteristic of a free trade area?

A) Factors of production are allowed to move freely between member nations. B) Each member country is allowed to determine its own trade policies with regard to nonmembers. C) Member nations are required to have a common currency. D) Member nations are required to have a common monetary and fiscal policy. E) Member nations are required to have a central political apparatus that coordinates economic, social, and foreign policy.

33) What is the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements?

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A) licensing agreements B) economic unions C) common markets D) free trade agreements E) political unions

34)

The European Free Trade Association initially consisted of member nations that A) were not interested in lifting trade barriers. B) did not produce industrial goods. C) wanted to form an agreement with the United States. D) decided not to be part of the European Community. E) imposed a common tariff, of 5 to 20 percent, on imported products.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : History and Implications Regional Economic Agreements Gradable : automatic Learning Objective : 09-01 Describe the different levels of regional economic integration.

35) Three South American countries enter into an agreement to remove all tariffs and trade barriers between them. They decide on a common external trade policy and charge the same tariffs. Which level of economic integration best describes this arrangement?

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A) political union B) customs union C) common market D) economic union E) monetary union

36) To spur trade, four South African countries decide there will be no barriers to trade between the countries, agree on a common external trade policy, and allow factors of production to move freely between them. In short, the four countries formed a A) command economy. B) customs union. C) common market. D) efficient market. E) free trade area.

37)

Under a common market agreement, you would find

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A) absence of a common external trade policy with regard to nonmembers. B) free movement of labor because there are no restrictions on immigration or emigration. C) establishment of barriers to the free flow of goods between member nations. D) a lack of administrative machinery to oversee trade relations with nonmembers. E) mandatory use of a common currency among member nations.

38) The six member countries that have embraced a common market are disappointed with the outcome of their economic integration. They want something that entails a closer economic integration and cooperation than a common market and decide to pursue a common currency. They are forming a(n) A) command economy. B) customs union. C) efficient market. D) free trade area. E) economic union.

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39) Within a(n) __________, there is a level of economic integration that involves the use of a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy. A) free trade area B) customs union C) common market D) economic union E) command economy

40) The European Union is considered a(n) __________ even though not all members have adopted a common currency. A) planned economy B) free trade area C) economic union D) customs union E) common market

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41) The European Parliament plays an important role in the European Union and creates a(n) __________ to coordinate the economic, social, and foreign policy of the member states. A) political union B) customs union C) exclusive economic zone D) free trade agreement E) common market

42) The goal of a new Central American group formed as an economic union is to have a Council of Ministers that would coordinate the economic, social, and foreign policy of the member-states. This group wants to be a A) free trade area. B) political union. C) regional union. D) common market. E) command economy.

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43) Economic theories for integration imply that free trade and investment create __________ for participants. A) increased trade barriers B) more monopolies C) a positive-sum game D) increased restrictions on exports E) a zero-sum game

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Economic and Political Arguments Surrounding Regional Economic Integration Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-02 Understand the economic and political arguments for regional economic inte

44) Shondra Thibbs wants to make a political case for regional economic integration to her electorate. Which valid statement can she make in this regard? A) Linking neighboring economies increases the potential for violent conflict. B) Free trade stimulates economic growth, which creates dynamic gains from trade. C) Making neighboring economies increasingly dependent on each other fails to create incentives for political cooperation. D) Countries can enhance their political weight in the world by grouping their economies. E) Those seeking a united Europe have always had a desire to make another war in Europe imminent.

Question Details Accessibility : Keyboard Navigation Topic : Economic and Political Arguments Surrounding Regional Economic Integration Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic Learning Objective : 09-02 Understand the economic and political arguments for regional economic inte

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45)

One reason for the establishment of the European Community in 1957 was the

A) pressing need to have a common currency that would make trade easier within Europe. B) desire to suppress another war in Europe. C) economic lessons from the Great Depression that hit the United States in the 1920s. D) success of the European Free Trade Association formed by Western European countries. E) fall of communism in Europe.

46)

What is one main impediment to regional economic integration? A) identical political ideologies B) reduced immigration C) loss of national sovereignty D) lack of popular support E) difficult international policies

47) Which of these situations shows how concerns over national sovereignty can act as an impediment to regional economic integration?

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A) Organization of the Petroleum Exporting Countries regulating the supply of petroleum as a cartel B) Asia-Pacific Economic Cooperation failing to establish itself as a regional arrangement C) admission of eastern European nations into the European Union D) Great Britain refusing to adopt the common currency of the European Union, the euro E) rise of the World Trade Organization

Question Details Accessibility : Keyboard Navigation Topic : Economic and Political Arguments Surrounding Regional Economic Integration AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Understand the economic and political arguments for regional economic inte

48) After the formation of a free trade area for its member countries, the United States found that its high-cost clothing producers in Ohio were replaced by low-cost producers from another country within the free trade area. This is an example of A) value creation. B) strategic pricing. C) trade creation. D) trade diversion. E) economic exposure.

Question Details Accessibility : Keyboard Navigation Topic : The Debate Concerning Global and Regional Economic Integration Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic Learning Objective : 09-03 Understand the economic and political arguments against regional economic

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49) As a result of the formation of a free trade area between six member countries in the Pacific Rim, one member country found that its lower-cost external suppliers were replaced by higher-cost suppliers within the free trade area. This is an example of A) trade creation. B) strategic pricing. C) synergy. D) trade diversion. E) protectionism.

50)

A regional free trade agreement will benefit the world only if A) it raises the standard of living in one of the member countries. B) the amount of trade it creates exceeds the amount it diverts. C) the currencies of the nations involved appreciate. D) the balance-of-trade situation remains stable in the region. E) it creates trade surplus for one of the countries involved.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The Debate Concerning Global and Regional Economic Integration Gradable : automatic Learning Objective : 09-03 Understand the economic and political arguments against regional economic

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51) Two foreign nations decided to impose tariffs on imports from all countries. They set up a free trade area, removing all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Country A now begins to import wheat from Country B. Prior to this, Country A was producing wheat at a higher cost so it now benefits from this transaction. This is an example of A) trade creation. B) strategic pricing. C) synergy. D) trade diversion. E) protectionism.

Question Details Accessibility : Keyboard Navigation Topic : The Debate Concerning Global and Regional Economic Integration AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-03 Understand the economic and political arguments against regional economic

52) After the creation of a free trade area involving five nations, higher-cost external producers of rice were replaced by lower-cost external rice producers within the free trade area. This is known as A) trade creation. B) strategic pricing. C) synergy. D) trade diversion. E) protectionism.

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53) Suppose the countries of Portugal and Belgium set up a free trade area, eliminating all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Now, Portugal begins to import metal from Belgium. However, Portugal had previously been importing metal from England, which produced metal more cheaply than both Portugal and Belgium. What is this an example of? A) trade creation B) strategic pricing C) synergy D) trade diversion E) protectionism

54)

How many trade blocs are in Europe? A) two B) zero C) six D) eleven E) one

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55)

Which political factor resulted in the establishment of the European Union (EU)?

A) spectacular success of the North American Free Trade Agreement (NAFTA) B) trade impasse following the oil crisis in the 1970s that occurred due to collusion among oil producing nations C) devastation of Western Europe during two world wars and the desire for a lasting peace D) emergence of Japan as an economic and industrial superpower despite the nuclear holocaust E) rise of communism in Europe

56) The European Economic Community was established with the signing in 1957 of the Treaty of A) Paris. B) Brussels. C) Maastricht. D) Rome. E) Lisbon.

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57) The European Economic Community became the European Union in 1993 following the ratification of the A) Maastricht Treaty. B) Warsaw Pact. C) Treaty of Rome. D) Single European Act. E) Lisbon Treaty.

58)

How did the Treaty of Rome affect trade?

A) It obliged all European Union members to adopt the euro. B) It committed the European Economic Community to establish common policies in agriculture and transportation. C) It called for the establishment of internal trade barriers. D) It allowed members to determine the level of protection applied to goods coming from outside. E) It called for the abolition of a common external tariff.

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59) The __________ is responsible for proposing European Union legislation, implementing it, and monitoring compliance with European Union laws by member-states. A) Council of the European Union B) European Commission C) European Parliament D) Court of Justice E) European Community

60) The __________ has a monopoly in proposing European Union legislation because the council cannot legislate without its permission. A) Council of the European Union B) Court of Justice C) European Commission D) European Parliament E) European Community

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61) The __________ is considered to be the ultimate controlling authority within the European Union. A) Court of Justice B) European Commission C) European Council D) European Parliament E) European Community

62) Within the EU, it is the responsibility of the __________ to debate legislation and forward it to the council. A) Court of Justice B) prime ministers C) European Commission D) European Parliament E) European Community

63)

Based on recent activity, the power of the European Parliament can be described as

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A) diminished in the light of BREXIT. B) increasing, but not as fast as parliamentarians would like. C) nonexistent with no signs of returning. D) stable. E) increasing at a rapid pace.

64)

One result of the Treaty of Lisbon that was signed in 2007 is that it A) defined the European Commission's role in competition policy. B) brought the commission to the court for failure to act according to a European Union

treaty. C) created the position of president of the European Council. D) lifted barriers to competition in the retail banking and insurance businesses. E) created the Court of Justice, the supreme appeals court for European Union law.

65)

The Court of Justice acts as

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A) the co-legislator for almost all European laws. B) a consultative body rather than a legislative body. C) the supreme appeals court for European Union law. D) the ultimate controlling authority within the EU for legislation. E) a monitor for EU compliance laws.

66)

What was a change proposed by the Single European Act? A) establish frontier controls among European Community countries B) increase the resources required for complying with trade bureaucracy C) remove barriers to competition in the retail banking and insurance businesses D) eliminate the principle of "mutual recognition" to product standards E) reduce costs directly by not allowing lower-cost suppliers into national economies

67) The __________ proposed that all impediments to the formation of a single market (the EC) be eliminated by December 31, 1992, resulting in the Single European Act.

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A) Delors Commission B) Andean Pact C) Treaty of Rome D) North American Free Trade Agreement E) Maastricht Treaty

68)

One result of the Single European Act was that it

A) proposed to place frontier controls among European Community countries. B) sought to abolish the application of the principle of "mutual recognition" to product standards. C) proposed to reduce costs indirectly by preventing national suppliers to compete. D) provided the impetus for the restructuring of substantial sections of European industry. E) proposed to reduce costs directly by preventing lower-cost suppliers into national economies.

69) The __________ committed European Community members to adopt a common currency by January 1, 1999.

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A) Maastricht Treaty B) Treaty of Rome C) Treaty of Lisbon D) Montreal Treaty E) Treaty of Paris

70)

The euro zone is comprised of the

A) 27 member nations of the European Union. B) member nations of the European Union and the applicants to the union. C) 19 member nations who use the euro as their currency. D) member nations of the EU and affiliated countries who have pegged their currencies to the euro. E) 21 member nations that have their members in the European Parliament.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 2 Medium Topic : Western Europe's Marketplace in the World Economy Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

71) What event caused many EU countries to wait on adopting the euro as a common currency?

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A) Great Depression B) debt crisis of 2010-2012 C) 9/11 terrorist attacks D) fallout from the United Nations E) 2016 election results

72)

Establishment of the euro required participating national governments to A) have a sound fiscal situation. B) implement stronger trade barriers to diminish competition. C) be democratic in nature. D) sacrifice national sovereignty for the greater good. E) have a high degree of price stability.

73) The price of a fitness tracker in France is 83 euros. Tyler Xin, a frequent international traveler, found that a similar fitness tracker cost only 77 euros in Germany. This demonstrates that the benefit of adopting the euro as a common currency is that it

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A) makes it easier to compare prices across Europe. B) makes Europe an optimal currency area. C) increases the range of investment options open only to institutions. D) leads to higher prices, which translate into substantial gains for European producers. E) decreases competition because it has become harder for consumers to shop around.

Question Details Accessibility : Keyboard Navigation Topic : Western Europe's Marketplace in the World Economy Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

74)

A key advantage of adopting the euro is that it A) helps in reduction of competition in Europe. B) has prevented the development of a highly liquid pan-European capital market. C) increases the range of investment options to individuals. D) insulates Europe from international competition. E) increases foreign exchange costs in Europe.

75)

How has adoption of the euro affected economic efficiency in European companies?

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A) It has created an increase in the cost of capital. B) It has produced a decline in the overall level of savings and investment. C) It has increased competition and produced long-run gains. D) It has reduced liquidity in the market. E) It has reduced competition and diminished gains.

76)

One drawback of adopting the euro for member-states is a(n) A) loss of control over national monetary policy. B) increase in the cost of capital. C) reduction in the liquidity of capital markets. D) reduction of price differentials within the euro zone. E) loss of investment options open to both individuals and institutions.

77)

The practices of the European Central Bank are similar to the

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A) United States Federal Reserve. B) World Trade Organization. C) European Parliament. D) United Nations. E) International Monetary Fund.

78)

Great Britain, Denmark, and Sweden have stayed out of the euro zone because of the A) dollar peg advocated by some members of the European Union. B) implied loss of national sovereignty to the European Central Bank. C) volatility of the euro. D) reluctance to compete directly against the U.S. dollar. E) reluctance to be considered an optimal currency area.

79) Two neighboring countries have the same wage rates, tax regimes, and business cycles. In addition, the two countries have reacted similarly to past economic shocks. These two countries can adopt a common currency because they form a(n)

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A) managed currency zone. B) open exchange regime. C) optimal currency area. D) free trade area. E) advanced monetary zone.

Question Details Accessibility : Keyboard Navigation Topic : Western Europe's Marketplace in the World Economy AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

80) Greece and Portugal have different wage rates, tax regimes, and business cycles. The two countries have also reacted differently in the past to external economic shocks. The dissimilarities are an example of one of the drawbacks of the euro that economists refer to as the EU not being in a(n) A) managed currency zone. B) open exchange regime. C) optimal currency area. D) free trade area. E) advanced monetary zone.

81)

Since it was introduced in 1999, how has the euro compared to the U.S. dollar?

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A) The value of the euro has been stable against the U.S. dollar. B) The euro's value has steadily appreciated against the U.S. dollar. C) The euro's value initially appreciated and then steadily depreciated against the U.S. dollar. D) The euro has had a volatile trading history against the U.S. dollar. E) The value of the euro rapidly surpassed, and continues to appreciate against the U.S. dollar.

82)

The European Stability Mechanism established A) the criteria a country could use to exit the EU. B) a euro-based stock exchange to control exchange rates in the EU. C) new standards for countries unwilling to adopt the euro. D) a permanent bailout fund to restore confidence in the euro. E) the new European Commission responsible for all EU legislation.

83) Which country has been granted at least three bailout efforts by the EU in an attempt to prevent a sovereign debt crisis?

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A) Greece B) France C) Great Britain D) Belgium E) Portugal

84) The country of Turkey has lobbied for EU membership for many years but full membership has been denied because of A) a lack of democratic reforms. B) poor infrastructure. C) investment high debt ratio. D) concerns over human rights issues. E) a lack of intellectual property rights.

85) An expected consequence of the implementation of the North American Free Trade Agreement was

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A) low-skilled jobs would be moved out to Mexico resulting in lowering of average wage rates in the United States and Canada. B) increased imports from Mexico would help reduce the huge trade deficit for United States and Canada. C) lower incomes of the Mexicans would allow them to import fewer U.S. and Canadian goods, thereby decreasing demand. D) a large number of Mexican firms would hire low-skilled workers from the United States. E) some U.S. and Canadian firms would move production to Mexico to take advantage of lower labor costs.

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86)

Opponents of NAFTA in Mexico were concerned that

A) Mexico would have to implement an infrastructure to support high-tech jobs with no financial assistance from other member nations. B) Mexico would be used as an assembly site and higher-paying jobs would be kept in the U.S. and Canada. C) the member nations would want to implement a common currency. D) nonmember nations would no longer trade with Mexico because of trade barriers enacted by other member nations. E) an agreement would lead to a recession.

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87) The biggest leap of economic faith came from __________ when signing the NAFTA agreement. A) the United States B) Canada C) Mexico D) Panama E) Brazil

88) Two of the biggest industries affected by the United States–Mexico–Canada Agreement (USMCA) were A) automobiles and dairy. B) textiles and metals. C) steel and corn. D) soybeans and microprocessors. E) wealth management and banking.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Challenges Facing African, Middle Eastern, and South American Countries Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

89)

What resulted from the Andean Pact of 1969?

A) The pact failed to achieve any of its stated objectives due to political and economic problems. B) The Andean Pact achieved most of its stated objectives, particularly the harmonization of economic policies. C) The dominant political ideology in many of the Andean countries moved toward the democratic end of the political spectrum. D) The pact effectively nullified the Galápagos Declaration. E. The Andean Pact removed all common external tariffs.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Challenges Facing African, Middle Eastern, and South American Countries Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

90)

The countries of the Andean Pact have faced A) fast-paced democratic reforms. B) high economic growth. C) political stability. D) high unemployment. E) diminished debt burdens.

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91)

The Andean Community now operates as a(n) A) common market. B) economic union. C) customs union. D) command economy. E) political union.

92) __________ is a pact that originated in 1988 to establish a free trade area now including Argentina, Brazil, Paraguay, and Uruguay. A) ASEAN B) NAFTA C) Mercosur D) CARICOM E) CAFTA

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93)

In Alexander Yeats's criticism of Mercosur, he says that

A) the slowest growing items in intra-Mercosur trade were cars, buses, agricultural equipment, and other capital-intensive goods. B) the trade creation effects of Mercosur outweighed its trade diversion effects. C) Mercosur countries were prepared to compete globally once the group's external trade barriers came down. D) Mercosur countries were insulated from outside competition by tariffs that run as high as 70 percent of value. E) capital was being drawn toward more efficient enterprises.

94)

Mercosur was temporarily suspended in 2001 because of a(n) A) dotcom bust in Paraguay. B) economic crisis in Argentina. C) exit of Uruguay from the group. D) devaluation of the Mexican peso. E) Venezuelan financial crisis.

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95) __________ is a trade pact among Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, which began in the early 1960s but collapsed in 1969 due to war. A) Central American Common Market B) Free Trade Area of the Americas C) Caribbean Single Market and Economy D) Mercosur E) CARICOM

96) The Central American Common Market was boosted in 2003 when __________ indicated its intention to enter into bilateral free trade negotiations with the members. A) Germany B) Great Britain C) the United States D) India E) China

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97) __________ is an association of English-speaking Caribbean states that are attempting to establish a customs union. A) CARICOM B) Central American Free Trade Agreement C) Central American Common Market D) Free Trade Area of the Americas E) Caribbean Single Market and Economy

98)

The goal of the Caribbean Single Market and Economy is to A) remove all trade barriers between member nations in practice. B) establish a political union within NAFTA. C) adopt a common currency in the EU. D) harmonize macroeconomic and monetary policy between CARICOM members. E) establish an economic union within ASEAN.

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99)

The Caribbean Single Market and Economy is modeled after A) the EU’s single market. B) a planned economy. C) a command economy. D) the U.S. free trade area. E) CAFTA.

100) The __________ is an attempt to establish a free trade area between Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. A) Asia-Pacific Economic Cooperation B) South Asian Association for Regional Cooperation C) Asian Clearing Union D) Association of Southeast Asian Nations E) Maastricht Treaty

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Overview of Regional Economic Integration and its Different Levels Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

101) ASEAN has two objectives: foster free trade among member countries and achieve cooperation in __________ policies. A) political B) religious C) industrial D) financial E) agricultural

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Overview of Regional Economic Integration and its Different Levels Gradable : automatic Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

102)

Regional trade blocs in Africa have been slow to establish mostly because of A) significant political turmoil. B) inefficiencies in the economy. C) a lack of willing participants. D) an unwillingness to lower all nontariff barriers. E) a lack of intellectual property rights.

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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 103) Briefly describe the movement toward regional economic integration in Europe.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Overview of Regional Economic Integration and its Different Levels Learning Objective : 09-01 Describe the different levels of regional economic integration.

104)

Compare a common market to a customs union.

Question Details Accessibility : Keyboard Navigation Topic : Overview of Regional Economic Integration and its Different Levels AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 09-01 Describe the different levels of regional economic integration.

105)

Describe two impediments to regional economic integration.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The Debate Concerning Global and Regional Economic Integration Learning Objective : 09-02 Understand the economic and political arguments for regional economic inte

106)

Define trade creation and trade diversion with respect to regional economic integration.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The Debate Concerning Global and Regional Economic Integration Learning Objective : 09-03 Understand the economic and political arguments against regional economic

107)

Describe the role of the Treaty of Rome in the formation of the EU.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Western Europe's Marketplace in the World Economy Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

108)

Discuss the political structure of the European Union.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Western Europe's Marketplace in the World Economy Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

109)

What were the objectives of the Single European Act?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Western Europe's Marketplace in the World Economy Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

110)

Describe the drawbacks of the euro.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Western Europe's Marketplace in the World Economy Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

111)

Describe the expected economic costs Britain is expected to have after exiting the EU.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Western Europe's Marketplace in the World Economy Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

112) Describe the key changes associated with the United States–Mexico–Canada agreement. Explain how and why the law was ratified by the three member nations.

Question Details Accessibility : Keyboard Navigation Topic : Western Europe's Marketplace in the World Economy AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

113) Describe the Central American Common Market and the Central America Free Trade Agreement.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Challenges Facing African, Middle Eastern, and South American Countries Learning Objective : 09-04 Explain the history, current scope, and future prospects of the world's mo

114)

Discuss some of the threats associated with the emergence of single markets.

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Question Details Accessibility : Keyboard Navigation Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Topic : What is Culture? Learning Objective : 09-05 Understand the implications for management practice that are inherent in r

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Answer Key Test name: Hill_9 1) FALSE By regional economic integration we mean agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. The past two decades have witnessed a proliferation of regional trade blocs that promoteregional economic integration. 2) FALSE 3) FALSE 4) TRUE 5) FALSE 6) FALSE 7) TRUE 8) TRUE 9) FALSE 10) FALSE TheEuropean Union (EU) is the product of two political factors: (1) the devastation of Western Europe during two world wars and the desire for a lasting peace and (2) the European nations’ desire to hold their own on the world’s political and economic stage. Many Europeans were also aware of the potential economic benefits of closer economic integration of the countries. 11) FALSE 12) TRUE 13) TRUE Version 1

14) TRUE 15) FALSE 16) TRUE 17) FALSE 18) FALSE 19) FALSE 20) FALSE 21) FALSE 22) TRUE 23) TRUE 24) TRUE 25) TRUE 26) A Regional economic integration refers to agreements among countries in a geographic region to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. 27) B The administration of President Donald Trump criticized NAFTA, blaming it for significant job losses in the United States, and negotiated a successor agreement, known as the United States–Mexico–Canada Agreement (USMCA), which is now in force. 28) D

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Nowhere has the movement toward regional economic integration been more ambitious than in Europe. On January 1, 1993, the European Union formally removed many barriers to doing business across borders within the EU in an attempt to create a single market. By 2019 the EU had a population of more than 500 million and a gross domestic product of $19 trillion, making it second only to the United States in economic terms. 29) A Several levels of economic integration are possible in theory. From least integrated to most integrated, the levels of economic integration are a free trade area, a customs union, a common market, an economic union, and, finally, a full political union. In a free trade area, all barriers to the trade of goods and services among member countries are removed. Each country, however, is allowed to determine its own trade policies with regard to nonmembers. 30) A Several levels of economic integration are possible in theory. From least integrated to most integrated, the levels of economic integration are a free trade area, a customs union, a common market, an economic union, and, finally, a full political union. In a free trade area, a group of countries are committed to removing all barriers to the free flow of goods and services between each other but pursue independent external trade policies. 31) A

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A free trade area refers to a group of countries committed to removing all barriers to the free flow of goods and services between each other but pursuing independent external trade policies. In the theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between members. 32) B In a free trade area, each country is allowed to determine its own trade policies with regard to nonmembers. Thus, for example, the tariffs placed on the products of nonmember countries may vary from member to member. 33) D In a free trade area, all barriers to the trade of goods and services among member countries are removed. Free trade agreements are the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements. 34) D The European Free Trade Association (EFTA) was founded by those Western European countries that initially decided not to be part of the European Community (the forerunner of the EU). Its original members included Austria, Great Britain, Denmark, Finland, and Sweden. 35) B A customs union is a group of countries committed to (1) removing all barriers to the free flow of goods and services between each other and (2) the pursuit of a common external trade policy. 36) C

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A common market has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members. Labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital among member countries. 37) B A common market has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members. Labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital among member countries. 38) E An economic union entails even closer economic integration and cooperation than a common market. Like the common market, an economic union involves the free flow of products and factors of production among member countries and the adoption of a common external trade policy, but it also requires a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy. 39) D Like the common market, an economic union involves the free flow of products and factors of production between member countries and the adoption of a common external trade policy, but it also requires a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy. 40) C

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The EU is an economic union, although an imperfect one because not all members of the EU have adopted the euro, the currency of the EU; differences in tax rates and regulations across countries still remain; and some markets, such as the market for energy, are still not fully deregulated. 41) A The move toward economic union raises the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations. The answer is throughpolitical union in which a central political apparatus coordinates the economic, social, and foreign policy of the member states. The EU is on the road toward at least partial political union. The European Parliament, which plays an important role in the EU, has been directly elected by citizens of the EU countries since the late 1970s. 42) B The move toward economic union raises the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations. The answer is through political union in which a central political apparatus coordinates the economic, social, and foreign policy of the member-states. 43) C Given the central role of knowledge in boosting economic growth, opening a country to FDI also is likely to stimulate economic growth. In sum, economic theories suggest that free trade and investment is a positive-sum game, in which all participating countries stand to gain. 44) D

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Linking neighboring economies and making them increasingly dependent on each other create incentives for political cooperation between the neighboring states and reduce the potential for violent conflict. By grouping their economies, the countries can enhance their political weight in the world. 45) B These considerations underlay the 1957 establishment of the European Community (EC), the forerunner of the EU. Europe had suffered two devastating wars in the first half of the twentieth century, both arising out of the unbridled ambitions of nation-states. Those who have sought a united Europe have always had a desire to make another war in Europe unthinkable. 46) C Despite the strong economic and political arguments in support, integration has never been easy to achieve or sustain for two main reasons. First, although economic integration aids the majority, it has its costs. While a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose. A second impediment to integration arises from concerns over national sovereignty. 47) D To achieve full economic union, the EU introduced a common currency, the euro, controlled by a central EU bank. Although most EU memberstates have signed on, Great Britain remains an important holdout. A politically important segment of public opinion in that country opposes a common currency on the grounds that it would require relinquishing control of the country's monetary policy to the EU, which many British perceive as a bureaucracy run by foreigners.

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48) C Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. It may also occur when higher-cost external producers are replaced by lower-cost external producers within the free trade area. 49) D Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts. 50) B Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts. 51) A Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within a free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts. 52) A Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within a free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts. 53) D Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area. Version 1

54) A Europe has two trade blocs—the European Union and the European Free Trade Association. 55) C The European Union (EU) is the product of two political factors: (1) the devastation of Western Europe during two world wars and the desire for a lasting peace, and (2) the European nations' desire to hold their own on the world's political and economic stage. 56) D With the signing of the Treaty of Rome in 1957, the European Economic Community was established. The name changed again in 1993 when the European Economic Community became the European Union. 57) A With the signing of the Treaty of Rome in 1957, the European Economic Community was established. The name changed again in 1993 when the European Economic Community became the European Union following the ratification of the Maastricht Treaty. 58) B The Treaty of Rome provided for the creation of a common market. To facilitate the free movement of goods, services, and factors of production, the treaty provided for any necessary harmonization of the member-states' laws. Furthermore, the treaty committed the EC to establish common policies in agriculture and transportation. 59) B

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The European Commission is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by memberstates. Headquartered in Brussels, Belgium, it is run by a group of commissioners appointed by each member country for five-year renewable terms. 60) C The European Commission has a monopoly in proposing European Union legislation. The commission makes a proposal, which goes to the Council of the European Union and then to the European Parliament. 61) C The European Council represents the interests of member-states. It is clearly the ultimate controlling authority within the European Union (EU) because draft legislation from the commission can become EU law only if the council agrees. The council is composed of one representative from the government of each member-state. 62) D As of 2020, theEuropean Parliament has 705 members and is directly elected by the populations of the member states. The parliament, which meets in Strasbourg, France, is primarily a consultative rather than legislative body. It debates legislation proposed by the commission and forwarded to it by the council. 63) B The power of the parliament recently has been increasing, although not by as much as parliamentarians would like. 64) C

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The Treaty of Lisbon also creates a new position, a president of the European Council, who serves a 30-month term and represents the nation-states that make up the European Union and it also provided for increased power for the European Parliament. 65) C The Court of Justice, which is comprised of one judge from each country, is the supreme appeals court for EU law. Like commissioners, the judges are required to act as independent officials, rather than as representatives of national interests. 66) C The purpose of the Single European Act was to have one market in place by December 31, 1992. The act proposed to lift barriers to competition in the retail banking and insurance businesses, which should drive down the costs of financial services, including borrowing, throughout the EC. 67) A Under the chairmanship of Jacques Delors, the commission proposed that all impediments to the formation of a single market be eliminated by December 31, 1992. The result was the Single European Act, which was independently ratified by the parliaments of each member country and became EC law in 1987. 68) D The Single European Act provided the impetus for the restructuring of substantial sections of European industry. Many firms have shifted from national to pan-European production and distribution systems in an attempt to realize scale economies and better compete in a single market. 69) A

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In February 1992, European Community members signed the Maastricht Treaty that committed them to adopting a common currency by January 1, 1999. 70) C The euro is now used by 19 of the 28 member-states of the European Union; these 19 states are members of what is often referred to as the euro zone. It encompasses 330 million EU citizens and includes the powerful economies of Germany and France. 71) B Many of the countries that joined the EU on May 1, 2004, and the two that joined in 2007 originally planned to adopt the euro when they fulfilled certain economic criteria—a high degree of price stability, a sound fiscal situation, stable exchange rates, and converged long-term interest rates (the current members had to meet the same criteria). However, the events surrounding the EU sovereign debt crisis of 2010– 2012 persuaded many of these countries to put their plans on hold, at least for the time being. 72) D Establishment of the euro was an amazing political feat with few historical precedents. It required participating national governments to give up their own currencies and national control over monetary policy. Governments do not routinely sacrifice national sovereignty for the greater good, indicating the importance that the Europeans attach to the euro. 73) A A benefit of adopting the euro is that the adoption of a common currency makes it easier to compare prices across Europe. This has increased competition because it has become easier for consumers to shop around. Version 1

74) C Europeans decided to establish a single currency in the EU for a number of reasons. The development of a pan-European, euro-denominated capital market will increase the range of investment options open to both individuals and institutions. 75) C European producers have been forced to look for ways to reduce their production costs to maintain their profit margins. The introduction of a common currency, by increasing competition, has produced long-run gains in the economic efficiency of European companies. 76) A The drawback of adopting the euro is that national authorities have lost control over monetary policy. The implied loss of national sovereignty to the European Central Bank (ECB) underlies the decision by Denmark and Sweden to stay out of the euro zone. 77) A The Maastricht Treaty called for establishment of the independent European Central Bank (ECB), similar in some respects to the U.S. Federal Reserve, with a clear mandate to manage monetary policy so as to ensure price stability. 78) B The implied loss of national sovereignty to the ECB underlies the decision by Great Britain, Denmark, and Sweden to stay out of the euro zone. Many in these countries are suspicious of the ECB's ability to remain free from political pressure and to keep inflation under tight control. 79) C

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In an optimal currency area, similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy. 80) C In an optimal currency area, similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy. 81) D Since its establishment on January 1, 1999, the euro has a volatile trading history against the world's major currency, the U.S. dollar. 82) D The euro zone nations also set up a permanent bailout fund—the European Stability Mechanism—worth about €500 billion, which was designed to restore confidence in the euro. 83) A To try to stave off such a sovereign debt crisis, in May 2010, the euro zone nations and the International Monetary Fund (IMF) agreed to a €110 billion bailout package to help rescue Greece and by 2015 Greece had been granted three more bailout packages in an attempt to forestall a full-blown default on payment of its sovereign debt. 84) D Turkey, which has long lobbied to join the union, presents the EU with some difficult issues. The country has had a customs union with the EU since 1995, and about half its international trade is already with the EU. However, full membership has been denied because of concerns over human rights issues. 85) E

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Proponents of the North American Free Trade Agreement (NAFTA) have argued that the free trade area should be viewed as an opportunity to create an enlarged and more efficient productive base for the entire region. Advocates acknowledge that one effect of NAFTA would be that some U.S. and Canadian firms would move production to Mexico to take advantage of lower labor costs. 86) B There was also opposition in Mexico to NAFTA from those who feared a loss of national sovereignty. Mexican critics argued that their country would be dominated by U.S. firms that would not really contribute to Mexico’s economic growth but instead would use Mexico as a low-cost assembly site while keeping their high-paying, high-skilled jobs north of the border. 87) C As most economists repeatedly stressed, NAFTA would have a small impact on both Canada and the United States. It could hardly be any other way, because the Mexican economy was only 5 percent of the size of the U.S. economy. Signing NAFTA required the largest leap of economic faith from Mexico rather than Canada or the United States. 88) A Most significantly, NAFTA required automakers to produce 62.5 percent of a vehicle’s content in North America to qualify for zero tariffs. The USMCA raises that threshold to 75 percent. In addition to the changes to automobile trade, the USMCA included an agreement to open up the Canadian dairy market to U.S. producers, which was an important issue for Trump. 89) A

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By the mid-1980s, the Andean Pact had all but collapsed and had failed to achieve any of its stated objectives. There was no tariff-free trade among member countries, no common external tariff, and no harmonization of economic policies. Political and economic problems seem to have hindered cooperation among member countries. The countries of the Andean Pact have to deal with low economic growth, hyperinflation, high unemployment, political unrest, and crushing debt burdens. 90) D Political and economic problems seem to have hindered cooperation among member countries. The countries of the Andean Pact have had to deal with low economic growth, hyperinflation, high unemployment, political unrest, and crushing debt burdens. 91) C The Galápagos Declaration effectively relaunched the Andean Pact, which was renamed the Andean Community in 1997. The Andean Community now operates as a customs union. 92) C Mercosur refers to a pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area. Mercosur originated in 1988 as a free trade pact between Brazil and Argentina. The modest reductions in tariffs and quotas accompanying this pact reportedly helped bring about an 80 percent increase in trade between the two countries in the late 1980s. This success encouraged the expansion of the pact in March 1990 to include Paraguay and Uruguay as full members. In 2012, the pact was further expanded when Venezuela joined Mercosur. However, in 2016 Venezuela was suspended from Mercosur for violating the pact’s democratic principles and engaging in widespread human rights violations. Version 1

93) D Mercosur had its critics, including Alexander Yeats, a senior economist at the World Bank, who wrote a stinging critique. Yeats pointed out that the fastest growing items in intra-Mercosur trade were cars, buses, agricultural equipment, and other capital-intensive goods that are produced relatively inefficiently in the member countries. 94) B Mercosur hit a significant roadblock in 1998, when its member-states slipped into recession and intrabloc trade slumped. Things deteriorated further in 2001 when Argentina, beset by economic stresses, suggested the customs union be temporarily suspended. 95) A In the early 1960s, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua attempted to set up a Central American Common Market. It collapsed in 1969 when war broke out between Honduras and El Salvador after a riot at a soccer match between teams from the two countries. 96) C The proposed common market was given a boost in 2003, when the United States signaled its intention to enter into bilateral free trade negotiations with the group. These culminated in a 2004 agreement to establish a free trade agreement between the six countries and the United States. 97) A A customs union was to have been created in 1991 between the Englishspeaking Caribbean countries under the auspices of the Caribbean Community. Referred to as CARICOM, it was established in 1973. However, it repeatedly failed to progress toward economic integration. Version 1

98) D In early 2006, six CARICOM members established the Caribbean Single Market and Economy (CSME). Modeled on the EU's single market, CSME's goal is to lower trade barriers and harmonize macroeconomic and monetary policy between member-states. 99) A In early 2006, six CARICOM members established theCaribbean Single Market and Economy (CSME). Modeled on the EU’s single market, CSME’s goal is to lower trade barriers and harmonize macroeconomic and monetary policy between member states. 100) D The Association of Southeast Asian Nations (ASEAN) is an attempt to establish a free trade area between Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam, leading to a regional grouping of 600 million people with a combined GDP of some $2 trillion. 101) C The basic objective of ASEAN is to foster freer trade among member countries and to achieve cooperation in their industrial policies. Progress so far has been limited, however. 102) A

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African countries have been experimenting with regional trade blocs for half a century. Nominally there are now 19 trade blocs on the African continent. Many countries are members of more than one group. Although the number of trade groups is impressive, progress toward the establishment of meaningful trade blocs has been slow. Many of these groups have been dormant for years. Significant political turmoil in several African nations has persistently impeded any meaningful progress. 103)Nowhere has the movement toward regional economic integration been more ambitious than in Europe. On January 1, 1993, the European Union formally removed many barriers to doing business across borders within the EU in an attempt to create a continent wide single market. By 2019 the EU had a population of more than 500 million and a gross domestic product of $19 trillion, making it second only to the United States in economic terms. That being said, the 2016 vote by the British to negotiate an exit from the EU (Brexit) has cast a cloud over the future of the European project. The 2020 exit of Britain from the pact reduces the GDP of the EU by around $2.5 trillion, and shrinks the population by 66 million. 104)A common market has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members. Labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital among member countries. A customs union eliminates trade barriers between member countries and adopts a common external trade policy. Establishment of a common external trade policy necessitates significant administrative machinery to oversee trade relations with non members. Most countries that enter into a customs union desire even greater economic integration down the road.

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105)Despite the strong economic and political arguments in support, integration has never been easy to achieve or sustain for two main reasons. First, although economic integration aids the majority, it has its costs. While a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose. Moving to a free trade regime involves painful adjustments. A second impediment to integration arises from concerns over national sovereignty. Concerns about national sovereignty arise because close economic integration demands that countries give up some degree of control over such key issues as monetary policy, fiscal policy (e.g., tax policy), and trade policy. 106)Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. It may also occur when higher-cost external producers are replaced by lower-cost external producers within the free trade area. Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts. 107)The Treaty of Rome provided for the creation of a common market. Article 3 of the treaty laid down the key objectives of the new community, calling for the elimination of internal trade barriers and the creation of a common external tariff and requiring member states to abolish obstacles to the free movement of factors of production among the members. To facilitate the free movement of goods, services, and factors of production, the treaty provided for any necessary harmonization of the member states’ laws. Furthermore, the treaty committed the EC to establish common policies in agriculture and transportation.

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108) The four main institutions in this structure are the European Commission, the Council of the European Union, the European Parliament, and the Court of Justice. TheEuropean Commission is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states. TheEuropean Council represents the interests of member states. It is clearly the ultimate controlling authority within the EU because draft legislation from the commission can become EU law only if the council agrees. As of early 2020, theEuropean Parliament has 705 members and is directly elected by the populations of the member states. The parliament, which meets in Strasbourg, France, is primarily a consultative rather than legislative body. It debates legislation proposed by the commission and forwarded to it by the council. TheCourt of Justice, which is composed of one judge from each country, is the supreme appeals court for EU law. Like commissioners, the judges are required to act as independent officials, rather than as representatives of national interests.

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109)The purpose of the Single European Act was to have one market in place by December 31, 1992. The act proposed the following changes: ● Remove all frontier controls among European Community (EC) countries, thereby abolishing delays and reducing the resources required for complying with trade bureaucracy. ● Apply the principle of "mutual recognition" to product standards. A standard developed in one EC country should be accepted in another, provided it meets basic requirements in such matters as health and safety. ● Institute open public procurement to nonnational suppliers, reducing costs directly by allowing lower-cost suppliers into national economies and indirectly by forcing national suppliers to compete. ● Lift barriers to competition in the retail banking and insurance businesses, which should drive down the costs of financial services, including borrowing, throughout the EC. ● Remove all restrictions on foreign exchange transactions between member countries by the end of 1992. ● Abolish restrictions on cabotage—the right of foreign truckers to pick up and deliver goods within another member-state's borders—by the end of 1992. Estimates suggested this would reduce the cost of haulage within the EC by 10 to 15 percent.

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110)The drawback of the euro is that some national authorities have lost control over monetary policy. Thus, it is crucial to ensure that the European Union's monetary policy is well managed. The Maastricht Treaty called for establishment of the independent European Central Bank (ECB), similar in some respects to the U.S. Federal Reserve, with a clear mandate to manage monetary policy so as to ensure price stability. The ECB, based in Frankfurt, is meant to be independent from political pressure—although critics question this. Among other things, the ECB sets interest rates and determines monetary policy across the euro zone. According to critics, another drawback of the euro is that the EU is not what economists would call an optimal currency area. In an optimal currency area, similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy. Many of the European economies in the euro zone, however, are very dissimilar. Obviously, such differences complicate macroeconomic policy. For example, when euro economies are not growing in unison, a common monetary policy may mean that interest rates are too high for depressed regions and too low for booming regions.

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111)Most experts predict that the country will bear short- to mediumterm costs as a result of this decision. Britain is now less likely to attract inward investment from foreign multinationals, some multinationals may move operations to other EU countries to maintain access to the single market, exports to the EU may fall, London risks losing its position as the financial capital of Europe, and economic growth may be lower than it otherwise might have been. Furthermore, given that the Scots voted by a large margin to stay in the EU, this once again raises the possibility of Scottish independence from the United Kingdom. In the long run, whether Britain benefits from exit depends on its ability to negotiate trade deals with the EU and other major economic powers— including the United States, Japan, and China—to replace the benefits it will lose by exiting from the EU. In a world that is becoming increasingly resistant to free trade deals, there is no guarantee that the British will be able to do this. The British government would certainly like to extract favorable trade terms with the EU as part of its exit negotiations, but the EU is likely to insist that in order to get full access to the single market, the British adopt EU regulations permitting the free movement of labor. This is something that the British are unlikely to accept given how important an issue immigration was in the referendum.

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112)Notwithstanding the muted impact of NAFTA, following the accession of Donald Trump to the U.S. presidency, NAFTA has been renegotiated. Known as the United States–Mexico–Canada Agreement, or USMCA for short, this new agreement is essentially an updated version of the original NAFTA treaty, with some key changes. Most significantly, NAFTA required automakers to produce 62.5 percent of a vehicle’s content in North America to qualify for zero tariffs. The USMCA raises that threshold to 75 percent. The idea is to compel automakers to source fewer parts for a car assembled in North America from Germany, Japan, South Korea, or China. The USMCA agreement also mandates that by 2023, 40 percent of parts for any tariff-free vehicle must come from a so-called high-wage factory. Those factories must pay a minimum of $16 an hour in average salaries for production workers, which is about triple the average wage in a Mexican factory right now. In addition to the changes to automobile trade, the USMCA included an agreement to open up the Canadian dairy market to U.S. producers, which was an important issue for Trump. The USMCA also made some changes to intellectual property regulations. The terms of copyright were extended to 70 years beyond the life of the author (up from 50). It also includes new provisions to deal with the digital economy, including prohibiting duties on things like music and ebooks and protections for Internet companies so they are not liable for content their users produce. Finally, the agreement adds a 16-year sunset clause—meaning the terms of the agreement expire, or “sunset,” after 16 years. The deal is also subject to a review every six years, at which point the United States, Mexico, and Canada can decide to extend the USMCA. To become law and supersede NAFTA, USMCA had to be ratified by legislators in all three countries. In the United States, an amended version of the USMCA treaty, which provides greater protections for U.S. workers, has been agreed to by the executive branch and Congress. Canada and Mexico Version 1

have ratified the amended agreement, since a likely alternative—Donald Trump attempting to pull the U.S. out of NAFTA—would have been be a far worse outcome for them. 113)In the early 1960s, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua attempted to set up a Central American Common Market. It collapsed in 1969 when war broke out between Honduras and El Salvador after a riot at a soccer match between teams from the two countries. Since then, the member countries have made some progress toward reviving their agreement (the five founding members were joined by the Dominican Republic). The proposed common market was given a boost in 2003 when the United States signaled its intention to enter into bilateral free trade negotiations with the group. These culminated in a 2004 agreement to establish a free trade agreement between the six countries and the United States. Known as the Central America Free Trade Agreement, or CAFTA, the aim is to lower trade barriers between the United States and the six countries for most goods and services.

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114)Just as the emergence of single markets creates opportunities for business, it also presents a number of threats. For one thing, the business environment within each grouping has become more competitive. The lowering of barriers to trade and investment among countries has led to increased price competition throughout the EU and NAFTA/USMCA. Over time, price differentials across nations will decline in a single market. This is a direct threat to any firm doing business in EU or NAFTA/USMCA countries. To survive in the tougher single-market environment, firms must take advantage of the opportunities offered by the creation of a single market to rationalize their production and reduce their costs. Otherwise, they will be at a severe disadvantage. A further threat to firms outside these trading blocs arises from the likely longterm improvement in the competitive position of many firms within the areas. This is particularly relevant in the EU, where many firms have historically been limited by a high-cost structure in their ability to compete globally with North American and Asian firms. The creation of a single market and the resulting increased competition in the EU produced serious attempts by many EU firms to reduce their cost structure by rationalizing production. This transformed many EU companies into more efficient global competitors. The message for nonEU businesses is that they need to respond to the emergence of more capable European competitors by reducing their own cost structures. Another threat to firms outside of trading areas is the threat of being shut out of the single market by the creation of a “trade fortress.” The charge that regional economic integration might lead to a fortress mentality is most often leveled at the EU. Although the free trade philosophy underpinning the EU theoretically argues against the creation of any fortress in Europe, occasional signs indicate the EU may raise barriers to imports and investment in certain “politically sensitive” areas, such as autos. Non-EU firms might be well advised, therefore, to set up their Version 1

own EU operations. This could also occur in the NAFTA countries, but it seems less likely.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The foreign exchange market is the vehicle used to convert the currency of one country into that of another country. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Functions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-01 Describe the functions of the foreign exchange market.

The foreign exchange market offers complete insurance against foreign exchange risk. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Functions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-01 Describe the functions of the foreign exchange market.

3) Assume that the euro/dollar exchange rate is €1 = $1.20. If it costs $36 to buy a European product, the stated price of the product would be €36. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Functions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-01 Describe the functions of the foreign exchange market.

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4) Carry trade occurs when borrowing is done in one currency where interest rates are low and using the proceeds to invest in another country where interest rates are high. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Functions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-01 Describe the functions of the foreign exchange market.

5) The spot exchange rate is the rate at which the foreign exchange dealer will convert one currency into another on a particular day. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The Influence of Exchange Rates Gradable : automatic Learning Objective : 10-02 Understand what is meant by spot exchange rates.

Spot exchange rates change continually. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The Influence of Exchange Rates Gradable : automatic Learning Objective : 10-02 Understand what is meant by spot exchange rates.

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7) When a firm enters into a spot exchange contract, it is taking out insurance against adverse future exchange rate movements. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The Influence of Exchange Rates Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

8) Currency swaps are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The Influence of Exchange Rates Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

A currency swap provides a business with protection from foreign exchange risk. ⊚ true ⊚ false

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10)

When companies wish to convert currencies, they typically do so through a bank. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Functions of the Foreign Exchange Market Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

11) Although a foreign exchange transaction can involve any two currencies, most transactions involve U.S. dollars on one side. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Functions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

12)

Supply and demand of one currency relative to another helps determine exchange rates. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Gradable : automatic Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

13)

An efficient market exists when countries enact tariff barriers to minimize imports.

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⊚ ⊚

true false

14) Inflation occurs when the money supply in a country decreases faster than output increases. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Gradable : automatic Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

15) A government can increase the money supply simply by telling the country’s central bank to issue more money. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Gradable : automatic Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

16)

In economic terms, interest rate levels reflect future inflation rates.

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⊚ ⊚

true false

17) Unlike the purchasing power parity theory, the international Fisher effect is a good predictor of short-run changes in spot exchange rates. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Gradable : automatic Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

18)

Investor psychology has an effect on short-run exchange rate movements. ⊚ true ⊚ false

19) In terms of exchange rate forecasting, the efficient market school argues that companies should not spend additional money trying to forecast short-run exchange rate movements.

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⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Approaches to Exchange Rate Forecasting Gradable : automatic Learning Objective : 10-05 Identify the merits of different approaches toward exchange rate forecasti

20) A fundamental approach to exchange rate forecasting would focus on relative money supply growth rates, inflation rates, and interest rates. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Approaches to Exchange Rate Forecasting Gradable : automatic Learning Objective : 10-05 Identify the merits of different approaches toward exchange rate forecasti

21) When only non-residents of a country may convert currency into a foreign currency without any limitations it is called externally convertible. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Currency Management and Business Strategy in the Global Monetary System Gradable : automatic Learning Objective : 10-05 Identify the merits of different approaches toward exchange rate forecasti

22)

Capital flight refers to businesses fleeing a country following a change in exchange rates.

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⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Currency Management and Business Strategy in the Global Monetary System Gradable : automatic Learning Objective : 10-05 Identify the merits of different approaches toward exchange rate forecasti

23) Economic exposure is concerned with long-run effects on future prices, sales, and costs caused by changes in exchange rates. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Gradable : automatic Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

24) Leading and lagging strategies involve accelerating payments from weak-currency to strong-currency countries and delaying inflows from strong-currency to weak-currency countries. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Gradable : automatic Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

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MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 25) Shawna tells Roan that he will receive 0.85 euro for every U.S. dollar he wants to convert for his trip to Italy. Shawna is referring to A) the exchange rate. B) arbitration. C) a forward exchange. D) countertrade. E) a balance-of-trade equilibrium.

26)

One function of the foreign exchange market is to A) provide some insurance against foreign exchange risk. B) protect short-term cash flow from adverse changes in exchange rates. C) eliminate volatile changes in exchange rates. D) reduce the economic exposure of a firm. E) enable companies to engage in capital flight when countertrade is not possible.

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27) Byron converted $1,000 to ¥105,000 for a trip to Japan. However, he spent only ¥50,000. During this period, the value of the dollar weakened against the yen. Using a current exchange rate of $1 = ¥100, how many dollars does Byron have left? A) $550 B) $523 C) $450 D) $600 E) $500

Question Details Accessibility : Keyboard Navigation Topic : Functions of the Foreign Exchange Market AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-01 Describe the functions of the foreign exchange market.

28) Xanon Tech, based in Washington, buys component parts from Indonesia. The Indonesian company must be paid in rupiah. Xanon Tech will rely on _________ to convert dollars to rupiah. A) local content regulations B) the foreign exchange market C) a greenfield investment D) an acquisition agreement E) arbitration

Question Details Accessibility : Keyboard Navigation Topic : Functions of the Foreign Exchange Market Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic Learning Objective : 10-01 Describe the functions of the foreign exchange market.

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29)

Currency speculation takes place when

A) there is short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. B) the exchange rate at which a foreign exchange dealer will convert one currency differs on a particular day. C) there is a simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. D) the purchase of securities in one market are immediately resold in another to profit from a price discrepancy. E) the growth in a country's money supply exceeds the growth in its output, leading to price inflation.

30) The Simpson Group converts $1,000,000 into euros when the exchange rate is $1 = €0.75. After three months, the company converts this back into dollars when the exchange rate is $1 = €0.80. What is the outcome of this transaction? A) a loss of $62,500 B) a loss of $66,667 C) a gain of $50,000 D) a gain of $62,500 E) a loss of $50,000

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31) Assume that the interest rate on borrowings in Japan is 5 percent while the interest rate on bank deposits in a U.S. bank is 7 percent. Talia, an active currency trader, borrows in Japanese yen, converts the money into U.S. dollars and deposits it in a U.S. bank. Talia is engaging in A) countertrading. B) hedging. C) currency swap. D) arbitrage. E) carry trade.

32) Jarek is investing money for his company. He notices that the interest rate on borrowing in Tokyo is 4 percent and the interest rate on bank deposits in Rome is 6 percent. In this situation, a carry trade would occur when Jarek

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A) borrows money in Rome currency, converts it into Tokyo currency, and deposits it in a Tokyo bank. B) borrows money in Tokyo currency and invests in stocks with good growth potential in Tokyo. C) borrows money in Tokyo currency, converts it into Rome currency, and deposits it in a Rome bank. D) invests in bank deposits of Rome and reinvests the earnings in Tokyo. E) invests in bank deposits of Tokyo and reinvests the earnings in Rome.

33) Assume that the interest rate on borrowings in India is 1 percent while the interest rate on bank deposits in a U.S. bank is 4 percent. Samuel, an active currency trader, borrows in Indian rupees, converts the money into U.S. dollars and deposits it in a U.S. bank. What is the speculative element of this carry trade? A) There will be no adverse movement in exchange rates or interest rates. B) Liquidity is the key factor in determining interest rates. C) Increasing money supply will not drive inflation. D) Spot exchange rates are more favorable than forward exchange rates. E) Hedging insures a company against foreign exchange risks.

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34) Last week, NorthWest Data, a U.S.-based data storage firm, entered into an agreement with another party to exchange currency and execute the deal in eighteen months. What is NorthWest Data using to insure itself against foreign exchange risk? A) currency speculation B) carry trade C) hedging D) currency swap E) arbitrage

35)

How are spot exchange rates determined? A) using historical average prices of different currencies B) the interaction between demand and supply of a currency relative to other currencies C) taking the average of a basket of currencies D) by government decree E) predicting future currency movements in nonmember countries

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36) There Today, a U.S. shipping company, imports industrial packaging from Japan. The company must pay in yen to the Japanese supplier within 30 days. In a particular exchange, the company must pay the Japanese supplier ¥150,000 for each set of industrial packaging at the current dollar/yen spot exchange rate of $1 = ¥110. There Today intends to resell the packaging the day they arrive for $1,600 each but it does not have the funds to pay the Japanese supplier until these have been sold. What will happen if the exchange rate after 30 days is $1 = ¥90? A) The importer will earn a profit of approximately $236 per microprocessor. B) The importer will earn a profit of approximately $67 per microprocessor. C) The importer will incur a loss of approximately $236 per microprocessor. D) The importer will incur a loss of approximately $67 per microprocessor. E) The importer will incur a loss of approximately $90 per microprocessor.

Question Details Accessibility : Keyboard Navigation Topic : Functions of the Foreign Exchange Market AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

37) A(n) _________ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. A) forward exchange B) spot exchange C) carry trade D) currency swap E) arbitrage

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38) The U.S. dollar is selling at a discount on the 30-day forward market when what is taking place? A) The spot exchange rate is $1 = ¥120 currently and $1 = ¥130 after 30 days. B) The spot exchange rate is $1 = ¥120 currently and $1 = ¥100 after 30 days. C) The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥110 after 30 days. D) The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥130 after 30 days. E) The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥120 after 30 days.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Functions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

39) When Celia was planning her visit to Japan, she learned that the 30-day forward exchange rate was $1 = ¥130, which meant that $1 would buy more yen with a forward exchange than a spot exchange. In other words, the dollar was selling at a _________ on the 30-day forward market. A) discount B) constant C) command D) premium E) deficit

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Question Details Accessibility : Keyboard Navigation Topic : Functions of the Foreign Exchange Market AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

40) Assume that the dollar is selling at a premium on the 30-day dollar/euro forward market. What is true of the foreign exchange dealers' market's expectations about the dollar over the next 30 days? A) The dollar will depreciate against the euro. B) The market is undecided about the direction of currency movement. C) The dollar will appreciate against the euro. D) The dollar/euro exchange rate will be steady. E) The dollar will buy more euros with a spot exchange than with a 30-day forward exchange.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Functions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

41) A(n) _________ is used by an international business to move out of one currency and into another for a limited period without incurring foreign exchange risk. A) currency swap B) currency speculation C) carry trade D) spot exchange E) arbitrage

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Functions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

42)

The foreign exchange trading center in _________ has the highest percentage of activity. A) Zurich B) London C) New York D) Hong Kong E) Singapore

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The Main Instruments and Institutions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

43) its

One reason that London is able to dominate in the foreign exchange market is because of

A) conversion to the euro. B) government. C) location. D) class system. E) free trade policy.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The Main Instruments and Institutions of the Foreign Exchange Market Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

44) Assume that the yen/dollar exchange rate quoted in London at 3:00 p.m. is ¥115 = $1. Drew, a trader, finds out that the rate quoted in New York at 10:00 a.m. (3:00 p.m. London time) is ¥135 = $1. Drew decides to buy yen in New York and sell it in London. Drew is engaging in A) currency swapping. B) currency speculation. C) carry trade. D) arbitrage. E) hedging.

Question Details Accessibility : Keyboard Navigation Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Topic : The Role of Arbitrage in the Foreign Exchange Market Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

45) Assume that the yen/dollar exchange rate quoted in Tokyo at 5 p.m. is ¥120 = $1, and the New York yen/dollar exchange rate at the same time (noon New York time) is ¥123 = $1. What action should a trader take to yield immediate profit? A) forward exchange B) carry trade C) currency swap D) arbitrage E) currency speculation

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The Role of Arbitrage in the Foreign Exchange Market Gradable : automatic Learning Objective : 10-03 Recognize the role that forward exchange rates play in insuring against fo

46) The yen/dollar exchange rate is ¥120 = $1 in London and ¥123 = $1 in New York at the same time. What is the net profit if a dealer takes $1,000,000 to purchase ¥123,000,000 in New York and engages in arbitrage by selling it in London? A) $34,000 B) $20,390 C) $25,000 D) $46,666 E) $39,454

47) Vonnie was shopping in New York last week and saw Chanel perfume for $500. When she returned to London, she saw that same perfume for £250. She knew that the exchange rate was one pound for every two dollars. Her shopping experience demonstrates A) hedging B) arbitrage. C) currency swap. D) exchange rate risk. E) the law of one price.

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Question Details Accessibility : Keyboard Navigation Topic : Economic Theories of Exchange Rate Determination Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

48)

The law of one price states that

A) by comparing the prices of identical products in different currencies, it would be possible to determine the "real" or PPP exchange rate that would exist if markets were efficient. B) a country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I). C) a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower. D) when the growth in a country's money supply is faster than the growth in its output, price inflation is fueled. E) in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

49) The euro/dollar exchange rate is €1 = $1.20. According to the law of one price, how much would luggage that retails for $300 in New York sell for in Germany?

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A) €320 B) €300 C) €250 D) €360 E) €150

Question Details Accessibility : Keyboard Navigation Topic : Economic Theories of Exchange Rate Determination AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

50) Alana saw a Fossil watch at the Amsterdam airport when she was catching a flight back home to Atlanta. She noticed that the watch sold for 100 euros. Assume that the euro/dollar exchange rate is €1 = $1.20. According to the law of one price, at what price would it make sense to buy the watch in New York? A) $150 B) $140 C) $120 D) $105 E) $100

51) A(n) _________ has no impediments to the free flow of goods and services, such as trade barriers. Version 1

A) economic union B) currency board C) efficient market D) carry trade E) European Monetary System

52) To express the PPP theory in symbols, let P$ be the U.S. dollar price of a basket of particular goods and P¥ be the price of the same basket of goods in Japanese yen. What does the purchasing power parity (PPP) theory predict to be the equivalent of the dollar/yen exchange rate, E$/¥? A) E$/¥ = (1 + P¥) ÷ P$ B) E$/¥ = (1 + P$) ÷ P¥ C) E$/¥ = P¥ ÷ P$ D) E$/¥ = P$ ÷ P¥ E) E$/¥ = (1 + P$) ÷ (1 + P¥)

53) If a basket of goods costs $100 in the United States and €120 in Europe, what would the purchasing power parity theory's prediction of the dollar/euro exchange rate be? Version 1

A) $1 = €1.20 B) $1 = €1 C) $1 = €0.80 D) $1 = €0.90 E) $1 = €1.10

54) Orbit Wheel skates cost $100 in the United States and €125 in Europe. What would the purchasing power parity theory's prediction of the dollar/euro exchange rate be based on this example? A) $1 = €1.25 B) $1 = €1 C) $1 = €0.80 D) $1 = €0.90 E) $1 = €1.10

55) According to purchasing power parity (PPP) theory, the price of a “basket of goods” should be

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A) the sum of the required "real" rate of interest. B) unchangeable based on the forward exchange rate. C) roughly equivalent in each country in relatively efficient markets. D) discounted to reflect trade barriers. E) focused strictly on consumer and not industrial goods.

56) Assume that a Big Mac costs $4.93 in the United States and that the Brazilian real is undervalued by 23 percent. According to the Big Mac Index published by The Economist, a Big Mac would A) cost a bit more in Brazil than in the United States B) cost less in Brazil than in the United States C) cost the same in both countries. D) would cost twice as much in Brazil. E) would cost less than half of the United States price in Brazil.

57)

In theory, if inflation is at an all-time high in the United States, then its currency will

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A) increase in value when trading with countries in a political union. B) appreciate against that of other countries where inflation is lower. C) not be affected. D) depreciate against that of other countries where inflation is lower. E) increase faster than the money supply.

58) To jumpstart its slow economy, Greece increased the money supply. What is a likely consequence of this action? A) It results in an overall decrease in credit. B) It makes it difficult for individuals and companies to borrow from banks. C) It makes it easier for banks to borrow from the government. D) It causes a decrease in demand for goods and services. E) It causes price deflation as the money supply exceeds goods and services output.

59) The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will see

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A) appreciation in its currency exchange rate. B) a decrease in interest rates. C) the collapse of the gold standard. D) depreciation in its currency exchange rate. E) no change in its exchange rates.

60) Suppose that the government of Panama decided to give everyone in the country the equivalent of $10,000. Upon receipt of the money, people raced to the stores to buy furniture, electronics, and new clothes. There was such high demand for goods that producers raised prices. What is this an example of? A) isolationism B) inflation C) spot exchange D) recession E) a planned economy

61)

What happens to the value of money when hyperinflation exists?

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A) Money loses value very rapidly. B) Foreign currency is valued against the U.S. dollar. C) The value of all currency increases faster than gross national income. D) There are more goods to purchase and it costs less to buy them. E) All currency continues to be valued at the same amount across trade channels.

62) The purchasing power parity (PPP) theory best predicts exchange rate changes for countries with A) developed capital markets. B) stable currencies. C) high rates of inflation. D) small differentials in inflation rates. E) industrialized economies.

63) The purchasing power parity puzzle represents the failure to find a strong link between relative inflation rates and

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A) trade agreements. B) entrepreneurial activity. C) exchange rate movements. D) the bandwagon effect. E) monopolistic competition.

64) One reason for the failure of the purchasing power parity (PPP) theory to predict exchange rates accurately is because it A) assumes away transportation costs and trade barriers. B) does not take into account the law of one price. C) does not take into account arbitration. D) assumes that the markets are not efficient. E) does not consider government influence on a nation's money supply.

65) Plant Power Inc. is the industry leader in fertilizer and not only has a degree of pricing power amongst its few competitors but also sets different prices in different markets based on demand conditions. Plant Power Inc. is practicing

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A) price discrimination. B) premium pricing. C) psychological pricing. D) price skimming. E) price leadership.

66) What is one way an enterprise with some market power might limit arbitrage so that their price discrimination policy works? A) price its products identically despite huge differences in demand across different markets B) differentiate otherwise identical products among nations through design or packaging C) adopt a pricing strategy that matches what competitors charge in each of the different national markets D) limit sales of its products to only a few nations E) sell its products at higher prices than normal to break even by selling fewer units

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67) In countries where inflation is expected to be high, interest rates also will be high, because investors want compensation for the decline in the value of their money. This relationship is referred to as the A) purchasing power parity puzzle. B) lead strategy. C) Fisher effect. D) bandwagon effect. E) international Fisher effect.

68)

The Fisher effect is used to demonstrate a strong correlation between inflation rates and A) interest rates. B) competition. C) entrepreneurial activity. D) spot exchange rates. E) forward rates.

69) According to the Fisher effect, if the "real" rate of interest in a country is 5 percent and the expected annual inflation is 9 percent, what would the "nominal" interest rate be?

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A) 5.5 percent B) 14 percent C) 9 percent D) 59 percent E) 2.25 percent

70) The _________ states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries. A) bandwagon effect B) law of one price C) international Fisher effect D) Helms-Burton Act E) purchasing power parity (PPP) theory

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Economic Theories of Exchange Rate Determination Gradable : automatic Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

71) The nominal interest rate is 9 percent in Brazil and 6 percent in Japan. Applying the international Fisher effect, the Brazilian real should

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A) appreciate by 3 percent against the Japanese yen. B) depreciate by 3 percent against the Japanese yen. C) appreciate by 1.5 percent against the Japanese yen. D) depreciate by 1.5 percent against the Japanese yen. E) appreciate by 15 percent against the Japanese yen.

72) Traders at a stock exchange notice that five traders on the floor seem to be selling more yen and purchasing more euros because of an expected decline in the yen. As a result, all other traders started to do the same. This is an example of the _________ that creates a self-fulfilling prophecy when the yen does decline in value. A) spot exchange rate B) arbitration process C) bandwagon effect D) difference principle E) tragedy of the commons

73) One reason for the failure of purchasing power parity theory and international Fisher effect in predicting short-term movements in exchange rates is due to the

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A) impact of investor psychology on short-run exchange rate movements. B) strong relationship between inflation rates and interest rates. C) impact of interest rates and short-term exchange rate movements. D) strong relationship between interest rate differentials and subsequent changes in spot exchange rates. E) government intervention in cross-border trade that violates the assumption of efficient markets.

74) When discussing exchange rate forecasting, the inefficient market school of thought would agree that A) forward exchange rates are the best possible predictors of future spot exchange rates. B) forward exchange rates represent market participants' collective predictions of likely spot exchange rates. C) companies cannot beat the markets because forward rates reflect all available information about likely future changes in exchange rates. D) investing in forecasting services can improve the foreign exchange market's estimate of future exchange rates. E) the foreign exchange market is efficient at setting forward rates, which are unbiased predictors of future spot rates.

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75) According to the efficient market school, _________ do the best job at predicting future spot exchange rates. A) forecasting services B) government institutions C) inflationary trends D) forward exchange rates E) arbitration results

76) _________ draw(s) on factors such as relative money supply growth rates and interest rates to construct sophisticated econometric models for predicting exchange rate movements. A) Technical analysis B) Purchasing power parity C) The Sullivan principles D) Fundamental analysis E) Arbitrage

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77) The _________ is a variable used in exchange rate forecasting models based on fundamental analysis. A) PPP index B) moving average C) inflation rate D) business cycle E) regression rate

78) The French government decided to analyze price and volume data to determine past trends in exchange rate movements for the country. What approach to forecasting does this represent? A) technical analysis B) PPP index C) efficient market D) fundamental analysis E) inefficient market

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79) A country that relies on technical analysis for forecasting exchange rate movements would know that A) price and volume data cannot be used to determine past trends. B) econometric models drawn from economic theory are best suited to predict exchange rate movements. C) the foreign exchange market is efficient and forward exchange rates are the best predictors of future spot exchange rates. D) previous market trends and waves can be used to predict future market trends and waves. E) since forward exchange rates are the best predictors of future spot rates, it makes no sense to invest in forecasting.

80) Many economists compare the process of _________ to fortune-telling because there is no rationale for the assumption of predictability. A) the efficient market school B) fundamental analysis C) a planned economy D) the inefficient market school E) technical analysis

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81) A country's currency is referred to as _________ when its government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it. A) externally convertible B) nonconvertible C) leading D) freely convertible E) lagging

82) Assume there is a nation where only nonresidents may convert currency into a foreign currency without any limitations. What type of currency does this represent? A) externally convertible B) nonconvertible C) leading D) freely convertible E) lagging

Question Details Accessibility : Keyboard Navigation Topic : Currency Management and Business Strategy in the Global Monetary System AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-05 Identify the merits of different approaches toward exchange rate forecasti

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83) Residents of a South American country are not allowed to convert their currency into other currencies. However, all foreign businesses with deposits in banks there may, at any time, convert all their currency into foreign currency and take it out of the country. The currency in this country is A) leading. B) nonconvertible. C) externally convertible. D) freely convertible. E) lagging.

Question Details Accessibility : Keyboard Navigation Topic : Currency Management and Business Strategy in the Global Monetary System Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic Learning Objective : 10-05 Identify the merits of different approaches toward exchange rate forecasti

84)

Why do governments limit convertibility of their currency? A) to encourage foreign investments B) to control currency appreciation C) to encourage capital flight D) to preserve their foreign exchange reserves E) to promote neo-mercantilism

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85) The currency in a small African nation is depreciating rapidly in value. As a result, residents of the country and foreign businesses with an interest in the country are converting their currency into U.S. dollars. This is an example of A) deflation. B) arbitrage. C) liquidity rush. D) capital flight. E) currency swap.

86)

The phenomenon of capital flight is most likely to occur when A) the recovery phase of an economic depression nears its end. B) the value of the domestic currency depreciates rapidly because of hyperinflation. C) a country's economic prospects are stable and indicate growth. D) interest rates are low for a prolonged period of time. E) governments lift convertibility restrictions on their currency.

87) Countertrade can help an international business when it’s faced with nonconvertibility of a currency because it

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A) prevents nonresidents from converting the country’s currency. B) allows the company to barter and trade goods and services for other goods and services. C) makes the currency equivalent to the U.S. dollar to foster trade. D) allows the business to trade on the black market without penalty. E) prevents residents from converting the country’s currency.

88)

Countertrade is defined as

A) a short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. B) the exchange rate at which a foreign exchange dealer will convert one currency into another that particular day. C) simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. D) the purchase of securities in one market for immediate resale in another to profit from a price discrepancy. E) a range of barter-like agreements by which goods and services can be exchanged for other goods and services.

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89) _________ refers to the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values. A) Translation exposure B) Economic exposure C) Purchasing power parity D) Transaction exposure E) Forward exchange rate

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Ways to Hedge Transaction Exposure Gradable : automatic Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

90)

An example of transaction exposure is when

A) companies have obligations for the purchase of goods at previously agreed prices. B) companies borrow funds in domestic currency. C) there is an impact of currency exchange rate changes on the reported financial statements of a company. D) there is a long-term effect of changes in exchange rates. E) changing exchange rates persists on future prices, sales, and costs

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Ways to Hedge Transaction Exposure Gradable : automatic Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

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91)

A company’s translation exposure is based on the

A) long-run effect of changes in exchange rates on future prices, sales, and costs. B) impact of currency exchange rate changes on the reported financial statements of a company. C) extent to which a firm's future international earning power is affected by changes in exchange rates. D) extent to which the income from individual transactions is affected by fluctuations in foreign exchange values. E) obligations for the purchase or sale of goods and services at previously agreed prices.

92)

_________ is concerned with the present measurement of past events. A) Economic exposure B) Transaction exposure C) Arbitrage D) Translation exposure E) Currency speculation

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93) _________ refers to the extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values. A) Economic exposure B) Transaction exposure C) Translation exposure D) Countertrade E) Carry trade

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The Influence of Exchange Rates Gradable : automatic Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

94)

What is meant by economic exposure?

A) extent to which a firm's future international earning power is affected by changes in exchange rates B) impact of currency exchange rate changes on the reported financial statements of a company C) extent to which the income from individual transactions is affected by fluctuations in foreign exchange values D) extent to which the quantity of money in circulation rises faster than the stock of goods and services E) extent of disparity in prices, when expressed in the same currency, of similar products in different countries

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Gradable : automatic Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

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95) _________Champlain International is reviewing forecasted earnings for the next five years. The company is especially concerned that changes in exchange rates could affect its earning power. What type of foreign exchange risk does this represent? A) purchasing power parity B) transaction exposure C) economic exposure D) translation exposure E) currency speculation

Question Details Accessibility : Keyboard Navigation Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Topic : Ways to Hedge Transaction Exposure Gradable : automatic Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

96) Branwell Group, based in Montreal, decided it wanted to collect all of its foreign currency receivables from Indonesia early because the currency in Indonesia was expected to depreciate. This is an example of A) the efficient market school. B) the inefficient market school. C) arbitration. D) a lead strategy. E) a lag strategy.

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97)

A lag strategy involves

A) delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate. B) delaying the collection of foreign currency receivables when a foreign currency is expected to depreciate. C) attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate. D) paying foreign currency payables (to suppliers) before they are due when a currency is expected to appreciate. E) paying foreign currency payables (to suppliers) before they are due when a currency is expected to depreciate.

98)

In terms of foreign exchange, why would a firm rely on leading and lagging strategies?

A) They primarily protect long-term cash flows from adverse changes in exchange rates. B) They are used to minimize economic exposure of companies. C) They can help firms minimize their transaction and translation exposure. D) They allow firms to accelerate payments from strong-currency to weak-currency countries. E) They create pressure on strong currencies.

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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 99) Define the foreign exchange market and provide an example of when a consumer would use the exchange rate to make a purchase.

Question Details Accessibility : Keyboard Navigation Topic : Functions of the Foreign Exchange Market Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Learning Objective : 10-01 Describe the functions of the foreign exchange market.

100) Describe when a business would engage in currency speculation. Explain with an example.

Question Details Accessibility : Keyboard Navigation Topic : Functions of the Foreign Exchange Market AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Learning Objective : 10-01 Describe the functions of the foreign exchange market.

101)

Describe spot exchange rates and how they affect consumers.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Functions of the Foreign Exchange Market Learning Objective : 10-02 Understand what is meant by spot exchange rates.

102)

Discuss forward exchange rates. Provide an example.

103)

Describe some important features of the foreign exchange market.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

104)

How does an increase in money supply in an economy lead to inflation?

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

105) Describe the factors that explain the failure of the purchasing power parity theory to predict exchange rates accurately.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

106)

Describe the Fisher effect.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

107) Explain how investor psychology and bandwagon effects impact the movement in exchange rates.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Economic Theories of Exchange Rate Determination Learning Objective : 10-04 Understand the different theories explaining how currency exchange rates a

108) Compare and contrast the efficient market school and the inefficient market school of exchange rate forecasting.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Approaches to Exchange Rate Forecasting Learning Objective : 10-05 Identify the merits of different approaches toward exchange rate forecasti

109) Describe the difference between fundamental analysis and technical analysis in forecasting exchange rate movements.

110)

Discuss various ways that countries implement currency restrictions.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Currency Management and Business Strategy in the Global Monetary System Learning Objective : 10-05 Identify the merits of different approaches toward exchange rate forecasti

111)

Explain when a business would use countertrade. Provide an example.

Question Details Accessibility : Keyboard Navigation Topic : Currency Management and Business Strategy in the Global Monetary System Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Learning Objective : 10-05 Identify the merits of different approaches toward exchange rate forecasti

112)

Explain the concepts of transaction exposure and translation exposure.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Ways to Hedge Transaction Exposure Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

113) Explain the concept of economic exposure. How is it different from transaction exposure?

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114)

Differentiate between a lead strategy and a lag strategy.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Currency Management and Business Strategy in the Global Monetary System Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

115) Briefly describe the tactics and strategies that organizations should use to minimize foreign exchange exposure.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Currency Management and Business Strategy in the Global Monetary System Learning Objective : 10-06 Compare and contrast the differences among translation, transaction, and e

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Answer Key Test name: Hill_10 1) TRUE Theforeign exchange market is a market for converting the currency of one country into that of another country. 2) FALSE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) FALSE 8) TRUE 9) TRUE 10) TRUE 11) TRUE 12) TRUE 13) FALSE Anefficient market has no impediments to the free flow of goods and services. Such impediments include trade barriers. 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) TRUE 20) TRUE 21) TRUE Version 1

A currency is said to beexternally convertible when only nonresidents may convert it into a foreign currency without any limitation. 22) FALSE 23) TRUE 24) TRUE 25) A Theforeign exchange market is a market for converting the currency of one country into that of another country. Anexchange rate is simply the rate at which one currency is converted into another. 26) A One function of the foreign exchange market is to provide some insurance against the risks that arise from volatile changes in exchange rates, commonly referred to as foreign exchange risk. Although the foreign exchange market offers some insurance against foreign exchange risk, it cannot provide complete insurance. It is not unusual for international businesses to suffer losses because of unpredicted changes in exchange rates. 27) A For an exchange rate of $1 = ¥100, the remaining 55,000 yen would yield 550 dollars. The amount spent by Byron during the trip is $450 ($1,000 – $550), and under the current rate of exchange, he has $550 remaining. 28) B International businesses use foreign exchange markets when they must pay a foreign company for its products or services in its country’s currency. 29) A

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Currency speculation is one of the uses of foreign exchange markets. It typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. 30) A Currency speculation typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. In the first transaction, the company receives €750,000. These euros when converted back into dollars yield only $937,500 (€750,000 ÷ 0.80). Net loss = $1,000,000 – $937,500. 31) E A kind of speculation that has become more common in recent years is known as the carry trade. The carry trade involves borrowing in one currency where interest rates are low and then using the proceeds to invest in another currency where interest rates are high. 32) C A kind of speculation that has become more common in recent years is known as the carry trade. The carry trade involves borrowing in one currency where interest rates are low and then using the proceeds to invest in another currency where interest rates are high. 33) A A kind of speculation that has become more common in recent years is known as the carry trade. The carry trade involves borrowing in one currency where interest rates are low and then using the proceeds to invest in another currency where interest rates are high. The speculative element of the carry trade is that its success is based on a belief that there will be no adverse movement in exchange rates (or interest rates for that matter) that will make the trade unprofitable. 34) C Version 1

A function of the foreign exchange market is to provide insurance against foreign exchange risk, which is the possibility that unpredicted changes in future exchange rates will have adverse consequences. When a firm insures itself against foreign exchange risk, it is engaging in hedging. 35) B The spot exchange rate is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day. Spot rates change continually, often on a minute-by-minute basis. The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies. 36) D Changes in spot exchange rates can be problematic for an international business. Initially, the American importer had estimated a profit of $236 per microprocessor ($1,600 – $1,364). However, at an exchange rate of $1 = ¥90, the importer will have to pay $1,667 per microprocessor (¥150,000 ÷ 90). The outcome will be a loss of $67 ($1,600 – $1,667). 37) A To insure or hedge against a foreign exchange risk, a U.S. importer might want to engage in a forward exchange. A forward exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. 38) C When $1 buys more yen with a spot exchange than with a 30-day forward exchange, we say the dollar is selling at a discount on the 30day forward market. It indicates that foreign exchange dealers expect the dollar to depreciate against the yen in the next 30 days. Version 1

39) D When $1 buys more yen with a 30-day forward exchange than with a spot exchange, we say the dollar is selling at a premium on the 30-day forward market. This reflects the foreign exchange dealers' expectations that the dollar will appreciate against the yen over the next 30 days. 40) C When the dollar is selling at a premium on the 30-day forward market, it reflects the foreign exchange dealers' expectations that the dollar will appreciate against the euro over the next 30 days. 41) A A currency swap is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. Currency swaps are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk. 42) B The foreign exchange market has been growing at a rapid pace, reflecting a general growth in the volume of cross-border trade and investment. The most important trading centers are London (37 percent of activity), New York (18 percent of activity), and Zurich, Tokyo, and Singapore (all with around 5 to 6 percent of activity). 43) C

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London's dominance in the foreign exchange market is due to both history and geography. As the capital of the world's first major industrial trading nation, London had become the world's largest center for international banking by the end of the nineteenth century, a position it has retained. Today, London's central position between Tokyo and Singapore to the east and New York to the west has made it the critical link between the East Asian and New York markets. Due to the particular differences in time zones, London opens soon after Tokyo closes for the night and is still open for the first few hours of trading in New York. 44) D Arbitrage is the purchase of securities in one market for immediate resale in another to profit from a price discrepancy. Because foreign exchange dealers are always watching their computer screens for arbitrage opportunities, the few that arise tend to be small, and they disappear in minutes. 45) D Arbitrage is the purchase of securities in one market for immediate resale in another to profit from a price discrepancy. A dealer could buy yen in New York and resell it in London immediately. 46) C The purchase of securities in one market for immediate resale in another to profit from a price discrepancy is known as arbitrage. ¥123 million could be sold for dollars in London to get $1,025,000 (¥123 million ÷ 120). Net profit = $1,025,000 – $1,000,000 = $25,000. 47) E

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The law of one price states that in competitive markets free of transportation costs and barriers to trade (such as tariffs), identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. 48) E An economic proposition known as the law of one price can help to understand how prices are related to exchange rate movements. The law of one price states that in competitive markets free of transportation costs and barriers to trade (such as tariffs), identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. 49) C The law of one price states that in competitive markets free of transportation costs and barriers to trade (such as tariffs), identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. Since one euro is equal to 1.2 dollars, the price of the luggage should be €250 ($300 ÷ 1.2). 50) C The law of one price states that in competitive markets free of transportation costs and barriers to trade (such as tariffs), identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. Since one euro is equal to 1.2 dollars, Alana should buy the watch in New York if it sells for $120. 51) C

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An efficient market has no impediments to the free flow of goods and services, such as trade barriers, and prices reflect all available public information. By comparing the prices of identical products in different currencies, it would be possible to determine the "real" or PPP exchange rate that would exist if markets were efficient. 52) D To express the PPP theory in symbols, let P$ be the U.S. dollar price of a basket of particular goods and P¥ be the price of the same basket of goods in Japanese yen. The PPP theory predicts that the dollar/yen exchange rate, E$/¥, should be equivalent to: E$/¥ = P$ ÷ P¥. 53) A By comparing the prices of identical products in different currencies, it would be possible to determine the "real" or PPP exchange rate that would exist if markets were efficient. In this case, dollar/euro exchange rate should be $100 ÷ €120 or $0.833 per euro. In other words, $1 = €1.20. 54) A By comparing the prices of identical products in different currencies, it would be possible to determine the "real" or PPP exchange rate that would exist if markets were efficient. In this case, dollar/euro exchange rate should be $100 ÷ €125 or $0.80 per euro. In other words, $1 = €1.25. 55) C A less extreme version of the purchasing power parity (PPP) theory states that given relatively efficient markets—that is, markets in which few impediments to international trade exist—the price of a "basket of goods" should be roughly equivalent in each country. 56) B Version 1

Every year, the news magazineThe Economist publishes its own version of the purchasing power parity (PPP) theorem, which it refers to as the "Big Mac Index." According toThe Economist, comparing a country's actual exchange rate with the one predicted by the PPP theorem based on relative prices of Big Macs is a test of whether a currency is undervalued or not. If a Big Mac cost $4.93 in the U.S., it would cost $3.35 in Brazil, whose currency is undervalued. 57) D In essence, PPP theory predicts that changes in relative prices will result in a change in exchange rates. Theoretically, a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower. 58) C A government increasing the money supply is analogous to giving people more money. An increase in the money supply makes it easier for banks to borrow from the government and for individuals and companies to borrow from banks. The resulting increase in credit causes increases in demand for goods and services. 59) D When the growth in a country's money supply is faster than the growth in its output, price inflation is fueled. The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will see depreciation in its currency exchange rate. 60) B

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Inflation is a monetary phenomenon. It occurs when the quantity of money in circulation rises faster than the stock of goods and services— that is, when the money supply increases faster than output increases. In this situation, there would be a surge in demand for goods and services. Car dealers, department stores, and other providers of goods and services would respond to this upsurge in demand by raising prices. The result would be price inflation. 61) A In one of the clearest historical examples, in the mid-1980s, Bolivia experiencedhyperinflation—an explosive and seemingly uncontrollable price inflation in which money loses value very rapidly. 62) C Purchasing power parity (PPP) theory predicts that exchange rates are determined by relative prices and that changes in relative prices will result in a change in exchange rates. The theory seems to best predict exchange rate changes for countries with high rates of inflation and underdeveloped capital markets. 63) C The failure to find a strong link between relative inflation rates and exchange rate movements has been referred to as the purchasing power parity puzzle. Several factors may explain the failure of purchasing power parity theory to predict exchange rates more accurately. 64) A

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Several factors may explain the failure of purchasing power parity (PPP) theory to predict exchange rates more accurately. Purchasing power parity theory assumes away transportation costs and barriers to trade. It also assumes that the markets are relatively efficient. In practice, these factors are significant and they tend to create significant price differentials between countries. Transportation costs are certainly not trivial for many goods. 65) A Purchasing power parity (PPP) theory may not hold if many national markets are dominated by a handful of multinational enterprises that have sufficient market power to be able to exercise some influence over prices, control distribution channels, and differentiate their product offerings between nations. When dominant enterprises in an industry exercise pricing power to set different prices in different markets to reflect varying demand conditions, it is referred to as price discrimination. 66) B For price discrimination to work, arbitrage must be limited. According to this argument, enterprises with some market power may be able to control distribution channels and therefore limit the unauthorized resale (arbitrage) of products purchased in another national market. They may also be able to limit resale (arbitrage) by differentiating otherwise identical products among nations along some line, such as design or packaging. 67) C

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Economic theory tells us that interest rates reflect expectations about likely future inflation rates. In countries where inflation is expected to be high, interest rates also will be high, because investors want compensation for the decline in the value of their money. This relationship was first formalized by economist Irvin Fisher and is referred to as the Fisher effect. 68) A As predicted by the Fisher effect, a strong relationship seems to exist between inflation rates and interest rates. 69) B The Fisher effect states that a country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I). i = r + I, i.e., 5% + 9% = 14% 70) C The international Fisher effect states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries. 71) B The international Fisher effect states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries. 72) C

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The movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions is termed a bandwagon effect. According to a number of studies, investor psychology and bandwagon effects play an important role in determining short-run exchange rate movements. 73) A Empirical evidence suggests that neither the purchasing power parity theory nor the international Fisher effect is particularly good at explaining short-term movements in exchange rates. One reason may be the impact of investor psychology on short-run exchange rate movements. Evidence reveals that various psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates. 74) D A company's need to predict future exchange rate variations raises the issue of whether it is worthwhile for the company to invest in exchange rate forecasting services to aid decision making. The inefficient market school argues that companies can improve the foreign exchange market's estimate of future exchange rates (as contained in the forward rate) by investing in forecasting services. In other words, this school of thought does not believe the forward exchange rates are the best possible predictors of future spot exchange rates. 75) D The efficient market school argues that forward exchange rates do the best possible job of forecasting future spot exchange rates and, therefore, investing in forecasting services would be a waste of money. 76) D

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There are two schools of thought regarding the basis on which exchange rate forecasts should be prepared. One adheres to fundamental analysis, while the other uses technical analysis. Fundamental analysis draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. 77) C Fundamental analysis, an approach to exchange rate forecasting, draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. The variables contained in these models typically include relative money supply growth rates, inflation rates, and interest rates. 78) A Technical analysis, an approach to exchange rate forecasting, uses price and volume data to determine past trends, which are expected to continue into the future. This approach does not rely on a consideration of economic fundamentals. 79) D Technical analysis, an approach to exchange rate forecasting, is based on the premise that there are analyzable market trends and waves and that previous trends and waves can be used to predict future trends and waves. 80) E

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Technical analysis, an approach to exchange rate forecasting, uses price and volume data to determine past trends, which are expected to continue into the future. It does not rely on a consideration of economic fundamentals and is based on the premise that there are analyzable market trends and waves and that previous trends and waves can be used to predict future trends and waves. Since there is no theoretical rationale for this assumption of predictability, many economists compare technical analysis to fortune-telling. 81) D A country's currency is said to be freely convertible when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it. Free convertibility is not universal. Many countries place some restrictions on their residents' ability to convert the domestic currency into a foreign currency (a policy of external convertibility). 82) A Due to government restrictions, a significant number of currencies are not freely convertible into other currencies. A currency is said to be externally convertible when only nonresidents may convert it into a foreign currency without any limitations. 83) C Due to government restrictions, a significant number of currencies are not freely convertible into other currencies. A currency is said to be externally convertible when only nonresidents may convert it into a foreign currency without any limitations. 84) D

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Governments limit convertibility to preserve their foreign exchange reserves. A country needs an adequate supply of these reserves to service its international debt commitments and to purchase imports. 85) D Capital flight refers to the situation when residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency. It is most likely to occur when the value of the domestic currency is depreciating rapidly because of hyperinflation or when a country's economic prospects are shaky in other respects. 86) B Governments typically impose convertibility restrictions on their currency when they fear that free convertibility will lead to a run on their foreign exchange reserves. This occurs when residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency—a phenomenon generally referred to as capital flight. Capital flight is most likely to occur when the value of the domestic currency is depreciating rapidly because of hyperinflation or when a country's economic prospects are shaky in other respects. 87) B Companies can deal with the nonconvertibility problem by engaging in countertrade. Countertrade refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. 88) E Companies can deal with the nonconvertibility problem by engaging in countertrade. Countertrade refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. 89) D

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Transaction exposure is the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values. Such exposure includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies. 90) A Transaction exposure is the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values. Such exposure includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies. 91) B Translation exposure is the impact of currency exchange rate changes on the reported financial statements of a company. Translation exposure is concerned with the present measurement of past events. The resulting accounting gains or losses are said to be unrealized—they are "paper" gains and losses—but they are still important. 92) D Translation exposure is the impact of currency exchange rate changes on the reported financial statements of a company. Translation exposure is concerned with the present measurement of past events. 93) C Foreign exchange risk is usually divided into three main categories: transaction exposure, translation exposure, and economic exposure. Translation exposure refers to the extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values. 94) A Version 1

Foreign exchange risk is usually divided into three main categories: transaction exposure, translation exposure, and economic exposure. Economic exposure is the extent to which a firm's future international earning power is affected by changes in exchange rates. 95) C Foreign exchange risk is usually divided into three main categories: transaction exposure, translation exposure, and economic exposure. Economic exposure is the extent to which a firm's future international earning power is affected by changes in exchange rates. 96) D A number of tactics can help firms minimize their transaction and translation exposure. A lead strategy involves attempting to collect foreign currency receivables (payments from customers) early when a foreign currency is expected to depreciate and paying foreign currency payables (to suppliers) before they are due when a currency is expected to appreciate. 97) A A number of tactics can help firms minimize their transaction and translation exposure. A lag strategy involves delaying collection of foreign currency receivables if that currency is expected to appreciate and delaying payables if the currency is expected to depreciate. 98) C

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A number of tactics can help firms minimize their transaction and translation exposure. These tactics primarily protect short-term cash flows from adverse changes in exchange rates. In addition to buying forward and using swaps, firms can minimize their foreign exchange exposure through leading and lagging payables and receivables—that is, paying suppliers and collecting payment from customers early or late depending on expected exchange rate movements. 99)Student examples will vary. When a tourist changes one currency into another, he or she is participating in the foreign exchange market. The exchange rate is the rate at which the market converts one currency into another. For example, an exchange rate of €1 = $1.07 specifies that 1 euro buys 1.07 U.S. dollars. The exchange rate allows us to compare the relative prices of goods and services in different countries. A U.S. tourist wishing to buy a bottle of perfume in Edinburgh may find that she must pay £30 for the bottle, knowing that the same bottle costs $35 in the United States. Is this a good deal? Imagine the current pound/dollar exchange rate is £1.00 = $1.25 (i.e., 1 British pound buys $1.25). The tourist takes out her calculator and converts £30 into dollars. (The calculation is 30 × 1.25.) She finds that the bottle of perfume costs the equivalent of $37.50.

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100) Student examples will vary. Currency speculation typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. Consider again a U.S. company with $10 million to invest for three months. Suppose the company suspects that the U.S. dollar is overvalued against the Japanese yen. That is, the company expects the value of the dollar to depreciate (fall) against that of the yen. Imagine the current dollar/yen exchange rate is $1 = ¥120. The company exchanges its $10 million into yen, receiving ¥1.2 billion ($10 million × 120 = ¥1.2 billion). Over the next three months, the value of the dollar depreciates against the yen until $1 = ¥100. Now the company exchanges its ¥1.2 billion back into dollars and finds that it has $12 million. The company has made a $2 million profit on currency speculation in three months on an initial investment of $10 million! In general, however, companies should beware, for speculation by definition is a very risky business. The company cannot know for sure what will happen to exchange rates.

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101)When two parties agree to exchange currency and execute the deal immediately, the transaction is referred to as a spot exchange. Exchange rates governing such "on the spot" trades are referred to as spot exchange rates. The spot exchange rate is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day. Spot rates change continually, often on a minute-byminute basis (although the magnitude of changes over such short periods is usually small). The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies. For example, if lots of people want U.S. dollars and dollars are in short supply, and few people want British pounds and pounds are in plentiful supply, the spot exchange rate for converting dollars into pounds will change. The dollar is likely to appreciate against the pound (or the pound will depreciate against the dollar). Imagine the spot exchange rate is £1 = $1.25 when the market opens. As the day progresses, dealers demand more dollars and fewer pounds. By the end of the day, the spot exchange rate might be £1 = $1.23. Each pound now buys fewer dollars than at the start of the day. The dollar has appreciated, and the pound has depreciated.

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102)Student examples will vary. A forward exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. Exchange rates governing such future transactions are referred to as forward exchange rates. For most major currencies, forward exchange rates are quoted for 30 days, 90 days, and 180 days into the future. In some cases, it is possible to get forward exchange rates for several years into the future. Returning to our camera importer example, let us assume the 30-day forward exchange rate for converting dollars into yen is $1 = ¥110. The importer enters into a 30-day forward exchange transaction with a foreign exchange dealer at this rate and is guaranteed that she will have to pay no more than $1,818 for each camera (1,818 = 200,000/110). This guarantees her a profit of $182 per camera ($2,000 − $1,818). She also insures herself against the possibility that an unanticipated change in the dollar/yen exchange rate will turn a profitable deal into an unprofitable one. 103)Two features of the foreign exchange market are of particular note. The first is that the market never sleeps. Tokyo, London, and New York are all shut for only three hours out of every 24. The second feature of the market is the integration of the various trading centers. High-speed computer linkages among trading centers around the globe have effectively created a single market. The integration of financial centers implies there can be no significant difference in exchange rates quoted in the trading centers. A third feature of the foreign exchange market is the important role played by the U.S. dollar. Although a foreign exchange transaction can involve any two currencies, most transactions involve dollars on one side. This is true even when a dealer wants to sell a nondollar currency and buy another.

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104)A government increasing the money supply is analogous to giving people more money. An increase in the money supply makes it easier for banks to borrow from the government and for individuals and companies to borrow from banks. The resulting increase in credit causes increases in demand for goods and services. Unless the output of goods and services is growing at a rate similar to that of the money supply, the result will be inflation. This relationship has been observed time after time in country after country. 105)Several factors explain the failure of PPP theory to predict exchange rates accurately. PPP theory assumes away transportation costs and barriers to trade. In practice, these factors are significant, and they tend to create significant price differentials between countries. Transportation costs are certainly not trivial for many goods. Government intervention in cross-border trade, by violating the assumption of efficient markets, weakens the link between relative price changes and changes in exchange rates predicted by PPP theory. In addition, the PPP theory may not hold if many national markets are dominated by a handful of multinational enterprises that have sufficient market power to be able to exercise some influence over prices, control distribution channels, and differentiate their product offerings between nations. Another factor of some importance is that governments also intervene in the foreign exchange market in attempting to influence the value of their currencies. One more factor explaining the failure of PPP theory to predict shortterm movements in foreign exchange rates is the impact of investor psychology and other factors on currency purchasing decisions and exchange rate movements.

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106)Economic theory tells us that interest rates reflect expectations about likely future inflation rates. In countries where inflation is expected to be high, interest rates also will be high, because investors want compensation for the decline in the value of their money. This relationship was first formalized by economist Irvin Fisher and is referred to as the Fisher effect. The Fisher effect states that a country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I). 107)Empirical evidence suggests that neither the purchasing power parity theory nor the international Fisher effect is particularly good at explaining short-term movements in exchange rates. One reason may be the impact of investor psychology on short-run exchange rate movements. Evidence reveals that various psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates. In turn, expectations have a tendency to become self-fulfilling prophecies. When traders move like a herd, all in the same direction and at the same time, in response to each other's perceived actions, it is known as the bandwagon effect. According to a number of studies, investor psychology and bandwagon effects play an important role in determining short-run exchange rate movements. However, these effects can be hard to predict. Investor psychology can be influenced by political factors and by microeconomic events, such as the investment decisions of individual firms, many of which are only loosely linked to macroeconomic fundamentals, such as relative inflation rates. Also, bandwagon effects can be both triggered and exacerbated by the idiosyncratic behavior of politicians.

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108)A company's need to predict future exchange rate variations raises the issue of whether it is worthwhile for the company to invest in exchange rate forecasting services to aid decision making. Two schools of thought address this issue. The efficient market school argues that forward exchange rates do the best possible job of forecasting future spot exchange rates, and, therefore, investing in forecasting services would be a waste of money. The other school of thought, the inefficient market school, argues that companies can improve the foreign exchange market's estimate of future exchange rates (as contained in the forward rate) by investing in forecasting services. In other words, this school of thought does not believe the forward exchange rates are the best possible predictors of future spot exchange rates. 109)Assuming the inefficient market school is correct that the foreign exchange market's estimate of future spot rates can be improved, there are two schools of thought regarding the basis on which forecasts should be prepared. One adheres to fundamental analysis, while the other uses technical analysis. Fundamental analysis draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. The variables contained in these models typically include relative money supply growth rates, inflation rates, and interest rates. In addition, they may include variables related to countries' balance-ofpayments positions. In contrast, technical analysis uses price and volume data to determine past trends, which are expected to continue into the future. This approach does not rely on a consideration of economic fundamentals. Technical analysis is based on the premise that there are analyzable market trends and waves and that previous trends and waves can be used to predict future trends and waves.

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110)Free convertibility is not universal. Many countries place some restrictions on their residents’ ability to convert the domestic currency into a foreign currency (a policy of external convertibility). Restrictions range from the relatively minor (such as restricting the amount of foreign currency they may take with them out of the country on trips) to the major (such as restricting domestic businesses’ ability to take foreign currency out of the country). External convertibility restrictions can limit domestic companies’ ability to invest abroad, but they present few problems for foreign companies wishing to do business in that country. For example, even if the Japanese government tightly controlled the ability of its residents to convert the yen into U.S. dollars, all U.S. businesses with deposits in Japanese banks may at any time convert all their yen into dollars and take them out of the country. Thus, a U.S. company with a subsidiary in Japan is assured that it will be able to convert the profits from its Japanese operation into dollars and take them out of the country.

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111)Companies can deal with the nonconvertibility problem by engaging in countertrade. Countertrade refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. Countertrade can make sense when a country’s currency is nonconvertible. For example, consider the deal that General Electric struck with the Romanian government when that country’s currency was nonconvertible. When General Electric won a contract for a $150 million generator project in Romania, it agreed to take payment in the form of Romanian goods that could be sold for $150 million on international markets. In a similar case, the Venezuelan government negotiated a contract with Caterpillar under which Venezuela would trade 350,000 tons of iron ore for Caterpillar heavy construction equipment. Caterpillar subsequently traded the iron ore to Romania in exchange for Romanian farm products, which it then sold on international markets for dollars. 112)Foreign exchange risk is usually divided into three main categories: transaction exposure, translation exposure, and economic exposure. Transaction exposure is the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values. Such exposure includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies. Translation exposure is the impact of currency exchange rate changes on the reported financial statements of a company. Translation exposure is concerned with the present measurement of past events. The resulting accounting gains or losses are said to be unrealized—they are "paper" gains and losses—but they are still important.

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113)Foreign exchange risk is usually divided into three main categories: transaction exposure, translation exposure, and economic exposure. Economic exposure is the extent to which a firm's future international earning power is affected by changes in exchange rates. Economic exposure is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs. This is distinct from transaction exposure, which is concerned with the effect of exchange rate changes on individual transactions, most of which are short-term affairs that will be executed within a few weeks or months. 114)A number of tactics can help firms minimize their transaction and translation exposure. These tactics primarily protect short-term cash flows from adverse changes in exchange rates. In addition to buying forward and using swaps, firms can minimize their foreign exchange exposure through leading and lagging payables and receivables—that is, paying suppliers and collecting payment from customers early or late depending on expected exchange rate movements. A lead strategy involves attempting to collect foreign currency receivables (payments from customers) early when a foreign currency is expected to depreciate and paying foreign currency payables (to suppliers) before they are due when a currency is expected to appreciate. A lag strategy involves delaying collection of foreign currency receivables if that currency is expected to appreciate and delaying payables if that currency is expected to depreciate. Leading and lagging involve accelerating payments from weak-currency to strong-currency countries and delaying inflows from strong-currency to weak-currency countries.

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115)A firm needs to develop a mechanism for ensuring it maintains an appropriate mix of tactics and strategies for minimizing its foreign exchange exposure. Although there is no universal agreement as to the components of this mechanism, a number of common themes stand out. First, central control of exposure is needed to protect resources efficiently and ensure that each subunit adopts the correct mix of tactics and strategies. Second, firms should distinguish between, on one hand, transaction and translation exposure and, on the other, economic exposure. Third, firms need to have mechanisms to forecast future exchange rate movements. Fourth, firms need to establish good reporting systems so the central finance function can regularly monitor the firm's exposure positions. Finally, on the basis of the information it receives from exchange rate forecasts and its own regular reporting systems, the firm should produce monthly foreign exchange exposure reports.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The U.S. dollar, EU euro, Japanese yen, and British pound are all free to float against each other, which means their exchange rates constantly fluctuate. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : Fixed versus Floating Exchange Rate Systems Gradable : automatic

2) When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a pegged exchange rate regime. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : Fixed versus Floating Exchange Rate Systems Gradable : automatic

3) A dirty-float system gets its name from the fact that the central bank of a country will intervene to try to maintain the value of the country’s currency if it depreciates too rapidly against the U.S. dollar. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : Fixed versus Floating Exchange Rate Systems Gradable : automatic

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4) The process of dollarization occurs when a country abandons its own currency and adopts another currency—typically the U.S. dollar. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Bloom's : Remember Difficulty : 1 Easy Topic : Currency Management and Business Strategy in the Global Monetary System Gradable : automatic

5) Under the gold standard, a country in balance-of-trade equilibrium earns income from exports that is equal to the money its residents pay for imports. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : The History of the Global Monetary System Gradable : automatic

6) During the Bretton Woods negotiations, there was a consensus among the countries represented that fixed exchange rates were preferred. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The History of the Global Monetary System Learning Objective : 11-02 Explain the role played by the World Bank and the IMF in the international Gradable : automatic

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7) The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built the fixed exchange rate system to be highly inflexible. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : The History of the Global Monetary System Learning Objective : 11-02 Explain the role played by the World Bank and the IMF in the international Gradable : automatic

8) When the Bretton Woods participants established the International Monetary Fund, nations who chose to borrow from the IMF could borrow a limited amount without adhering to any specific agreements. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The History of the Global Monetary System Learning Objective : 11-02 Explain the role played by the World Bank and the IMF in the international Gradable : automatic

9) As the only currency that could be converted into gold, the British pound ultimately weakened the system of fixed exchange rates established at Bretton Woods and caused it to collapse. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan Gradable : automatic

10) The U.S. balance-of-payments position flourished throughout the 1970s under the guidance of President Nixon. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Fixed versus Floating Exchange Rate Systems Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan Gradable : automatic

11) The Bretton Woods system could work only as long as the U.S. inflation rate remained low and the United States did not run a balance-of-payments deficit. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan Gradable : automatic

12)

Under the 1976 Jamaica Agreement, gold was abandoned as a reserve asset. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Fixed versus Floating Exchange Rate Systems Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan Gradable : automatic

13)

Since 1973, exchange rates have become less volatile and more predictable. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : The History of the Global Monetary System Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan Gradable : automatic

14) Under a fixed exchange rate system, a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan Gradable : automatic

15) Critics argue that a floating exchange rate system can be affected by uncertainty and the bandwagon effect. ⊚ true ⊚ false

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16)

Pegged exchange rates are most popular in larger, developed nations. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Topic : Different Exchange Rate Regimes Gradable : automatic

17) It has been shown that countries with pegged exchange rates have a lower annual inflation rate than countries with floating regimes. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Topic : Different Exchange Rate Regimes Gradable : automatic

18) A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Currency Management and Business Strategy in the Global Monetary System Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Gradable : automatic

19) Under a currency board system, the government has the absolute authority to set interest rates and print money. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Currency Management and Business Strategy in the Global Monetary System Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Gradable : automatic

20) The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods system in 1973. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-05 Understand the debate surrounding the role of the IMF in the management of Topic : The Role of the World Bank and the International Monetary Fund in the International Monetary Gradable : automatic

21) A currency crisis occurs when there is a speculative attack on the exchange value of currency. ⊚ true ⊚ false Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-05 Understand the debate surrounding the role of the IMF in the management of Topic : The Role of the World Bank and the International Monetary Fund in the International Monetary Gradable : automatic

22)

The IMF is often criticized because it lacks any real mechanism for accountability. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-05 Understand the debate surrounding the role of the IMF in the management of Topic : The Role of the World Bank and the International Monetary Fund in the International Monetary Gradable : automatic

23)

The forward exchange market is an accurate predictor of future exchange rates. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-06 Explain the implications of the global monetary system for management prac Topic : Functions of the Foreign Exchange Market Gradable : automatic

24) One way a company can build strategic flexibility is by contracting out manufacturing processes around the globe. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-06 Explain the implications of the global monetary system for management prac Topic : Factors Influencing Strategic Choice Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 25) The institutional arrangements that countries adopt to govern exchange rates are called the A) generally accepted accounting principles. B) general agreement on tariffs and trade. C) international monetary system. D) general agreement on trade in services. E) financial management information system.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Bloom's : Remember Difficulty : 1 Easy Topic : The Influence of Exchange Rates Gradable : automatic

26) Some countries rely on the foreign exchange market to determine the relative value of its currency. This is called a __________ exchange rate system. A) fixed B) floating C) forward D) pegged E) nominal

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : Fixed versus Floating Exchange Rate Systems Gradable : automatic

27) The currency of the United Arab Emirates is fixed relative to the U.S. dollar: this means that the exchange rate between the United Arab Emirates dirham and other currencies is determined by the dollar exchange rate. This is an example of a __________ exchange rate. A) flexible B) pegged C) real D) dirty-float E) floating

Question Details Accessibility : Keyboard Navigation Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : Fixed versus Floating Exchange Rate Systems AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

28)

Many of the world's developing nations peg their currencies, primarily to the A) U.S. dollar. B) Saudi riyal. C) Japanese yen. D) Chinese yuan. E) German deutsche mark.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : Fixed versus Floating Exchange Rate Systems Bloom's : Remember Difficulty : 1 Easy Gradable : automatic

29)

In a floating exchange rate, the relative value of a currency A) is more predictable and less volatile. B) is determined by supply and demand. C) changes infrequently only under a specific set of circumstances. D) is set against other currencies at some mutually agreed on exchange rate. E) does not depend on the free play of market forces.

30) A country in South America allows its currency to nominally float freely against other currencies, but the government has the right to intervene if it believes that the currency has deviated too far from its fair value. In this country, the value of currency is determined based on a __________ float system. A) fixed B) clean C) pegged D) dirty E) capital

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Question Details Accessibility : Keyboard Navigation Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : Fixed versus Floating Exchange Rate Systems Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

31) Country A and Country B are members of a common market with an exchange rate system where the values of their currencies are set against each other at a mutually agreed on exchange rate. This type of exchange rate system is called A) clean float. B) floating. C) fixed. D) dirty-float. E) pegged.

32)

The gold standard was adopted in response to the A) expansion in the volume of international trade due to the Industrial Revolution. B) inability of governments to convert gold into paper currency on demand at a fixed

rate. C) widening gap between the developed and the developing nations. D) failure of the Bretton Woods fixed exchange rate system. E) failure of the U.S. dollar to act as a reference currency.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : The History of the Global Monetary System Gradable : automatic

33)

In terms of the gold standard, gold par value referred to A) the ability of a nation to exchange gold for imported goods. B) pegging currencies to something other than gold, such as goods. C) the amount of gold a government had to maintain in its reserves. D) the amount of currency needed to purchase one ounce of gold. E) the net worth of gold when used for trade.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : The History of the Global Monetary System Gradable : automatic

34) One unit of a peso in a Latin American country was defined as equivalent to 12 grains of "fine" (pure) gold, while one unit of its neighboring countries currency, a dollar, was defined as equivalent to 18 grains of "fine" (pure) gold. Using the gold par value concept (with 480 grains in an ounce), the exchange rate for converting the peso to the dollar is A) 1.5 peso = 1 dollar. B) 1 peso = 1 dollar. C) 3 peso = 2 dollar. D) 1 peso = 1.5 dollar. E) 2 peso = 1 dollar.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : Currency Management and Business Strategy in the Global Monetary System AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

35) A __________ exists in a country when the income its residents earn from exports is equal to the money its residents pay to other countries for imports. A) currency crisis B) balance-of-trade equilibrium C) balance-of-payments deficit D) balance-of-trade surplus E) fiscal deficit

36) Under the gold standard, gold flows reduce the money supply in one nation when another nation experiences a trade surplus. The nation with a trade surplus has a swell in the money supply, which leads to price increases. At the same time, the nation with a reduction in the money supply will cause prices to fall. The lower prices create more demand for product from the nation with a reduction in the money supply, which leads to a A) balance-of-trade. B) facilitating payment. C) tragedy of the commons. D) floating exchange rate. E) planned economy.

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37) Assume that Country Z defined its currency, let’s call it the “zeelar,” as being equivalent to 16 grains of "fine" (pure) gold. Assuming that there are 480 grains in an ounce, the gold par value of the zeelar is A) 30. B) 28. C) 20. D) 22. E) 14.

38) In the 1930s, countries were devaluing their currencies at will in order to boost exports, thus shattering confidence in the A) floating exchange rate system. B) gold standard system. C) fixed exchange system. D) Bretton Woods system. E) managed-float system.

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39) Let’s assume that Brazil and Argentina actively trade goods and services with each other. Under the gold standard, there would be a net flow of gold from Brazil to Argentina when A) Argentina is in trade deficit with Brazil. B) Brazil is in balance-of-trade equilibrium with Argentina. C) Argentina is in trade surplus with Brazil. D) Argentina imports more than it exports to Brazil. E) Brazil balance of payment to Argentina is favorable.

40) The United States returned to the gold standard in 1934 when more dollars were needed to buy an ounce of gold than before. This implied that the dollar A) was no longer used for pegged rates. B) was worth less. C) could control the spot exchange rate. D) had maintained a steady value. E) was worth more.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : The History of the Global Monetary System Gradable : automatic

41)

One reason for the collapse of the gold standard in 1939 was the A) difficulty and complexity in using the gold standard to determine the exchange rate. B) agreement by governments to convert paper currency into gold on demand at a fixed

rate. C) cycle of competitive currency devaluations by various countries. D) expansion in the volume of international trade after the Industrial Revolution. E) inability of the gold standard to act as a mechanism for achieving balance-of-trade equilibrium by all countries.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-01 Describe the historical development of the modern global monetary system. Topic : The History of the Global Monetary System Gradable : automatic

42) The 1944 Bretton Woods conference created two major international institutions that play a role in the international monetary system—the International Monetary Fund (IMF) and the A) United Nations. B) European Union. C) World Trade Organization. D) World Bank. E) G20.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-02 Explain the role played by the World Bank and the IMF in the international Topic : The Role of the World Bank and the International Monetary Fund in the International Monetary Gradable : automatic

43)

Under the Bretton Woods agreement, only the __________ was convertible into gold. A) dollar B) yuan C) euro D) pound E) dinar

44)

The objective of establishing the World Bank was to A) revive the gold standard. B) promote general economic development. C) control and manage the International Monetary Fund. D) promote a floating exchange rate system. E) approve large currency devaluations.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-02 Explain the role played by the World Bank and the IMF in the international Topic : The Role of the World Bank and the International Monetary Fund in the International Monetary Gradable : automatic

45) One aspect of the Bretton Woods agreement was a commitment not to use __________ as a measure to fix the value of currencies. A) a planned economy B) devaluation C) isolationism D) government loans E) the U.S. dollar

46) Assume that a European nation operates under a fixed exchange rate regime. What would occur if this nation rapidly increased its money supply by printing more currency? A) It would lead to an increase in the worth of the currency. B) The prices of imports would become more attractive in the country. C) The country's goods would be highly competitive in world markets. D) Trade surplus in the country would increase. E) It would lead to price deflation in the country.

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Question Details Accessibility : Keyboard Navigation Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-02 Explain the role played by the World Bank and the IMF in the international AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

47) The architects of the Bretton Woods agreement built limited flexibility into the fixed exchange rate system in order to A) avoid high unemployment. B) facilitate competitive currency devaluations. C) widen balance-of-payments gap between countries. D) increase money supply and thereby price inflation. E) avoid balance-of-trade equilibrium between countries.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-02 Explain the role played by the World Bank and the IMF in the international Gradable : automatic

48) At its inception, how did the International Monetary Fund (IMF) provide loans to deficitladen countries? A) It printed the required currencies, thereby increasing money supply in those countries. B) It acted as a market, buying goods from these countries and selling them to developed countries. C) A pool of gold and currencies contributed by its members provided the resources for lending operations. D) The World Bank loaned the required amount to the IMF at a low interest rate. E) It collected money from those countries that wished to devaluate their currencies.

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49) Which term was not defined in the International Monetary Fund's Articles of Agreement but was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products? A) competitive disadvantage B) capital flight C) fundamental disequilibrium D) break-even point E) diseconomies of scale

50) Unforeseen economic factors caused a Central American nation to suffer from a catastrophic and permanent shift in the demand for the furniture it manufactured and the fruit it produced. The country is experiencing high unemployment as a result. Per the IMF's Articles of Agreement, this nation suffered from a A) competitive advantage. B) capital flight. C) fundamental disequilibrium. D) break-even point. E) diseconomies of scale.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 11-02 Explain the role played by the World Bank and the IMF in the international Topic : The Role of the World Bank and the International Monetary Fund in the International Monetary Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

51) If Canada suffered from "fundamental disequilibrium," and its government choose not to devalue its currency, a likely consequence of this would be A) a persistent trade surplus. B) a balance-of-payments equilibrium. C) an increase in exports. D) high unemployment. E) deflation.

52)

The initial focus for the World Bank was to help A) boost the money supply in North America. B) reconstruct the war-torn economies of Europe. C) assess the economic infrastructure of communist nations. D) revive the gold standard system. E) stimulate trade between Cuba and the United States.

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53) The adoption of the Marshall Plan redirected the efforts of the World Bank, which then turned its focus on A) helping European nations rebuild after the war. B) creating a balance-of-trade in Latin America. C) creating the gold standard. D) lending money to third-world nations. E) eliminating inflation rates.

54) One aspect of the International Bank for Reconstruction and Development (IBRD) scheme of the World Bank is that A) the resources to fund IBRD loans are raised through subscriptions from wealthy members. B) the interest rate charged by the World Bank is higher than commercial banks' market rate. C) the borrowers have to pay the bank's cost of funds plus a margin for expenses. D) the bank avoids offering low-interest loans to risky customers whose credit rating is often poor. E) it was established to approve currency devaluations that are beyond 10 percent.

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55)

The International Development Association of the World Bank only provides loans to A) entrepreneurial companies. B) the poorest nations. C) European countries. D) Westernized nations. E) start-up companies.

56)

The collapse of the fixed exchange rate system has been traced to the A) U.S. macroeconomic policy package of 1965-1968. B) establishment of the gold standard. C) Marshall Plan, under which the United States lent money to European nations. D) failure of the International Monetary Fund to impose monetary discipline. E) increased U.S. tax rate financing Great Depression-era programs.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan Topic : The Influence of Exchange Rates Gradable : automatic

57) Under the U.S. macroeconomic policy package of 1965–1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by A) the sale of gold reserves. B) borrowing from the International Monetary Fund. C) an increase in the money supply. D) an increase in taxes. E) selling bonds in the international capital market.

58) What was the result of President Lyndon B. Johnson’s attempts to finance his welfare programs? A) increased exports B) a rise in price inflation C) increased taxes D) a positive trade balance E) an increase in the value of the dollar

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59) What action did President Nixon take to enable devaluation of the dollar during the increase in U.S. inflation in 1971? A) The IMF member countries would adopt the gold standard to fix exchange rates. B) The United States would no longer support the World Bank. C) A new 15 percent tax would be charged on U.S. exports. D) The dollar would no longer be convertible into gold. E) German deutsche marks would be the new reference currency.

60)

A potential downfall of the Bretton Woods system was that it would not work if A) the currency of choice, the U.S. dollar, was under speculative attack. B) only one form of currency was used as the basis for exchange. C) gold was valued higher than the dollar. D) at least ten nations failed to agree to the system. E) services were not included in the agreement.

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61)

Which government intervention resulted in gold being abandoned as a reserve asset? A) Jamaica agreement B) Bretton Woods agreement C) Marshall Plan D) General Agreement on Tariffs and Trade E) Plaza Accord

62)

What was one of the main elements included in the Jamaica Agreement? A) Gold was introduced as a reserve asset. B) IMF quotas were reduced. C) Floating exchange rates were declared acceptable. D) IMF members were restricted from entering the foreign exchange market. E) A fixed exchange rate system was established.

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63) How was the global monetary system affected by major events in the 1970s, including the OPEC oil crisis in 1971 and the loss of confidence in the U.S. dollar in the late 1970s? A) The value of the U.S. dollar stabilized. B) Exchange rates became much more volatile. C) Exchange rates became more predictable. D) The fixed rate system was adopted to calculate exchange rates. E) The European Monetary System as an institution has gained more prominence.

64) One reason for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit was due to A) political stability in all other parts of the world. B) heavy capital outflows from the United States. C) low real interest rates in the United States. D) slow economic growth in the developed countries of Europe. E) increasing exports against decreasing imports in the United States.

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65)

The fall in the value of the U.S. dollar between 1985 and 1988 was caused by A) economic growth in the developed countries of Europe. B) a fall in prices of exported U.S. goods. C) a trade surplus in the United States during the previous years. D) a combination of government intervention and market forces. E) the protectionism measures adopted by European countries.

66) Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it would be desirable if A) the countries returned to a system of fixed exchange rates. B) the participating members reverted to the gold standard. C) the United States adopted protectionism to improve its trade balance. D) most major currencies appreciated via the U.S. dollar. E) governments did not regulate the buying and selling of currency.

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67) From mid-2008 through early 2009, the dollar's value moderately increased against major currencies, despite the fact that the American economy was suffering from a serious financial crisis. What caused this phenomenon? A) High real interest rates in the United States compared to any other developed region in the world sparked an inflow of funds into the country. B) U.S. assets were characterized by a high-risk, high-return payoff which prompted foreign investors to park their funds. C) Foreign investors were excited at the possibility of high returns following the government bail-out of financial institutions. D) Foreign investors put their money in low-risk U.S. assets such as low-yielding U.S. government bonds. E) Foreign investors saw opportunities in the United States as the level of indebtedness had begun declining.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan Topic : North America's Marketplace in the World Economy Gradable : automatic

68)

The foreign exchange market is sometimes referred to as a dirty-float system because

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A) of the frequency of government intervention. B) it doesn’t account for developing economies. C) of a lack of monetary discipline. D) it lacks spot exchange activity. E) it reflects a planned economy.

69)

One argument for a fixed exchange rate system is that

A) governments can contract their money supply without worrying about the need to maintain parity. B) trade balance adjustments do not require the intervention of the International Monetary Fund. C) it ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation. D) speculations in exchange rates boost exports and reduce imports. E) each country should be allowed to choose its own inflation rate.

70)

What is the effect of a monetary contraction in a fixed exchange rate system?

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A) It forecasts low interest rates. B) It increases the demand for money. C) It puts downward pressure on a fixed exchange rate. D) It leads to an inflow of money from abroad. E) It can lead to high price inflation.

71) A newly independent Eastern European nation wants to adopt a floating exchange rate system in order to restore monetary control to its government. Using the monetary autonomy argument, how do this country's ministers justify establishing this system? A) Each country should be allowed to choose its own inflation rate. B) Speculation in exchange rates dampens the growth of international trade and investment. C) Unpredictability of exchange rate movements makes business planning difficult. D) Variable exchange rates are more receptive to a trade balance. E) Trade deficits are determined by the balance between savings and investment in a country, not by the external value of its currency.

Question Details Accessibility : Keyboard Navigation Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

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72) Following the global financial crisis in 2008–2009, the economy of Greece fell apart and has struggled to regain strength. What is one reason for the demise of the Greek economy? A) closing borders to trade in 2008 B) new trade agreement with the United States C) a lack of entrepreneurial spirit D) adoption of the euro in 2001 E) a dynamic trade program with France

73) A country in South America is adversely affected by trade deficits and the government wants to move to a floating exchange rate system to help adjust trade imbalances. However, a political group is opposing this. As critics of floating exchange rates, they claim that trade deficits are determined by the A) balance between savings and investment in a country. B) external value of the currency of a country. C) exchange rates of other currencies. D) valuations made by International Monetary Fund and the World Bank. E) mechanism of competitive currency devaluation.

Question Details Accessibility : Keyboard Navigation Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-03 Compare and contrast the differences between a fixed and a floating exchan Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

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74) A country that has an exchange rate system under which its exchange rate is allowed to fluctuate against other currencies within a target zone is using a(n) __________ system. A) free float B) fixed peg C) adjustable peg D) pure float E) capital float

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Gradable : automatic

75) The governing body of an island nation agreed to have the value of their nation’s currency follow that of the U.S. dollar. This is an example of a __________ exchange rate regime. A) target B) pegged C) spot D) command E) free float

Question Details Accessibility : Keyboard Navigation Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

76)

One attribute of a pegged exchange rate is that it leads to

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A) a planned economy. B) low inflation. C) greater supply and demand. D) a lack of monetary discipline. E) a quick recession.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Gradable : automatic

77) During the 1997 Asian currency crisis, the majority of Asian currencies were collapsing with the exception of Hong Kong. How was Hong Kong able to maintain the value of its currency against the U.S. dollar? A) It implemented a free-float exchange rate system. B) It took away the clean-float exchange rate system it had been using. C) It eliminated the need for a pure-float exchange rate system. D) It introduced a currency board. E) It adopted the gold standard.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Gradable : automatic

78) How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible?

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A) borrowing funds from the International Monetary Fund and the World Bank B) maintaining a trade surplus with foreign countries C) holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the domestic currency issued D) importing more goods from foreign countries than it exports E) printing foreign currencies

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Gradable : automatic

79)

How are interest rates typically affected by a strict currency board system?

A) Interest rates adjust automatically based on the supply and demand of domestic currency. B) Developing countries receive lower interest rates. C) Interest rates are based on the gold standard and remain steady. D) Developed countries are required to pay higher interest rates. E) The government is allowed to print money when necessary and charge interest for its use.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Gradable : automatic

80)

One drawback of the currency board system is

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A) the ease with which governments can set and manipulate interest rates acts as a limitation. B) the government does not have the ability to set interest rates. C) the currency board can issue additional domestic notes and coins even when there are no foreign exchange reserves to back it. D) the system is a true fixed exchange rate regime, because the domestic currency is fixed against other currencies. E) the system lacks commitment to convert domestic currency on demand into another currency.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Fixed versus Floating Exchange Rate Systems Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Gradable : automatic

81) Why were Great Britain and the United States able to finance their deficits by borrowing private money since the early 1970s? A) rapid development of global capital markets B) shortage of International Monetary Fund grants available for disbursal C) high interest rate charged by the International Monetary Fund D) establishment of currency boards in these countries E) decline of the Bretton Woods system

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82)

A nation that is experiencing a currency crisis will A) realize a sharp appreciation in the value of a currency. B) force authorities to block large volumes of international currency reserves. C) not be eligible for loans from the International Monetary Fund. D) find that government sharply increases interest rates to defend the prevailing exchange

rate. E) face sharp decreases in stock and property prices.

Question Details Accessibility : Keyboard Navigation Learning Objective : 11-05 Understand the debate surrounding the role of the IMF in the management of AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : Crisis The Role of the World Bank and the International Monetary Fund in the International Mo Gradable : automatic

83)

What is one result of a banking crisis? A) It leads to individuals and companies withdrawing their deposits from banks. B) It results in a sharp appreciation in the value of the currency. C) It creates an uptick in domestic borrowing. D) It leads to price deflation. E) It results in low government deficits.

84) Most of the International Monetary Fund's loan activities since the mid-1970s have been targeted toward developing nations typically because

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A) developed nations are not willing to enact certain macroeconomic policies in return for money. B) developing nations are more than twice as likely to experience financial crises as developed nations. C) it does not have enough funds to lend to large and developed countries. D) only developing nations are allowed to be its beneficiaries. E) of relatively slow economic growth in the developed countries of Europe.

85) According to the agreement reached between the International Monetary Fund and the South Korean government in 1997, in return for funding, the South Koreans were required to A) adopt communist ideologies. B) reduce their imports by enforcing restrictive import licensing. C) open their economy to greater foreign competition. D) oppose the ideologies of the World Trade Organization. E) engage in competitive currency devaluation.

86) limit

All International Monetary Fund (IMF) loan packages come with conditions attached that

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A) trade liberalization. B) elimination of restrictive import licensing. C) public spending. D) privatization of state-owned assets. E) deregulation of the economy to increase competition.

87) In the context of the 1997 Asian crisis, how did the International Monetary Fund's "onesize-fits-all" approach to macroeconomic policy affect South Korea? A) It led to a decrease in the interest rates of short-term loans. B) It made it difficult for companies to service their excessive short-term debt obligations. C) It decreased the probability of widespread corporate defaults. D) South Korea failed to recover from its financial crises. E) South Korea was forced to increase restrictions on foreign direct investment.

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88) All the major office furniture manufacturers within a country realize the industry is in trouble. Their costs have become out of control and foreign manufacturers are gaining market share because they have lower prices. The office furniture manufacturers all agree to cut off ties with all foreign imports and focus only on domestic suppliers as a way to cut costs. They agree to try it for six months and if it doesn’t work out, it really doesn’t matter because the government will bail out the industry. This is an example of A) systemic risk. B) a moral hazard. C) an ethical dilemma. D) tragedy of the commons. E) risk compensation.

Question Details Accessibility : Keyboard Navigation Learning Objective : 11-05 Understand the debate surrounding the role of the IMF in the management of Topic : The Role of the World Bank and the International Monetary Fund in the International Monetary Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

89) During the 1990s, some Western banks were far too willing to lend large amounts to companies that were already overleveraged. The banks knew the government would save them if these loans were foreclosed. What type of activity does this represent? A) cognitive dissonance B) conflict of interest C) systemic risk D) moral hazard E) tragedy of the commons

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90)

The International Monetary Fund has been criticized for A) its lack of a "one-size-fits-all" approach to macroeconomic policy. B) encouraging moral hazard among banks. C) its lack of power and authority. D) using external experts to gain knowledge about a country. E) keeping its operations open to outside scrutiny.

91) According to the critics of the International Monetary Fund (IMF), how should moral hazards exhibited by banks be resolved? A) The IMF should use a "one-size-fits-all" approach to macroeconomic policy and not cater to individual needs. B) The IMF should establish a mechanism for accountability. C) The IMF should free all banks from the obligation of financial reporting. D) The banks should be forced to pay the price for their rash lending policies, even if it means they have to close. E) The IMF should bail out the banks whose loans gave rise to financial crises.

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92)

According to the noted economist Jeffrey Sachs, the International Monetary Fund should A) not be accountable to anyone as it is a powerful institution. B) bail out banks that have rash lending policies. C) have a "one-size-fits-all" approach to macroeconomic policy. D) make greater use of outside experts. E) lend only to countries with safe credit ratings.

93) Which institution helped contain the global financial crisis of 2008–2009 by rescuing Iceland, Ireland, Greece, and Latvia? A) GATT B) United Nations C) World Bank D) IMF E) WTO

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94) The exchange rate movements during the 1980s and 1990s proved contrary to the purchasing power parity theory because A) they were influenced by supply and demand. B) they did not seem to be strongly influenced by inflation rates. C) they caused a recession. D) they helped countries to maintain strategic flexibility by dispersing production to different locations. E) they forced a reduction in government spending.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-06 Explain the implications of the global monetary system for management prac Topic : The Influence of Exchange Rates Gradable : automatic

95)

How does increased foreign exchange risk affect business? A) This creates more opportunities for a business. B) This has no effect on a business. C) This has a negative effect on a business. D) This makes it easier for a business to obtain customers. E) This lowers the cost of doing business.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-06 Explain the implications of the global monetary system for management prac Topic : The Influence of Exchange Rates Gradable : automatic

96) Nature Now Inc., a maker of hiking and biking gear, is a multinational brand and has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, Nature Now should A) pursue strategies that increase its economic exposure. B) avoid using instruments like forward market and swaps. C) disperse production to different locations around the globe. D) avoid contracting out manufacturing. E) restrict its low-value-added manufacturing to one location.

Question Details Accessibility : Keyboard Navigation Learning Objective : 11-06 Explain the implications of the global monetary system for management prac Topic : The Influence of Exchange Rates AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

97)

It is most appropriate for a firm to contract out manufacturing when

A) individual manufacturers have few firm-specific skills that contribute to the value of their product. B) the value of the host country currency is expected to appreciate. C) supplier switching costs are correspondingly high. D) firm-specific technology and expertise add significant value to the product. E) the currency used for pricing a product is anticipated to stay weak in the long run.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 11-06 Explain the implications of the global monetary system for management prac Topic : The Influence of Exchange Rates Gradable : automatic

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 98) Differentiate between a floating exchange rate and a pegged exchange rate.

99) Discuss when a nation might choose the process of dollarization. Provide an example of a country that has used this process.

100)

Explain the two institutions established by the Bretton Woods agreement.

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101) Describe the Jamaica agreement of 1976. What were the main elements of this agreement?

102) The rise in the value of the dollar between 1980 and 1985 occurred when the United States was running a large and growing trade deficit. Explain the factors that led to this rise.

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103) Discuss the role of automatic trade balance adjustments as support for floating exchange rates.

104)

Discuss how uncertainty provides an argument for a fixed exchange rate system.

105)

Briefly describe the pegged exchange rate regime.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 11-04 Identify exchange rate regimes used in the world today and why countries a Topic : Different Exchange Rate Regimes Gradable : manual

106)

Explain when a currency board would be put in place.

107)

Compare and contrast a currency crisis, a foreign debt crisis, and a banking crisis.

108) Explain why all International Monetary Fund loan packages come with conditions attached.

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109) Elaborate on the main criticisms of the International Monetary Fund's approach to financial crises.

Question Details Accessibility : Keyboard Navigation Learning Objective : 11-05 Understand the debate surrounding the role of the IMF in the management of Topic : The Role of the World Bank and the International Monetary Fund in the International Monetary AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : manual

110)

Discuss Jeffrey Sachs’ criticism of the IMF.

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111) How has the volatility of the current global exchange rate regime affected international businesses? How can the problem be tackled?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Different Exchange Rate Regimes Learning Objective : 11-06 Explain the implications of the global monetary system for management prac Gradable : manual

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Answer Key Test name: Hill_11 1) TRUE 2) FALSE 3) TRUE 4) TRUE Another option is for a country to abandon its own currency and instead adopt another currency (typically the U.S. dollar—a process referred to asdollarization). Dollarization is sometimes used when a country is suffering from severe macroeconomic problems, such as high inflation, that are making its own currency worthless. 5) TRUE A country is said to be inbalance-of-trade equilibrium when the income its residents earn from exports is equal to the money its residents pay to other countries for imports (the current account of its balance of payments is in balance). 6) TRUE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) FALSE 14) TRUE 15) TRUE 16) FALSE Version 1

17) TRUE 18) TRUE 19) FALSE 20) FALSE 21) TRUE Acurrency crisis occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate. This happened in Brazil in 2002, and the IMF stepped in to help stabilize the value of the Brazilian currency on foreign exchange markets by lending it foreign currency. 22) TRUE 23) FALSE 24) TRUE 25) C The international monetary system refers to the institutional arrangements that govern exchange rates. 26) B Floating exchange rate refers to a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand. Four of the world's major trading currencies—the U.S. dollar, the European Union's euro, the Japanese yen, and the British pound—are all free to float against each other. 27) B

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Many of the world's developing nations peg their currencies, primarily to the dollar or the euro. A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. 28) A Many of the world's developing nations peg their currencies, primarily to the dollar or the euro. A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. 29) B When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a floating exchange rate regime. Four of the world's major trading currencies—the U.S. dollar, the European Union's euro, the Japanese yen, and the British pound—are all free to float against each other. Thus, their exchange rates are determined by market forces, and fluctuate against each other day to day, if not minute to minute. 30) D Dirty float refers to a system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value. It is a float because in theory, the value of the currency is determined by market forces, but it is a dirty float (as opposed to a clean float) because the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency. Version 1

31) C Some countries have operated with a fixed exchange rate, in which the values of a set of currencies are fixed against each other at some mutually agreed-on exchange rate. 32) A As the volume of international trade expanded in the wake of the Industrial Revolution, a more convenient means of financing international trade was needed. Shipping large quantities of gold and silver around the world to finance international trade seemed impractical. The solution adopted was to arrange for payment in paper currency and for governments to agree to convert the paper currency into gold on demand at a fixed rate. 33) D The amount of a currency needed to purchase one ounce of gold was referred to as the gold par value. From the gold par values of pounds and dollars, we can calculate what the exchange rate was for converting pounds into dollars. 34) D The amount of a currency needed to purchase one ounce of gold was referred to as the gold par value. In this case it takes 1.5 times the amount of dollars to buy the same amount of gold. 35) B A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is equal to the money its residents pay to other countries for imports (the current account of its balance of payments is in balance). 36) A

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Under the gold standard, when Japan has a trade surplus, there is a net flow of gold from the United States to Japan. These gold flows automatically reduce the U.S. money supply and swell Japan’s money supply. As we saw in Chapter 10, there is a close connection between money supply growth and price inflation. An increase in money supply will raise prices in Japan, while a decrease in the U.S. money supply will push U.S. prices downward. The rise in the price of Japanese goods will decrease demand for these goods, while the fall in the price of U.S. goods will increase demand for these goods. Thus, Japan will start to buy more from the United States, and the United States will buy less from Japan, until a balance-of-trade equilibrium is achieved. 37) A Because there are 480 grains in an ounce, one ounce of gold costs 30 zeelars (480/16). The amount of currency needed to purchase one ounce of gold is referred to as the gold par value. 38) B The net result of actions of countries in the 1930s was the shattering of any remaining confidence in the gold standard system. With countries devaluing their currencies at will, one could no longer be certain how much gold a currency could buy. Instead of holding on to another country's currency, people often tried to change it into gold immediately, lest the country devalue its currency in the intervening period. This put pressure on the gold reserves of various countries, forcing them to suspend gold convertibility. 39) C

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Pegging currencies to gold and guaranteeing convertibility is known as the gold standard. Under the gold standard, when country A has a trade surplus with country B, there will be a net flow of gold from country B to country A. These gold flows automatically reduce the money supply of country B and swell country A's money supply. 40) B The United States followed suit and left the gold standard in 1933 but returned to it in 1934, raising the dollar price of gold from $20.67 per ounce to $35.00 per ounce. Because more dollars were needed to buy an ounce of gold than before, the implication was that the dollar was worth less. 41) C With countries devaluing their currencies at will, one could no longer be certain how much gold a currency could buy. The net result was the shattering of any remaining confidence in the gold standard system. Instead of holding on to another country's currency, people often tried to change it into gold immediately, lest the country devalue its currency in the intervening period. This put pressure on the gold reserves of various countries, forcing them to suspend gold convertibility. 42) D The 1944 Bretton Woods conference established the basic framework for the post-World War II international monetary system. The Bretton Woods conference also created two major international institutions that play a role in the international monetary system—the International Monetary Fund (IMF) and the World Bank. The IMF was given the task of maintaining order in the international monetary system; the World Bank's role was to promote development. 43) A

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The Bretton Woods agreement called for a system of fixed exchange rates that would be policed by the IMF. Under the agreement, all countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold. Only the dollar remained convertible into gold. 44) B The agreement reached at Bretton Woods established two multinational institutions—the International Monetary Fund (IMF) and the World Bank. The task of the IMF would be to maintain order in the international monetary system and that of the World Bank would be to promote general economic development. 45) B An aspect of the Bretton Woods agreement was a commitment not to use devaluation as a weapon of competitive trade policy. However, if a currency became too weak to defend, a devaluation of up to 10 percent would be allowed without any formal approval by the International Monetary Fund (IMF). Larger devaluations required IMF approval. 46) B A fixed exchange rate regime imposes monetary discipline on countries, thereby curtailing price inflation. If a country had to rapidly increase its money supply by printing currency, inflation would make its goods uncompetitive in world markets, while the prices of imports would become more attractive in that country. 47) A

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Although monetary discipline was a central objective of the Bretton Woods agreement, it was recognized that a rigid policy of fixed exchange rates would be too inflexible. In some cases, a country's attempts to reduce its money supply growth and correct a persistent balance-of-payments deficit could force the country into recession and create high unemployment. The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built limited flexibility into the fixed exchange rate system. 48) C The International Monetary Fund (IMF) stood ready to lend foreign currencies to members to tide them over during short periods of balanceof-payments deficits, when a rapid tightening of monetary or fiscal policy would hurt domestic employment. A pool of gold and currencies contributed by IMF members provided the resources for these lending operations. 49) C The system of adjustable parities allowed for the devaluation of a country's currency by more than 10 percent if the International Monetary Fund (IMF) agreed that a country's balance of payments was in "fundamental disequilibrium." The term fundamental disequilibrium was not defined in the IMF's Articles of Agreement, but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products. 50) C

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The system of adjustable parities allowed for the devaluation of a country's currency by more than 10 percent if the International Monetary Fund (IMF) agreed that a country's balance of payments was in "fundamental disequilibrium." The term fundamental disequilibrium was not defined in the IMF's Articles of Agreement, but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products. 51) D The system of adjustable parities allowed for the devaluation of a country's currency by more than 10 percent if the International Monetary Fund (IMF) agreed that a country's balance of payments was in "fundamental disequilibrium." The term fundamental disequilibrium was not defined in the IMF's Articles of Agreement, but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products. Without devaluation, such a country would experience high unemployment and a persistent trade deficit until the domestic price level had fallen far enough to restore a balance-ofpayments equilibrium. 52) B When the Bretton Woods participants established the World Bank, the need to reconstruct the war-torn economies of Europe was foremost in their minds. The bank's initial mission was to help finance the building of Europe's economy by providing low-interest loans. 53) D

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The World Bank's initial mission was to help finance the building of Europe's economy by providing low-interest loans. As it turned out, the World Bank was overshadowed in this role by the Marshall Plan, under which the United States lent money directly to European nations to help them rebuild. So the bank turned its attention to development and began lending money to third-world nations. 54) C Under the IBRD scheme, money is raised through bond sales in the international capital market. Borrowers pay what the bank calls a market rate of interest—the bank's cost of funds plus a margin for expenses. This "market" rate is lower than commercial banks' market rate. Under the IBRD scheme, the bank offers low-interest loans to risky customers whose credit rating is often poor, such as the governments of underdeveloped nations. 55) B The World Bank lends money under two schemes. One scheme is overseen by the International Development Association (IDA), an arm of the bank created in 1960. Resources to fund IDA loans are raised through subscriptions from wealthy members such as the United States, Japan, and Germany. IDA loans go only to the poorest countries. Borrowers have up to 50 years to repay at an interest rate of less than 1 percent a year. 56) A Most economists trace the breakup of the fixed exchange rate system to the U.S. macroeconomic policy package of 1965-1968. To finance both the Vietnam conflict and his welfare programs, President Lyndon Johnson backed an increase in U.S. government spending that was not financed by an increase in taxes.

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57) C Most economists trace the breakup of the fixed exchange rate system to the U.S. macroeconomic policy package of 1965–1968. To finance both the Vietnam conflict and his welfare programs, President Lyndon Johnson backed an increase in U.S. government spending that was not financed by an increase in taxes. Instead, it was financed by an increase in the money supply, which led to a rise in price inflation from less than 4 percent in 1966 to close to 9 percent by 1968. 58) B To finance both the Vietnam conflict and his welfare programs, President Lyndon Johnson backed an increase in U.S. government spending that was not financed by an increase in taxes. Instead, it was financed by an increase in the money supply, which led to a rise in price inflation from less than 4 percent in 1966 to close to 9 percent by 1968. 59) D To force the issue of the devaluation of the dollar, President Nixon announced in August 1971 that the dollar was no longer convertible into gold. He also announced that a new 10 percent tax on imports would remain in effect until U.S. trading partners agreed to revalue their currencies against the dollar. 60) A The Bretton Woods system had an Achilles’ heel: The system could not work if its key currency, the U.S. dollar, was under speculative attack. The Bretton Woods system could work only as long as the U.S. inflation rate remained low and the United States did not run a balance-ofpayments deficit. Once these things occurred, the system soon became strained to the breaking point. 61) A

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One of the main elements of the Jamaica Agreement was that gold was abandoned as a reserve asset. 62) C The Jamaica meeting revised the International Monetary Fund's Articles of Agreement to reflect the new reality of floating exchange rates. As per the Jamaica agreement, gold was abandoned as a reserve asset. The International Monetary Fund returned its gold reserves to members at the current market price, placing the proceeds in a trust fund to help poor nations. Floating exchange rates were declared acceptable and IMF members were permitted to enter the foreign exchange market to even out “unwarranted” speculative fluctuations. 63) B Since March 1973, exchange rates have become much more volatile and less predictable than they were between 1945 and 1973. This volatility has been partly due to a number of unexpected shocks to the world monetary system including the OPEC oil crisis in 1971 and the loss of confidence in the dollar. 64) D The rise in the value of the dollar between 1980 and 1985 occurred when the United States was running a large and growing trade deficit, importing substantially more than it exported. A number of favorable factors overcame the unfavorable effect of a trade deficit. High real interest rates in the United States attracted foreign investors seeking high returns on financial assets. At the same time, political turmoil in other parts of the world, along with relatively slow economic growth in the developed countries of Europe, helped create the view that the United States was a good place to invest. 65) D

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The fall in the value of the dollar between 1985 and 1988 was caused by a combination of government intervention and market forces. The rise in the dollar, which priced U.S. goods out of foreign markets and made imports relatively cheap, had contributed to a dismal trade picture. 66) D In September 1985, the finance ministers and central bank governors of the so-called Group of Five major industrial countries (Great Britain, France, Japan, Germany, and the United States) met at the Plaza Hotel in New York and reached what was later referred to as the Plaza Accord. They announced that it would be desirable for most major currencies to appreciate vis-à-vis the U.S. dollar and pledged to intervene in the foreign exchange markets, selling dollars, to encourage this objective. 67) D From mid-2008 through early 2009, the dollar staged a moderate rally against major currencies, despite the fact that the American economy was suffering from a serious financial crisis. The reason seems to be that despite America's problems, things were even worse in many other countries, and foreign investors saw the dollar as a safe haven and put their money in low-risk U.S. assets, particularly low-yielding U.S. government bonds. 68) A The dollar may not have declined by as much as it did in 2004, for example, had not U.S. government officials publicly ruled out any action to stop the decline. Paradoxically, a signal not to intervene can affect the market. The frequency of government intervention in the foreign exchange market explains why the current system is sometimes thought of as amanaged-float system or a dirty-float system. 69) C

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The need to maintain fixed exchange rate parity ensures that governments do not expand their money supplies at inflationary rates. Advocates of fixed rates argue that governments all too often give in to political pressures and expand the monetary supply far too rapidly, causing unacceptably high price inflation. A fixed exchange rate regime would ensure that this does not occur. 70) D Monetary contraction requires high interest rates (to reduce the demand for money). Higher interest rates lead to an inflow of money from abroad, which puts upward pressure on a fixed exchange rate. 71) A Advocates of floating exchange rates argue that each country should be allowed to choose its own inflation rate (the monetary autonomy argument). 72) D A contrast can be drawn with the recent situation in Greece, where the economy imploded following the 2008–2009 global financial crisis and has struggled to recover. Part of the problem in Greece is that it gave up its own currency to adopt the euro in 2001, and the euro has remained quite strong; thus, Greece cannot rely on a falling local currency to boost exports and stimulate economic recovery. 73) A Those in favor of floating exchange rates argue that floating rates help adjust trade imbalances. Critics question the closeness of the link between the exchange rate and the trade balance. They claim trade deficits are determined by the balance between savings and investment in a country, not by the external value of its currency. 74) C Version 1

Governments around the world pursue a number of different exchange rate policies. Some countries have adopted a system under which their exchange rate is allowed to fluctuate against other currencies within a target zone (an adjustable peg system). 75) B Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency so that, for example, as the U.S. dollar rises in value, its own currency rises too. For a pegged exchange rate to impose monetary discipline on a country, the country whose currency is chosen for the peg must also pursue sound monetary policy. 76) B As with a full fixed exchange rate regime, the great virtue claimed for a pegged exchange rate is that it imposes monetary discipline on a country and leads to low inflation. 77) D Hong Kong was able to maintain the value of its currency by introducing a currency board. A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. To make this commitment credible, the currency board holds reserves of foreign currency equal at the fixed exchange rate to at least 100 percent of the domestic currency issued. 78) C A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. To make this commitment credible, the currency board holds reserves of foreign currency equal at the fixed exchange rate to at least 100 percent of the domestic currency issued. 79) A Version 1

Under this arrangement, the currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it. This limits the ability of the government to print money and, thereby, create inflationary pressures. Under a strict currency board system, interest rates adjust automatically. 80) B Currency boards have their drawbacks. If local inflation rates remain higher than the inflation rate in the country to which the currency is pegged, the currencies of countries with currency boards can become uncompetitive and overvalued. Also, under a currency board system, government lacks the ability to set interest rates. 81) A Since the early 1970s, the rapid development of global capital markets has allowed developed countries such as Great Britain and the United States to finance their deficits by borrowing private money, as opposed to drawing on International Monetary Fund grants. 82) D A currency crisis occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate. 83) A

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A banking crisis refers to a loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits. Currency crises, banking crises, and foreign debt crises tend to have common underlying macroeconomic causes: high relative price inflation rates, a widening current account deficit, excessive expansion of domestic borrowing, high government deficits, and asset price inflation (such as sharp increases in stock and property prices). 84) B The International Monetary Fund's data suggest that developing nations were more than twice as likely to experience currency and banking crises as developed nations. It is not surprising, therefore, that most of the International Monetary Fund's loan activities since the mid-1970s have been targeted toward developing nations. 85) C With its economy on the verge of collapse, the South Korean government requested $20 billion in standby loans from the IMF on November 21, 1997. On December 3, 1997, the IMF and South Korean government reached a deal to lend $55 billion to the country. And in return, the IMF said South Korea would comply with its commitments to the World Trade Organization to eliminate trade-related subsidies and restrictive import licensing and would streamline its import certification procedures, all of which should open the South Korean economy to greater foreign competition. 86) C

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All International Monetary Fund (IMF) loan packages come with conditions attached. Until very recently, the IMF has insisted on a combination of tight macroeconomic policies, including cuts in public spending, higher interest rates, and tight monetary policy. It has also often pushed for the deregulation of sectors formerly protected from domestic and foreign competition, privatization of state-owned assets, and better financial reporting from the banking sector. These policies are designed to cool overheated economies by reining in inflation and reducing government spending and debt. 87) B One criticism is that the International Monetary Fund's traditional policy prescriptions represent a "one-size-fits-all" approach to macroeconomic policy that is inappropriate for many countries. In South Korea, for example, the government had been running a budget surplus for years, and inflation was low at about 5 percent. South Korea had the second strongest financial position of any country in the Organization for Economic Cooperation and Development. Despite this, critics say, the International Monetary Fund insisted on applying the same policies that it applies to countries suffering from high inflation. Increasing interest rates made it even more difficult for companies to service their already excessive short-term debt obligations, and critics used this as evidence to argue that the cure prescribed by the IMF may actually increase the probability of widespread corporate defaults, not reduce them. 88) B A criticism of the International Monetary Fund is that its rescue efforts are exacerbating a problem known to economists as moral hazard. Moral hazard arises when people behave recklessly because they know they will be saved if things go wrong. 89) D Version 1

A criticism of the International Monetary Fund is that its rescue efforts are exacerbating a problem known to economists as moral hazard. Moral hazard arises when people behave recklessly because they know they will be saved if things go wrong. 90) B A criticism of the International Monetary Fund is that its rescue efforts are exacerbating a problem known to economists as moral hazard. Moral hazard arises when people behave recklessly because they know they will be saved if things go wrong. 91) D Moral hazard arises when people behave recklessly because they know they will be saved if things go wrong. Critics point out that many Japanese and Western banks were far too willing to lend large amounts of capital to overleveraged Asian companies during the boom years of the 1990s. Critics argue that the banks should now be forced to pay the price for their rash lending policies, even if that means some banks must close. 92) D A criticism of the International Monetary Fund (IMF) is that it has become too powerful for an institution that lacks any real mechanism for accountability. The IMF has determined macroeconomic policies in those countries, yet according to critics such as noted economist Jeffrey Sachs, the IMF, with a staff of less than 1,000, lacks the expertise required to do a good job. Sachs's solution to this problem is to reform the IMF so it makes greater use of outside experts and its operations are open to greater outside scrutiny. 93) D

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The IMF can also point to some notable accomplishments, including its success in containing the Asian crisis, which could have rocked the global international monetary system to its core, and its actions in 2008– 2010 to contain the global financial crisis, quickly stepping in to rescue Iceland, Ireland, Greece, and Latvia. 94) B Contrary to the predictions of the purchasing power parity theory, exchange rate movements during the 1980s and 1990s often did not seem to be strongly influenced by relative inflation rates. 95) C Under the present system, speculative buying and selling of currencies can create very volatile movements in exchange rates (as exhibited by the rise and fall of the dollar during the 1980s and the Asian currency crisis of the late 1990s). Contrary to the predictions of the purchasing power parity theory (see Chapter 10), exchange rate movements during the 1980s and 1990s often did not seem to be strongly influenced by relative inflation rates. Insofar as volatile exchange rates increase foreign exchange risk, this is not good news for business. 96) C The volatility of the current global exchange rate regime presents a conundrum for international businesses. Maintaining strategic flexibility can take the form of dispersing production to different locations around the globe as a real hedge against currency fluctuations. 97) A

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A way of building strategic flexibility and reducing economic exposure involves contracting out manufacturing. However, this kind of strategy may work only for low-value-added manufacturing (e.g., textiles), in which the individual manufacturers have few if any firm-specific skills that contribute to the value of the product. 98)When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a floating exchange rate regime. Four of the world's major trading currencies—the U.S. dollar, the European Union's euro, the Japanese yen, and the British pound—are all free to float against each other. Thus, their exchange rates are determined by market forces and fluctuate against each other. A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. 99)Another option is for a country to abandon its own currency and instead adopt another currency (typically the U.S. dollar—a process referred to as dollarization). Dollarization is sometimes used when a country is suffering from severe macroeconomic problems, such as high inflation, that are making its own currency worthless. This was the case with Ecuador in 2000, which abandoned its own currency in favor of the U.S. dollar after suffering from hyperinflation. Dollarization is now being considered as an option for Venezuela, a country whose currency has been rendered worthless by hyperinflation.

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100) The agreement reached at Bretton Woods established two multinational institutions—the International Monetary Fund (IMF) and the World Bank. The task of the IMF would be to maintain order in the international monetary system and that of the World Bank would be to promote general economic development. The IMF stood ready to lend foreign currencies to members to tide them over during short periods of balance-of-payments deficits, when a rapid tightening of monetary or fiscal policy would hurt domestic employment. A pool of gold and currencies contributed by IMF members provided the resources for these lending operations. The official name for the World Bank is the International Bank for Reconstruction and Development (IBRD). When the Bretton Woods participants established the World Bank, the need to reconstruct the wartorn economies of Europe was foremost in their minds. The bank’s initial mission was to help finance the building of Europe’s economy by providing low-interest loans.

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101) The floating exchange rate regime that followed the collapse of the fixed exchange rate system was formalized in January 1976 when IMF members met in Jamaica and agreed to the rules for the international monetary system that are in place today. The Jamaica meeting revised the IMF's Articles of Agreement to reflect the new reality of floating exchange rates. The main elements of the Jamaica agreement include the following:● Floating rates were declared acceptable. IMF members were permitted to enter the foreign exchange market to even out "unwarranted" speculative fluctuations. ● Gold was abandoned as a reserve asset. The IMF returned its gold reserves to members at the current market price, placing the proceeds in a trust fund to help poor nations. IMF members were permitted to sell their own gold reserves at the market price. ● Total annual IMF quotas—the amount member countries contribute to the IMF—were increased to $41 billion. Non-oil-exporting, less developed countries were given greater access to IMF funds.

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102)The rise in the value of the dollar between 1980 and 1985 occurred when the United States was running a large and growing trade deficit, importing substantially more than it exported. Conventional wisdom would suggest that the increased supply of dollars in the foreign exchange market as a result of the trade deficit should lead to a reduction in the value of the dollar, but it increased in value. A number of favorable factors overcame the unfavorable effect of a trade deficit. Strong economic growth in the United States attracted heavy inflows of capital from foreign investors seeking high returns on capital assets. High real interest rates attracted foreign investors seeking high returns on financial assets. At the same time, political turmoil in other parts of the world, along with relatively slow economic growth in the developed countries of Europe, helped create the view that the United States was a good place to invest. These inflows of capital increased the demand for dollars in the foreign exchange market, which pushed the value of the dollar upward against other currencies. 103)Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade (importing more than it exported) that could not be corrected by domestic policy, this would require the IMF to agree to currency devaluation. Critics of this system argue that the adjustment mechanism works much more smoothly under a floating exchange rate regime. They argue that if a country is running a trade deficit, the imbalance between the supply and demand of that country’s currency in the foreign exchange markets (supply exceeding demand) will lead to depreciation in its exchange rate. In turn, by making its exports cheaper and its imports more expensive, exchange rate depreciation should correct the trade deficit.

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104)Speculation adds to the uncertainty surrounding future currency movements that characterizes floating exchange rate regimes. The unpredictability of exchange rate movements in the post–Bretton Woods era has made business planning difficult, and it adds risk to exporting, importing, and foreign investment activities. Given a volatile exchange rate, international businesses do not know how to react to the changes— and often they do not react. Why change plans for exporting, importing, or foreign investment after a 6 percent fall in the dollar this month, when the dollar may rise 6 percent next month? This uncertainty, according to the critics, dampens the growth of international trade and investment. They argue that a fixed exchange rate, by eliminating such uncertainty, promotes the growth of international trade and investment. Advocates of a floating system reply that the forward exchange market ensures against the risks associated with exchange rate fluctuations, so the adverse impact of uncertainty on the growth of international trade and investment has been overstated. 105)Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency so that, for example, as the United States dollar rises in value, its own currency rises too. Pegged exchange rates are popular among many of the world's smaller nations. As with a full fixed exchange rate regime, the great virtue claimed for a pegged exchange rate regime is that it imposes monetary discipline on a country and leads to low inflation. Evidence shows that adopting a pegged exchange rate regime moderates inflationary pressures in a country. Many countries operate with only a nominal peg and in practice are willing to devalue their currency rather than pursue a tight monetary policy. It can be very difficult for a smaller country to maintain a peg against another currency if capital is flowing out of the country and foreign exchange traders are speculating against the currency.

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106)A currency board is introduced as a means of controlling a country's currency. A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. To make this commitment credible, the currency board holds reserves of foreign currency equal at the fixed exchange rate to at least 100 percent of the domestic currency issued. Under this arrangement, the currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it. This limits the ability of the government to print money and, thereby, create inflationary pressures. Under a strict currency board system, interest rates adjust automatically. 107) Acurrency crisis occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate. This happened in Brazil in 2002, and the IMF stepped in to help stabilize the value of the Brazilian currency on foreign exchange markets by lending it foreign currency. Abanking crisis refers to a loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits. A foreign debt crisis is a situation in which a country cannot service its foreign debt obligations, whether private-sector or government debt. This happened to Greece, Ireland, and Portugal in 2010, and was also an issue in the most recent IMF intervention in Pakistan.

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108)By 2019, the IMF had programs in around 40 countries that were struggling with economic and/or currency problems. All IMF loan packages come with conditions attached. Until very recently, the IMF has always insisted on a combination of tight macroeconomic policies, including cuts in public spending, higher interest rates, and tight monetary policy. It has also often pushed for the deregulation of sectors formerly protected from domestic and foreign competition, privatization of state-owned assets, and better financial reporting from the banking sector. These policies are designed to cool overheated economies by reining in inflation and reducing government spending and debt. This set of policy prescriptions has come in for tough criticisms from many observers, and the IMF itself has started to modify its approach.

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109) One criticism is that the International Monetary Fund's traditional policy prescriptions represent a "one-size-fits-all" approach to macroeconomic policy that is inappropriate for many countries. In the case of the 1997 Asian crisis, critics argue that the tight macroeconomic policies imposed by the IMF were not well suited to countries that are suffering not from excessive government spending and inflation, but from a private-sector debt crisis with deflationary undertones. A second criticism of the IMF is that its rescue efforts are exacerbating a problem known to economists as moral hazard. Critics point out that many Japanese and Western banks were far too willing to lend large amounts of capital to overleveraged Asian companies during the boom years of the 1990s. These critics argue that the banks should now be forced to pay the price for their rash lending policies, even if that means some banks must close. Only by taking such drastic action, the argument goes, will banks learn the error of their ways and not engage in rash lending in the future. By providing support to these countries, the IMF is reducing the probability of debt default and in effect bailing out the banks whose loans gave rise to this situation. The final criticism of the IMF is that it has become too powerful for an institution that lacks any real mechanism for accountability. The IMF has determined macroeconomic policies in those countries, yet according to critics such as noted economist Jeffrey Sachs, the IMF, with a staff of less than 1,000, lacks the expertise required to do a good job. Sachs's solution to this problem is to reform the IMF so it makes greater use of outside experts and its operations are open to greater outside scrutiny.

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110)The final criticism of the IMF is that it has become too powerful for an institution that lacks any real mechanism for accountability. The IMF has determined macroeconomic policies in those countries, yet according to critics such as noted economist Jeffrey Sachs, the IMF, with a staff of less than 1,000, lacks the expertise required to do a good job. Evidence of this, according to Sachs, can be found in the fact that the IMF was singing the praises of the Thai and South Korean governments only months before both countries lurched into crisis. Then the IMF put together a draconian program for South Korea without having deep knowledge of the country. Sachs’s solution to this problem is to reform the IMF so it makes greater use of outside experts and its operations are open to greater outside scrutiny.

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111)The volatility of the current global exchange rate regime presents a conundrum for international businesses. Exchange rate movements are difficult to predict, and yet their movement can have a major impact on a business's competitive position. It is also difficult if not impossible to get adequate insurance coverage for exchange rate changes that might occur several years in the future. The forward market tends to offer coverage for exchange rate changes a few months—not years—ahead. Given this, it makes sense to pursue strategies that will increase the company's strategic flexibility in the face of unpredictable exchange rate movements—that is, to pursue strategies that reduce the economic exposure of the firm. Maintaining strategic flexibility can take the form of dispersing production to different locations around the globe as a real hedge against currency fluctuations. Another way of building strategic flexibility and reducing economic exposure involves contracting out manufacturing. This allows a company to shift suppliers from country to country in response to changes in relative costs brought about by exchange rate movements. However, this kind of strategy may work only for low-value-added manufacturing (e.g., textiles), in which the individual manufacturers have few if any firm-specific skills that contribute to the value of the product. International Monetary Fund (IMF) policies typically include anti-inflationary monetary policies and reductions in government spending. In the short run, such policies usually result in a sharp contraction of demand. International businesses selling or producing in countries that have borrowed from the IMF need to be aware of this and plan accordingly.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The actions that managers take to attain a firm’s goals represent a company’s strategy. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Gradable : automatic

2) Profit growth is measured by the percentage increase in a company’s total production over time. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Matching Organizations to Strategy to Improve Performance Gradable : automatic

3) The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Matching Organizations to Strategy to Improve Performance Gradable : automatic

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4) Consumer surplus captures some of the value of a product, which reduces the price a firm can charge for it. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Matching Organizations to Strategy to Improve Performance Gradable : automatic

5) A strategy that focuses primarily on increasing the manufacturing rate of a product is referred to as a low-cost strategy. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Matching Organizations to Strategy to Improve Performance Gradable : automatic

6) According to Michael Porter, the only way for firms to create superior value is to export all manufacturing processes. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Matching Organizations to Strategy to Improve Performance Gradable : automatic

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7) In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Features and Functions of the Value Chain Gradable : automatic

8) The inventory management system of a manufacturing company is an example of a support activity. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Features and Functions of the Value Chain Gradable : automatic

The manner in which decisions are made within an organization are called controls. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Matching Organizations to Strategy to Improve Performance Gradable : automatic

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10) Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to locations where they are performed most efficiently and effectively. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Opportunity and Risk Variables for Expansion Gradable : automatic

11) A firm’s core competencies refer to those activities that are easily matched by competitors. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Opportunity and Risk Variables for Expansion Gradable : automatic

12) Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Factors Affecting the Location of Production Activities Gradable : automatic

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13) The experience curve reflects a decrease in production costs that occur over the life of a product. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Opportunity and Risk Variables for Expansion Gradable : automatic

14) Learning effects would be more pronounced in the sales team of a manufacturing company than in an employee on the assembly line. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Opportunity and Risk Variables for Expansion Gradable : automatic

15)

The ability to spread fixed costs over a large volume is a source of economies of scale. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Opportunity and Risk Variables for Expansion Gradable : automatic

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16) Moving down the experience curve means higher costs of increasing value and lower levels of profitability for a firm. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Opportunity and Risk Variables for Expansion Gradable : automatic

17) Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Opportunity and Risk Variables for Expansion Gradable : automatic

18) Universal needs exist when the tastes and preferences of consumers in different nations are identical. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-03 Understand how pressures for cost reductions and local responsiveness infl Topic : Basic Decisions for Entering Foreign Markets Gradable : automatic

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19) Varying distribution channels among countries may make it necessary for a company to place marketing functions within national subsidiaries. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-03 Understand how pressures for cost reductions and local responsiveness infl Topic : Basic Decisions for Entering Foreign Markets Gradable : automatic

20) Firms that pursue an international strategy focus on increasing profitability by reaping the cost reductions that come from economies of scale, learning effects, and location economies. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-04 Identify the different international strategies for competing and their pr Topic : Choosing An International Business Strategy Gradable : automatic

21) Firms that implement a globalization standardization strategy typically do not customize their products to local conditions. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-04 Identify the different international strategies for competing and their pr Topic : Choosing An International Business Strategy Gradable : automatic

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22) A localization strategy focuses on mass production of products to meet general tastes and preferences. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-04 Identify the different international strategies for competing and their pr Topic : Choosing An International Business Strategy Gradable : automatic

23) According to researchers, firms facing strong cost pressures and pressures for local responsiveness should pursue a global standardization strategy. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-04 Identify the different international strategies for competing and their pr Topic : Choosing An International Business Strategy Gradable : automatic

24) An international strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-04 Identify the different international strategies for competing and their pr Topic : Choosing An International Business Strategy Gradable : automatic

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25) A dislocating event, such as the pandemic of 2020, increases the attractiveness of a localization strategy for business. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-05 Explain the pros and cons of using strategic alliances to support internat Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) The rate of return that a firm makes on its invested capital is referred to as A) stakeholder return. B) profitability. C) profit growth. D) process value. E) strategic fit.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Gradable : automatic

27)

How does a company measure profit growth?

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A) by dividing the net profits of the firm by total invested capital B) by subtracting the previous year's gross profit from the current year's gross profit C) by calculating the difference between the previous year's profitability and the current year's profitability D) by finding the percentage increase in net profits over time E) by adding the profitability of the last two fiscal years

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Matching Organizations to Strategy to Improve Performance Gradable : automatic

28) Pure Cycles Inc. sells its Internet-connected helmets for $60. It costs the company $45 to make the product. Customers value the helmets at $70. In this scenario, the consumer surplus is A) $45. B) $70. C) $10. D) $105. E) $60.

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Matching Organizations to Strategy to Improve Performance AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

29) Home Tips Inc. sells its home repair software for $40. It costs the company $8 to make the product. Customers value the software at $30. In this scenario, Home Tips Inc.’s value creation is

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A) $8. B) $22. C) $40. D) $30. E) $38.

30)

In general, the more value customers place on a firm's products, the more it leads to A) less profit for the firm. B) higher competitive pressure from other firms. C) lesser the quality of the product. D) lesser the consumer surplus for those products. E) higher prices the firm can charge for those products.

31) Consumer surplus results when companies charge a lower price for products than the value placed on them by customers. Companies tend to do this because

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A) the value creation results in a corresponding reduction in costs of production. B) it is highly unlikely that the same good or service will be available to the customers from other firms. C) the firm is competing with other firms for the customer's business. D) the firm charges a price that reveals a consumer's assessment of the product's value. E) the firm creates value for the customer by producing a wide range of products.

32) The term __________ is used by economists when referring to charging each customer a price that reflects that individual’s assessment of the value of a product. A) producer surplus B) reservation price C) value price D) efficiency frontier E) competitive advantage.

33) Letitia believes the value of a sweater sold at $125 is $85. An economist would say the $85 value determined by Letitia reflects the

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A) market price. B) negotiated price. C) base value of the product. D) reservation price. E) profit growth price.

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Matching Organizations to Strategy to Improve Performance Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

34) Assume that the value of a base model computer to an average consumer is $300, the average price that Dell can charge a consumer for that product is $275, and the average unit cost of producing that product for Dell is $150. For this scenario, which statement is accurate? A) Dell can easily increase its price above $300. B) The profit for Dell on each computer is $150. C) The consumer surplus per computer is $25. D) The higher the intensity of competitive pressure, the higher the price that Dell can charge relative to $300. E) The lower the consumer surplus, the greater the value for the money the consumer gets.

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35) The value of Simpson Manufacturing’s top selling lawnmower to an average consumer is $700 and the average unit cost of producing that product is $250. In this scenario, $450 ($700−$250) represents A) consumer surplus. B) value creation. C) cost curve. D) value efficiency. E) customer reservation.

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Matching Organizations to Strategy to Improve Performance Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

36) Good For You Cereals is in a highly competitive market and has decided to focus on high-fiber cereals. These cereals will cost more for the consumer, but the company knows there is high demand for this type of product and feels consumers will pay the price. In addition, none of their competitors have produced this product. This is an example of a __________ strategy A) standardization B) differentiation C) target-identification D) low-cost E) profitability

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Matching Organizations to Strategy to Improve Performance Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

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37) According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry? A) differentiation and low-cost B) value creation and generalization C) one-size-fits-all and zero-sum D) comparison and standardization E) profitability and strategic fit

38) By standardizing equipment and streamlining its operations, Ready Now Limousines competes by offering less expensive rides than the competition. According to Michael Porter, the strategy that Ready Now Limousines uses is A) low cost. B) differentiation. C) value transfer. D) efficiency frontier. E) diversification.

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Matching Organizations to Strategy to Improve Performance Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

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39)

According to Michael Porter, superior profitability goes to a firm that

A) creates products similar to their competitors. B) keeps the gap between value and cost of production smaller than the gap attained by competitors. C) drives down the cost structure of its business. D) has the highest cost structure in the industry. E) has the least valuable product in the industry.

40) The __________ shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position. A) purchasing power parity B) experience curve C) efficiency frontier D) optimal output model E) supply-and-demand curve

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41) The concept of __________ suggests that when a company has built significant value into its product offerings, trying to increase the value of the products by even a small amount requires a significant financial investment. A) tragedy of the commons B) diminishing returns C) the Sullivan principle D) supply-and-demand E) purchasing power parity

42) Dinner Is Served has created a ready-to-eat meal delivery service that is unmatched by its competition. The value the company has created now makes it difficult to implement new ideas without spending more money than it originally took to start the business. This demonstrates the idea of A) entrepreneurism. B) a low-cost strategy. C) consumer surplus. D) diminishing returns. E) offshoring.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Matching Organizations to Strategy to Improve Performance Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

43)

According to the basic strategy paradigm, a firm maximizes its profitability when it A) creates products similar to the products of its competitors. B) minimizes the value provided by its products. C) picks a position on the efficiency frontier in which there is little support for their

choice. D) strips all the value out of its product offering. E) configures internal operations to support the position selected by it on the efficiency frontier.

44)

What are the two categories of value creation activities that firms undertake? A) primary activities and support activities B) strategic activities and functional activities C) ancillary functions and tertiary functions D) primary activities and core activities E) goal-oriented activities and organizational activities

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45) Tillers and Tiles Corp. creates machines parts used in the agriculture industry. A primary activity in the operations of Tillers and Tiles Corp. would be A) logistics. B) research and development. C) information systems. D) human resources. E) company infrastructure.

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Matching Organizations to Strategy to Improve Performance Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

46)

In the health care industry, the "production" activity typically occurs when the A) customer specifies the service requirements. B) service is paid for by the customer. C) service is designed in-house. D) service is delivered to the customer. E) customer provides feedback.

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47)

What is considered a support activity in the operations of a firm? A) research and development B) customer service C) marketing and sales D) creation and maintenance of information systems E) production

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Features and Functions of the Value Chain Gradable : automatic

48) Of all the value creation activities in a firm, __________ is concerned with the design of products and production processes. A) production B) research and development C) human resources D) logistics E) marketing and sales

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49) Mariel works at Fashion Now, an online clothing retailer. She fields calls from people who have problems with shipping or who receive an incorrect or damaged item in their order. Which primary activity is Mariel involved with? A) production B) marketing and sales C) human resources D) customer service E) logistics

50) Bath Updates Inc. produces in-house all the products that it sells through its network of stores. It has a function in its value chain that controls sending the physical materials through the value chain, from procurement through production and into distribution. This function is called A) human resources. B) finance. C) marketing. D) logistics. E) research and development.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Features and Functions of the Value Chain AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

51) The 800 people working at Finance One Resource Group deal with the organizational structure, control systems, and culture of the firm. These three things comprise which support function of Finance One Resource Group? A) human resources B) logistics C) information systems D) company infrastructure E) inventory management

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Topic : Matching Organizations to Strategy to Improve Performance Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

52) Who should be considered as part of a firm's infrastructure because of the considerable influence associated with the position? A) procurement manager B) top management C) production manager D) research and development scientist E) marketing personnel

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53) At the beginning of the year, Jocelyn created five goals for each manager on her staff at The Best Day Spa and Gym and she uses those goals as a way to measure their performance throughout the year. These goals are an example of A) reports. B) controls C) rewards. D) knowledge flows. E) folkways.

54)

Processes are defined as the A) manner in which decisions are made and work is performed within the organization. B) metrics used to measure the performance of subunits. C) devices used to reward appropriate managerial behavior. D) metrics used to make judgments about how well managers are running the subunits. E) norms and value systems that are shared among employees of an organization.

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55) When Corey accepted his new job at Whitford Insurance, his manager explained that each employee who came up with at least two ideas that could lead the company to a competitive advantage received a $4,000 bonus at the end of the year. This bonus is an example of a(n) A) control. B) hierarchy. C) folkway. D) incentive. E) process.

56) Kaston Dairy Group believes that as far as its products are concerned, tastes vary worldwide and so it has to customize its products, marketing strategy, and business strategy to allow for differing national conditions. What is affecting the company’s ability to increase its profitability and profit growth by expanding globally? A) the imperative of localization B) economies of scale C) customer surplus. D) the leveraging of skills developed in foreign operations E) the dispersion of individual value creation activities

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Question Details Accessibility : Keyboard Navigation Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : The Global Strategic Planning Process Gradable : automatic

57) A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if A) the product is already being offered by local companies in the nations that the company enters. B) the product is a generic product that requires little differentiation. C) indigenous competitors in the nations that the company enters lack comparable products. D) there is a high inflation in the nations that the company enters. E) the product is perceived to be very costly in the home country of the company.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : The Global Strategic Planning Process Gradable : automatic

58)

How does possessing a core competency help a firm? A) It increases the firm’s costs of value creation. B) It reduces a firm's dependence on its logistics function. C) It allows the firm to implement premium pricing. D) It reduces the scope of transfer of skills to foreign markets. E) It reduces the need to replicate a business model in a foreign market.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : The Global Strategic Planning Process Gradable : automatic

59) Rugs and More Inc. believes that by producing its products in Mexico, the company can take advantage of lower wage rates in that country. By pursuing such a strategy, Rugs and More hopes to realize A) a position inside the efficiency frontier. B) the experience curve. C) economies of scale. D) location economies. E) demographic advantages.

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Factors Affecting the Location of Production Activities Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

60) Coastal Boating Supplies locates its global manufacturing in Tijuana, its global distribution in Florida, and its design center in Stockholm. By dispersing different stages of its value chain to those locations around the world where the value added is maximized or where the costs of value creation are minimized, Coastal Boating Supplies has created a(n) A) factor endowment. B) dispersal chain. C) global web. D) exchange rate. E) home country advantage.

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Question Details Accessibility : Keyboard Navigation Topic : Features and Functions of the Value Chain Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

61)

__________ are most likely to discourage global expansion of businesses. A) Economies of scale B) Factor endowments C) Trade barriers D) Mass customization E) Low transportation costs

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Factors Affecting the Location of Production Activities Gradable : automatic

62) The __________ refers to systematic reductions in production costs that have been observed to occur over the life of a product. A) experience curve B) learning effect C) location economies D) efficiency slope E) economies of scale

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Factors Affecting the Location of Production Activities Gradable : automatic

63) A number of studies have observed that a product's production costs decline by some quantity about each time A) annual output is halved. B) cumulative output doubles. C) the workforce is trimmed by 75 percent. D) fixed investment triples. E) foreign domestic investment doubles.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : The Global Strategic Planning Process Gradable : automatic

64)

The two phenomena that help explain the experience curve are A) learning effects and economies of scale. B) technology inputs and wealth transfer. C) leveraging subsidiary and local responsiveness. D) standardized manufacturing and global web. E) efficiency frontier and location economies.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : The Global Strategic Planning Process Gradable : automatic

65) Merck, a pharmaceutical company, has taken thousands of drugs through the federal approval process and so can do it more cost efficiently than many competitors who are new to the industry. These cost savings that come to Merck in the drug approval process are an example of A) learning effects. B) factor endowments. C) ancillary effects. D) economies of scale. E) location economies.

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Topic : The Global Strategic Planning Process Gradable : automatic

66) When Fritz Welding first began operations, it took five hours to weld a patio table in the workroom. Today, that task takes one hour as more efficient welding techniques have been introduced. This improvement in efficiency is an example of A) diminishing returns. B) location economies. C) a geographic implication. D) learning effects. E) an efficiency frontier.

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67)

Learning effects will be most significant in which of these tasks? A) grocery delivery for a major grocery store B) data entry for a library C) 200-step computer assembly process D) receptionist at a doctor’s office E) delivering letters to different recipients

68)

Learning effects tend to be more significant when A) a task involves a few simple steps. B) a task is repeated for a period of over five years. C) the workforce consists of unskilled labor. D) the cumulative output becomes half of what it was originally. E) a technologically-complex task is repeated.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : The Global Strategic Planning Process Gradable : automatic

69) By producing its products in larger volume than its competitors, Pharma Phast is able to achieve substantial reductions in unit costs. In other words, Pharma Phast achieves A) location economies. B) learning effects. C) standardization economies. D) core economies. E) economies of scale.

70) The streaming service Hulu incurs a huge fixed cost to obtain streaming rights to movies and television programs. However, it is able to spread this cost over a large number of subscribers that results in a cost-savings phenomenon referred to as A) volume synergies. B) economies of scale. C) captured savings. D) size effects. E) location economies.

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71)

Economies of scale are achieved when a company reduces unit costs by A) manufacturing products based on factor endowments. B) producing a larger volume of product. C) reducing staff. D) eliminating competitor value. E) acquiring a new supplier.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : The Global Strategic Planning Process Gradable : automatic

72) Overton Metals reminds employees that its flagship product used to cost the company $187 to manufacture when the company launched fifteen years ago. Now, the same product costs just $45 to manufacture. This reduction in production costs demonstrates the effects of A) a global web. B) dispersion linkage. C) organizational culture. D) the experience curve. E) the efficiency frontier.

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73) Firms that compete in the global marketplace typically face which two types of competitive pressure? A) pressures for increasing investment and pressures to minimize consumer surplus B) pressures for labor skill enhancement and pressures to minimize economies of scale C) pressures for cost reductions and pressures to be locally responsive D) pressures for global promotions and pressures to move down the efficiency frontier E) pressures for product standardization and pressures to move up the experience curve

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-03 Understand how pressures for cost reductions and local responsiveness infl Topic : The Global Strategic Planning Process Gradable : automatic

74)

Cost reduction pressures tend to be particularly intense in industries that A) create products that serve universal needs. B) create customized products. C) are not involved in international business. D) produce products that have inelastic demand. E) serve different customers with different needs.

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75) Products such as steel, bulk chemicals, and industrial electronics do not require much differentiation because the taste and preference for these products is similar all around the world. These products are examples of A) universal needs. B) the efficiency frontier. C) local customization. D) lateral requirements. E) market differentiation.

76) The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally A) increased cost pressures. B) decreased the demand for local responsiveness. C) decreased pressures for cost reduction. D) increased consumer surplus. E) reduced the production of conventional commodity products.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-03 Understand how pressures for cost reductions and local responsiveness infl Topic : The Global Strategic Planning Process Gradable : automatic

77)

A __________ is most favorable to reap gains from global scale economies. A) low demand for local responsiveness B) high pressure for cost reduction C) lack of universal needs D) national difference in accepted business practices E) high pressure to delegate production to domestic subsidiaries

78) One argument supporting the idea that customer demands for local customization are on the decline worldwide is that A) local and indigenous industries are increasingly filling up available demand. B) high costs of local customization are deterring companies from doing so. C) governments across the world are standardizing their legal procedures. D) customer tastes have converged worldwide. E) managers worldwide ignore the differences in consumer tastes and preferences.

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79)

Marketing functions may have to be delegated to national subsidiaries when there is a A) difference in distribution channels. B) pressure for decreasing consumer surplus. C) lack of product customization. D) pressure for increasing economies of scale. E) pressure for increasing consumers' reservation price.

80) Tick Tock Clock Corp., based in Maine, has a manufacturing facility in Indonesia where local content rules regulate manufacturing processes. These rules show the effects of A) variances in distribution channels. B) host-government demands. C) service-oriented processes. D) infrastructure differences. E) traditional practices.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 12-03 Understand how pressures for cost reductions and local responsiveness infl Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Topic : The Global Strategic Planning Process Gradable : automatic

81) Firms that pursue a(n) __________ strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies. A) international B) transnational C) localization D) global standardization E) nationalization

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-04 Identify the different international strategies for competing and their pr Topic : Choosing An International Business Strategy Gradable : automatic

82) How do firms approach customization of products when using the global standardization strategy? A) These firms focus on customizing products to various conditions. B) These firms are typically first-movers in customizing product offerings. C) These firms focus on regional differences but do not assess national differences. D) These firms rely on customization to reduce production runs and lower costs. E) These firms try not to customize to meet local conditions to allow for longer production runs.

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83)

A firm is most likely to pursue a global standardization strategy when A) it wants to implement a high-cost strategy on a global scale. B) it wants to reduce consumer surplus. C) there are no universal needs to be served. D) there are strong demands for local responsiveness. E) there are strong pressures for cost reduction.

84) Comfy Slipper Supply Inc. does not feel the pressure to create custom slippers for any of its markets around the world, but it does want to focus on cost reductions. What strategy should this company consider using to achieve this? A) domestic strategy B) global standardization strategy C) international strategy D) transnational strategy E) nationalization strategy

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Question Details Accessibility : Keyboard Navigation Learning Objective : 12-04 Identify the different international strategies for competing and their pr Topic : Choosing An International Business Strategy AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

85) A(n) __________ focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets. A) international strategy B) global standardization strategy C) localization strategy D) transnational strategy E) nationalization strategy

86)

A localization strategy should be considered when

A) it allows a firm to capture the cost reductions of mass-producing a standardized product. B) it reduces duplication of functions. C) the length of the production run is broadened. D) the value added by customization supports higher pricing. E) it substantially reduces local demand.

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87) A global agricultural parts manufacturer based in South America wants to start production in Europe. While catering to local responsiveness, what can the firm do to get scale economies? A) increase costs whenever possible B) use common components across many different models C) shorten the production runs for each component D) increase the duplication of functions required for each operation E) manufacture only one type of car and sell it in all the international markets

88) A firm should use a(n) __________ strategy when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness. A) global standardization B) localization C) international D) transnational E) nationalization

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89) Researchers Bartlett and Ghoshal noted that in the modern global environment, competition is so intense that in order to survive, a company must do all they can to A) ignore factor endowments. B) provide local responsiveness. C) create first-mover advantage. D) increase costs of production. E) rely on location economies.

90) Firms that pursue a(n) __________ strategy differentiate their product offering across geographic markets to account for local differences. A) international B) global standardization C) transnational D) multidomestic E) nationalization

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91) In today’s global marketplace, __________ companies successfully use a transnational strategy. A) the majority of B) only service C) only agricultural D) more and more E) very few

92) Firms that pursue a(n) __________ strategy take products first produced for their domestic market and sell them across various markets with only minimal local customization. A) nationalization B) transnational C) global standardization D) international E) localization

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 12-04 Identify the different international strategies for competing and their pr Topic : Choosing An International Business Strategy Gradable : automatic

93) Xerox had a monopoly on photocopiers for several years as the technology underlying the photocopier was protected by strong patents. As it served a universal need, this favorable position led Xerox to pursue a(n) A) global standardization strategy. B) localization strategy. C) international strategy. D) transnational strategy. E) nationalization strategy.

94) Arctic Wave Cooling Manufacturing, a manufacturer of commercial air conditioners, invented and patented a new air-conditioning system that radically reduced maintenance and operational issues. Responding to global demand, it decided to sell the systems manufactured at its plant in the United States to various markets across the globe. Since the product features provided by Arctic Wave were not provided by any other competitor, Arctic Wave did not feel any pressure for cost reductions. Which strategy is most likely being pursued by Arctic Wave Cooling?

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A) international B) localization C) global standardization D) transnational E) nationalization

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-04 Identify the different international strategies for competing and their pr Topic : Choosing An International Business Strategy Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

95) An international strategy is unique in that companies are selling a product that serves universal needs, but they do not A) sell to foreign nations. B) understand local needs. C) have significant competition. D) pursue R&D. E) focus on technology products.

96)

A cooperative agreement between potential or actual competitors is called a(n)

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A) tactical union. B) strategic alliance. C) political affiliation. D) economic association. E) nationalization.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Learning Objective : 12-05 Explain the pros and cons of using strategic alliances to support internat Gradable : automatic

97) The Maren Group and Simpson Industries agreed to a short-term contract in which The Maren Group would create 10,000 custom linens for Simpson Industries to use in its hotel chain. This short-term agreement is an example of a A) franchising agreement. B) global web. C) free trade agreement. D) strategic alliance. E) licensing deal.

Question Details Accessibility : Keyboard Navigation Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Learning Objective : 12-05 Explain the pros and cons of using strategic alliances to support internat Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

98)

One disadvantage of a strategic alliance is

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A) it is difficult for a firm to enter into a foreign market. B) the fixed costs of developing new products tend to increase. C) competitors gain a low-cost route to new technology and markets. D) a foreign firm tends to face higher trade barriers. E) it always leads to a loss for either of the firms involved.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-05 Explain the pros and cons of using strategic alliances to support internat Gradable : automatic

99)

One of the principal risks associated with a strategic alliance is that A) it brings together the complementary skills of alliance partners. B) it makes it difficult for the partner firms to enter into a foreign market. C) a firm can give away more than it receives. D) it does not allow firms to share fixed costs. E) it almost always fails.

100) As the manager of the U.S. branch, Genevieve knows it is important for her to build relationships with the managers of the branches in Dubai and São Paulo. Genevieve wants to create

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A) relational capital. B) the Sullivan principle. C) factor endowments. D) symbiotics. E) a first-mover advantage.

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-05 Explain the pros and cons of using strategic alliances to support internat AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : International Labor Relations Gradable : automatic

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 101) Discuss the significance of value creation. According to Michael Porter, what are the two primary strategies for creating value?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Factors Influencing Strategic Choice Gradable : manual

102)

Describe the difference between support activities and primary activities within a firm.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. Bloom's : Understand Difficulty : 2 Medium Topic : Features and Functions of the Value Chain Gradable : manual

103)

Discuss how the service activity can help a firm create value. Provide an example.

Question Details Accessibility : Keyboard Navigation Learning Objective : 12-01 Explain the concept of international business strategy. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Topic : Factors Influencing Strategic Choice Gradable : manual

104)

Describe the four different ways in which a firm benefits from global expansion.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Topic : Benefits of the Global Capital Market Gradable : manual

105)

Discuss how core competencies help a firm develop a competitive advantage.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Matching Organizations to Strategy to Improve Performance Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. Gradable : manual

106) What are the two possible effects that can result when a firm locates a value creation activity in the optimal location for that activity? Provide an example of how this works in international business.

Question Details Accessibility : Keyboard Navigation Topic : Matching Organizations to Strategy to Improve Performance Learning Objective : 12-02 Recognize how firms can increase revenue and profit by expanding globally. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : manual

107) Explain the value of learning effects and provide examples of industries that benefit from them.

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108) Discuss the different types of competitive pressures that firms competing in a global marketplace face. How can firms respond to such pressures?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Matching Organizations to Strategy to Improve Performance Learning Objective : 12-03 Understand how pressures for cost reductions and local responsiveness infl Gradable : manual

109) Name four sources of pressures for local responsiveness and explain why they create pressure.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Matching Organizations to Strategy to Improve Performance Learning Objective : 12-03 Understand how pressures for cost reductions and local responsiveness infl Gradable : manual

110) Describe the rise of regionalism and discuss how the European Union exemplifies this event.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Matching Organizations to Strategy to Improve Performance Learning Objective : 12-03 Understand how pressures for cost reductions and local responsiveness infl Gradable : manual

111)

Discuss a transnational strategy and explain its role in the global market today.

112) Discuss the biggest drawback to the international strategy and explain how Xerox faced this challenge.

113)

What are strategic alliances?

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114)

List the advantages of strategic alliances.

115) Explain the three characteristics necessary in a good ally when considering a strategic alliance.

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116) Discuss how the past few years have realized a sharp reversal to the trend of a more global macro environment.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 12-05 Explain the pros and cons of using strategic alliances to support internat Topic : Factors Influencing Strategic Choice Gradable : manual

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Answer Key Test name: Hill_12 1) TRUE 2) FALSE 3) TRUE 4) TRUE 5) FALSE 6) FALSE 7) TRUE 8) TRUE 9) FALSE 10) TRUE 11) FALSE The termcore competence refers to skills within the firm that competitors cannot easily match or imitate. 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) FALSE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) TRUE 22) FALSE

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Alocalization strategy focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national or regional markets. 23) FALSE 24) TRUE 25) TRUE 26) B Profitability is defined as the rate of return that the firm makes on its invested capital (ROI), which is calculated by dividing the net profits of the firm by total invested capital. 27) D Profit growth is measured by the percentage increase in net profits over time. 28) C Consumer surplus is the difference between the value of a product to the average customer and the price of the product. Here, it is $70−$60 or $10. 29) B Value creation is the difference between the value of a product to the average customer and the cost of the product. Here, it is $30−$8 or $22. 30) E In general, the more value customers place on a firm's products, the higher the price the firm can charge for those products. 31) C

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The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer because the customer captures some of that value in the form of customer surplus. The customer is able to do this because the firm is competing with other firms for the customer's business. 32) B It is normally impossible to segment the market to such a degree that the firm can charge each customer a price that reflects that individual’s assessment of the value of a product, which economists refer to as a customer’s reservation price. 33) D The price that reflects an individual's assessment of the value of a product is referred to as the customer's reservation price. 34) C The consumer surplus per unit is equal toV –P. The firm makes a profit so long asP is greater thanC. Profit will be greater the lowerC is relative toP. The lower the intensity of competitive pressure, the higher the price charged relative toV. 35) B A firm's value creation is measured by the difference between the value of a product to an average consumer and the average unit cost of producing that product. 36) B

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A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a differentiation strategy. Superior profitability goes to those firms that can create superior value, and the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more and are prepared to pay a premium price. 37) A Michael Porter has argued that low-cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry. 38) A Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry. A strategy that focuses primarily on lowering production (or operating) costs is called a low-cost strategy. 39) C According to Porter, superior profitability goes to those firms that can create superior value, and the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more and are prepared to pay a premium price. 40) C The efficiency frontier shows all of the different positions that a firm can adopt with regard to adding value to the product and low cost assuming that its internal operations are configured efficiently to support a particular position. The efficiency frontier has a convex shape because of diminishing returns. 41) B Version 1

The efficiency frontier has a convex shape because of diminishing returns. Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. 42) D Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. 43) E To maximize its profitability, a firm must configure its internal operations, such as manufacturing, marketing, logistics, information systems, human resources, and so on, so that they support that position. 44) A Value creation activities, or operations, can be categorized as primary activities and support activities. 45) B Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. The primary activities are divided into four functions: research and development, production, marketing and sales, and customer service. 46) D For services such as banking or health care, "production" typically occurs when the service is delivered to the customer. 47) D The support activities of the value chain provide inputs that allow the primary activities to occur. They include information systems. 48) B Version 1

Research and development (R&D) is concerned with the design of products and production processes. Although we think of R&D as being associated with the design of physical products and production processes in manufacturing enterprises, many service companies also undertake R&D. 49) D The role of the enterprise's customer service activity is to provide aftersale service and support. This function can create a perception of superior value (V) in the minds of consumers by solving customer problems and supporting customers after they have purchased the product. 50) D The logistics function controls the transmission of physical materials through the value chain, from procurement through production and into distribution. The efficiency with which this is carried out can significantly reduce cost, thereby creating more value. 51) D The company infrastructure refers to the context within which all the other value creation activities occur. The infrastructure includes the organizational structure, control systems, and culture of the firm. 52) B Top management should be viewed as part of the firm's infrastructure. Through strong leadership, top management can consciously shape the infrastructure of a firm. 53) B Controls are the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits. Version 1

54) A Processes are the manner in which decisions are made and work is performed within the organization. 55) D Incentives are the devices used to reward appropriate managerial behavior. Incentives are very closely tied to performance metrics. 56) A A firm's ability to increase its profitability and profit growth by expanding globally is constrained by the need to customize its product offering, marketing strategy, and business strategy to differing national conditions; that is, by the imperative of localization. 57) C A company can increase its growth rate by taking goods or services developed at home and selling them internationally. Almost all multinationals started out doing just this. The returns from such a strategy are likely to be greater if indigenous competitors in the nations that a company enters lack comparable products. 58) C Core competencies are the bedrock of a firm's competitive advantage. They enable a firm to reduce the costs of value creation and/or to create perceived value in such a way that premium pricing is possible. 59) D For a firm that is trying to survive in a competitive global market, the firm will benefit by basing each value creation activity it performs at that location where economic, political, and cultural conditions— including relative factor costs—are most conducive to the performance of that activity. Firms that pursue such a strategy can realize location economies. Version 1

60) C A global web is created with different stages of the value chain being dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized. 61) C High transportation costs, trade barriers, and political and economic risks are caveats against global expansion of business activities. 62) A The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product. 63) B A number of studies have observed that a product's production costs decline by some quantity about each time cumulative output doubles. 64) A The two phenomena that help explain the experience curve are learning effects and economies of scale. Learning effects refer to cost savings that come from learning by doing. Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. 65) A Learning effects refer to cost savings that come from learning by doing. Learning effects tend to be more significant when a technologically complex task is repeated because there is more that can be learned about the task. 66) D

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Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by repetition how to carry out a task, such as assembling airframes, most efficiently. 67) C Learning effects tend to be more significant when a technologically complex task is repeated, because there is more that can be learned about the task. Thus, learning effects will be more significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps. 68) E Learning effects tend to be more significant when a technologically complex task is repeated, because there is more that can be learned about the task. 69) E Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. 70) B Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. One of their sources is the ability to spread fixed costs over a large volume. 71) B Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. Attaining economies of scale lowers a firm’s unit costs and increases its profitability. 72) D The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product.

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73) C Firms that compete in the global marketplace typically face two types of competitive pressure that affect their ability to realize location economies and experience effects, and to leverage products and transfer competencies and skills within the enterprise. They face pressures for cost reductions and pressures to be locally responsive. 74) A Pressures for cost reduction can be particularly intense in industries producing commodity-type products where meaningful differentiation on nonprice factors is difficult and price is the main competitive weapon. This tends to be the case for products that serve universal needs. 75) A Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical. 76) A The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally increased cost pressures. 77) A Strong pressures for local responsiveness emerge when customer tastes and preferences differ significantly between countries. In such cases, a multinational's products and marketing message have to be customized to appeal to the tastes and preferences of local customers. This typically creates pressure to delegate production and marketing responsibilities and functions to a firm's overseas subsidiaries, reducing a firm's ability to realize global scale economies. 78) D Version 1

Some have argued that customer demands for local customization are on the decline worldwide because modern communications and transport technologies have created the conditions for a convergence of the tastes and preferences of consumers from different nations. The result is the emergence of enormous global markets for standardized consumer products. 79) A A firm's marketing strategies may have to be responsive to differences in distribution channels among countries, which may necessitate the delegation of marketing functions to national subsidiaries. 80) B Economic and political demands imposed by host-country governments may require local responsiveness. For example, pharmaceutical companies are subject to local clinical testing, registration procedures, and pricing restrictions—all of which make it necessary that the manufacturing and marketing of a drug should meet local requirements. 81) D Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies. 82) E Firms that pursue a global standardization strategy prefer to market a standardized product worldwide so that they can reap the maximum benefits from economies of scale and learning effects. Firms pursuing a global standardization strategy try not to customize their product offering and marketing strategy to local conditions because customization involves shorter production runs and the duplication of functions, which tends to raise costs. Version 1

83) E A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal. 84) B Global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal. These conditions prevail in many industrial goods industries, whose products often serve universal needs. 85) C A localization strategy focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets. 86) D The localization strategy makes sense, if the added value associated with local customization supports higher pricing, or if it leads to substantially greater local demand. Localization involves some duplication of functions and smaller production runs. Customization limits the ability of the firm to capture the cost reductions associated with massproducing a standardized product for global consumption. 87) B Multinationals try to get some scale economies from their global volume by using common vehicle platforms and components across many different models, and manufacturing those platforms and components at efficiently scaled factories that are optimally located. 88) D

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A firm is most likely to pursue a transnational strategy when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness. 89) B Christopher Bartlett and Sumantra Ghoshal, argue that in the modern global environment, competitive conditions are so intense that to survive, firms must do all they can to respond to pressures for cost reductions and local responsiveness. 90) C Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm's global network of operations. 91) E Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects. How best to implement a transnational strategy is one of the most complex questions that large multinationals are grappling with today. Few, if any, enterprises have perfected this strategic posture. 92) D Firms that pursue an international strategy take products first produced for their domestic market and sell them across various markets (internationally) with only minimal local customization. 93) C

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The distinguishing feature of many firms pursuing an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure. 94) A Firms pursuing an international strategy take products first produced for their domestic market and sell them internationally with only minimal local customization. 95) C Many of these enterprises have pursued aninternational strategy, taking products first produced for their domestic market and selling them internationally with only minimal local customization. The distinguishing feature of many such firms is that they are selling a product that serves universal needs, but they do not face significant competitors; thus, unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure. 96) B Strategic alliances refer to cooperative agreements between potential or actual competitors. They run the range from formal joint ventures, in which two or more firms have equity stakes, to short-term contractual agreements, in which two companies agree to cooperate on a particular task (such as developing a new product). 97) D

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Strategic alliances run the range from formal joint ventures, in which two or more firms have equity stakes (e.g., Fuji Xerox), to short-term contractual agreements, in which two companies agree to cooperate on a particular task (such as developing a new product). 98) C Some have criticized strategic alliances on the grounds that they give competitors a low-cost route to new technology and markets. 99) C Unless a firm is careful, it can give away more than it receives. But there are many examples of apparently successful alliances between firms— including alliances between U.S. and Japanese firms. 100) A Managing an alliance successfully requires building interpersonal relationships between the firms' managers, or what is sometimes referred to as relational capital. 101)The way to increase the profitability of a firm is to create more value. The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products. Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry. According to Porter, superior profitability goes to those firms that can create superior value, and the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more and are prepared to pay a premium price.

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102)The operations of a firm can be thought of as a value chain composed of a series of distinct value creation activities, including production, marketing and sales, materials management, R&D, human resources, information systems, and the firm infrastructure. These value creation activities or operations can be categorized as primary activities and support activities. Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. The support activities of the value chain provide inputs that allow the primary activities to occur. 103) Note: Student examples will vary. The role of the enterprise’s service activity is to provide after-sale service and support. This function can create a perception of superior value ( V) in the minds of consumers by solving customer problems and supporting customers after they have purchased the product. Caterpillar, the U.S.-based manufacturer of heavy earthmoving equipment, can get spare parts to any point in the world within 24 hours, thereby minimizing the amount of downtime its customers have to suffer if their Caterpillar equipment malfunctions. This is an extremely valuable capability in an industry where downtime is very expensive. It has helped to increase the value that customers associate with Caterpillar products and thus the price that Caterpillar can charge.

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104)Firms that operate internationally are able to: (1) Expand the market for their domestic product offerings by selling those products in international markets. (2) Realize location economies by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively. (3) Realize greater cost economies from experience effects by serving an expanded global market from a central location. (4) Earn a greater return by leveraging any valuable skills developed in foreign operations and transferring them to other entities within the firm's global network of operations. 105) The success of many multinational companies that expand in this manner is based not just upon the goods or services that they sell in foreign nations but also upon the core competencies that underlie the development, production, and marketing of those goods or services. The termcore competence refers to skills within the firm that competitors cannot easily match or imitate. These skills may exist in any of the firm’s value creation activities: production, marketing, R&D, human resources, logistics, general management, and so on. Such skills are typically expressed in product offerings that other firms find difficult to match or imitate. Core competencies are the bedrock of a firm’s competitive advantage. They enable a firm to reduce the costs of value creation and/or to create perceived value in such a way that premium pricing is possible.

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106)Locating a value creation activity in the optimal location for that activity can have one of two effects. It can lower the costs of value creation and help the firm to achieve a low-cost position, and/or it can enable a firm to differentiate its product offering from those of competitors. In terms of Figure 12.2, which illustrates value creation concepts, it can lower C and/or increase V (which, in general, supports higher pricing), both of which boost the profitability of the enterprise. For an example of how this works in an international business, consider Clear Vision, a manufacturer and distributor of eyewear. Started by David Glassman, the firm now generates annual gross revenues of more than $100 million. Not exactly small, but no corporate giant either, Clear Vision is a multinational firm with production facilities on three continents and customers around the world. Clear Vision began its move toward becoming a multinational when its sales were still less than $20 million. At the time, the U.S. dollar was very strong, and this made U.S.based manufacturing expensive. Low-priced imports were taking an ever-larger share of the U.S. eyewear market, and Clear Vision realized it could not survive unless it also began to import. Initially, the firm bought from independent overseas manufacturers, primarily in Hong Kong. However, the firm became dissatisfied with these suppliers’ product quality and delivery. As Clear Vision’s volume of imports increased, Glassman decided the best way to guarantee quality and delivery was to set up Clear Vision’s own manufacturing operation overseas. Accordingly, Clear Vision found a Chinese partner, and together they opened a manufacturing facility in Hong Kong, with Clear Vision being the majority shareholder

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107)Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by repetition how to carry out a task, such as assembling airframes, most efficiently. Labor productivity increases over time as individuals learn the most efficient ways to perform particular tasks. Equally important in new production facilities, management typically learns how to manage the new operation more efficiently over time. Hence, production costs decline due to increasing labor productivity and management efficiency, which increases the firm’s profitability. Student examples will vary but some possible industries that may benefit include automobile manufacturing and assembly line work for making everything from furniture to computers. 108)Firms that compete in the global marketplace typically face two types of competitive pressure that affect their ability to realize location economies and experience effects, to leverage products and transfer competencies and skills within the enterprise. They face pressures for cost reductions and pressures to be locally responsive. These competitive pressures place conflicting demands on a firm. Responding to pressures for cost reductions requires that a firm try to minimize its unit costs. But responding to pressures to be locally responsive requires that a firm differentiate its product offering and marketing strategy from country to country in an effort to accommodate the diverse demands arising from national differences in consumer tastes and preferences, business practices, distribution channels, competitive conditions, and government policies.

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109)Pressures for local responsiveness arise from national differences in consumer tastes and preferences, infrastructure, accepted business practices, and distribution channels, and from host-government demands. 1.Differences in Customer Tastes and Preferences: Strong pressures for local responsiveness emerge when customer tastes and preferences differ significantly between countries, as they often do for deeply embedded historic or cultural reasons. In such cases, a multinational's products and marketing message have to be customized to appeal to the tastes and preferences of local customers. 2.Differences in Infrastructure and Traditional Practices: Pressures for local responsiveness arise from differences in infrastructure or traditional practices among countries, creating a need to customize products accordingly. Fulfilling this need may require the delegation of manufacturing and production functions to foreign subsidiaries. 3.Differences in Distribution Channels: A firm's marketing strategies may have to be responsive to differences in distribution channels among countries, which may necessitate the delegation of marketing functions to national subsidiaries. 4.Host Government Demands: Economic and political demands imposed by host-country governments may require local responsiveness.

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110)Traditionally, we have tended to think of pressures for local responsiveness as being derived from national differences in tastes and preferences, infrastructure, and the like. While this is still often the case, there is also a tendency toward the convergence of tastes, preferences, infrastructure, distribution channels, and host-government demands within a broader region that is composed of two or more nations. We tend to see this when there are strong pressures for convergence due to, for example, a shared history and culture or the establishment of a trading block where there are deliberate attempts to harmonize trade policies, infrastructure, regulations, and the like. The most obvious example of a region is the European Union and particularly the euro zone countries within that trade bloc, where there are institutional forces that are pushing toward convergence. The creation of a single EU market—with a single currency, common business regulations, standard infrastructure, and so on—cannot help but result in the reduction of certain national differences among countries within the EU and the creation of one regional rather than several national markets. Indeed, at the economic level at least, that is the explicit intent of the EU.

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111)In essence, firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of operations. As attractive as this may sound in theory, the strategy is not an easy one to pursue because it places conflicting demands on the company. Differentiating the product to respond to local demands in different geographic markets raises costs, which runs counter to the goal of reducing costs. Companies such as 3M and ABB (one of the world’s largest engineering conglomerates) have tried to embrace a transnational strategy and found it difficult to implement. How best to implement a transnational strategy is one of the most complex questions that large multinationals are grappling with today. Few, if any, enterprises have perfected this strategic posture. 112)The Achilles’ heel of the international strategy is that over time, competitors inevitably emerge, and if managers do not take proactive steps to reduce their firm’s cost structure, it will be rapidly outflanked by efficient global competitors. This is what happened to Xerox. Japanese companies such as Canon ultimately invented their way around Xerox’s patents, produced their own photocopiers in very efficient manufacturing plants, priced them below Xerox’s products, and rapidly took global market share from Xerox. In the final analysis, Xerox’s demise was not due to the emergence of competitors—because, ultimately, that was bound to occur—but due to its failure to proactively reduce its cost structure in advance of the emergence of efficient global competitors.

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113)Strategic alliances are cooperative agreements between potential or actual competitors. Strategic alliances run the range from formal joint ventures, in which two or more firms have equity stakes, to short-term contractual agreements, in which two companies agree to cooperate on a particular task. 114)1.Strategic alliances may facilitate entry into a foreign market. 2.Strategic alliances also allow firms to share the fixed costs (and associated risks) of developing new products or processes. 3.An alliance is a way to bring together complementary skills and assets that neither company could easily develop on its own. 4.It can make sense to form an alliance that will help the firm establish technological standards for the industry that will benefit the firm. 115)One key to making a strategic alliance work is to select the right ally. A good ally, or partner, has three characteristics. First, a good partner helps the firm achieve its strategic goals, whether they are market access, sharing the costs and risks of product development, or gaining access to critical core competencies. The partner must have capabilities that the firm lacks and that it values. Second, a good partner shares the firm’s vision for the purpose of the alliance. If two firms approach an alliance with radically different agendas, the chances are great that the relationship will not be harmonious, will not flourish, and will end in divorce. Third, a good partner is unlikely to try to opportunistically exploit the alliance for its own ends, that is, to expropriate the firm’s technological know-how while giving away little in return. In this respect, firms with reputations for “fair play” probably make the best allies.

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116)In the last few years, there has been a sharp reversal of this trend. Due to actions initially taken by President Donald Trump of the United States, barriers to cross-border trade have increased. This has resulted in trade higher barriers on some goods (such as steel and aluminum) and a trade war with China that has affected a wide range of goods. These actions matter because the U.S. and China are the world’s two largest economies, and what they do has an impact upon the rest of the globe. If the trade conflict initiated by the Trump administration persists, and perhaps widens to include greater conflict between the European Union and the United States, it will change the strategic calculus for many enterprises. It will become more difficult to realize location economies; harder to establish a global web of productive activities that lowers costs while creating more value; and, consequently, the global standardization and transnational strategies may become more challenging to implement and less attractive. In an extreme scenario, where economic nationalism between nations or regions continues to increase, a localization strategy may become not only more viable again, but necessary.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A firm contemplating expansion should ultimately choose a foreign market based on an assessment of the nation's long-run profit potential. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Gradable : automatic

2) When assessing the attractiveness of a country as a potential market, an international business must understand how the benefits, costs, and risks of doing business in that country will balance out. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Bloom's : Remember Difficulty : 1 Easy Gradable : automatic

3) The present purchasing power of consumers in a new market is not a factor used by a business to assess the long-run economic benefits of doing business with that nation. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Gradable : automatic

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4) The probability of survival increases if an international business enters a national market after several other foreign firms have already done so. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Gradable : automatic

Pioneering costs are incurred by late entrants to the foreign market. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Gradable : automatic

6) A business that chooses to enter an international market on a large scale implies rapid entry. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Gradable : automatic

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7) Exporting, as a mode of entry into foreign markets, limits a firm from achieving experience curve and location economies. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

8) If transportation costs are high for bulky products, exporting as a mode of entry into foreign markets is the most economical choice a firm can make. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

9) Licensing gives an international firm tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

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10) Cross-licensing agreements minimize the probability that firms might lose their knowhow and technology to a partner firm. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

11)

Fast food restaurants are good examples of the franchise model. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

12) The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a 50 percent ownership stake and contributes a team of managers to share operating control. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

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13) In a joint venture, a firm benefits from a local partner's knowledge of the competitive conditions, culture, language, political systems, and business systems of the host country. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

14) Similar to a licensing agreement, a joint venture does not put the control of a company’s technology at risk. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

15) When a firm's competitive advantage is based on technological competence, a wholly owned subsidiary is the preferred mode of entry into a foreign market because it reduces the risk of losing control over that competence. ⊚ true ⊚ false

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16) Establishing a wholly owned subsidiary provides a company with tight control over the operations in another country. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

17) With a wholly owned subsidiary, a firm shares the costs of setting up overseas operations with partner firms. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

18) If an international firm's core competency is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner. ⊚ true ⊚ false Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Factors Influencing Entry Modes Learning Objective : 13-03 Identify the factors that influence a firm's choice of entry mode. Gradable : automatic

19) Licensing increases the risk of losing control over a firm's proprietary technological know-how. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Factors Influencing Entry Modes Learning Objective : 13-03 Identify the factors that influence a firm's choice of entry mode. Gradable : automatic

20) An international firm that perceives its technological advantage to be transitory and susceptive to rapid imitation might want to license its technology to foreign firms. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Factors Influencing Entry Modes Learning Objective : 13-03 Identify the factors that influence a firm's choice of entry mode. Gradable : automatic

21) Service-based companies typically favor a combination of licensing and exporting to control the franchises within a region. ⊚ true ⊚ false Version 1

22) Acquisitions commonly take a long time to execute and, for this reason, are not favored by most firms. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Gradable : automatic

23) While there are many arguments in favor of acquisitions, ultimately many acquisitions are unsuccessful. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Gradable : automatic

24) The “hubris hypothesis” of why acquisitions fail is based on firms overpaying for the assets of the acquired firm. ⊚ true ⊚ false Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Gradable : automatic

25) An advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) One reason why a relatively poor country may be an attractive target for inward investment is the potential for A) rapid economic growth. B) political instability. C) currency depreciation. D) a high cost of living. E) a less developed infrastructure.

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27) A country that __________ presents a favorable benefit-cost-risk trade-off scenario for foreign expansion. A) has large private-sector debt B) has a free market system C) is experiencing a dramatic upsurge in inflation rates D) is heavily populated E) is less developed and politically unstable

28) The text points out two things that can affect the value an international business creates in a foreign market: the sustainability of its product offering and the A) population density in the foreign market. B) political stability of the foreign market. C) nature of indigenous competition. D) per capita income in the foreign market. E) type of political system in the foreign market.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Bloom's : Remember Difficulty : 1 Easy Gradable : automatic

29) Let’s assume that sulfate-free shampoo options are found on the store shelves in the United States, but they are scarcely available in international markets. Given the increasing awareness of the ingredients in products people use on their scalp, such products satisfy an unmet need. Therefore, a product such as sulfate-free shampoo in international markets A) is likely to have greater value. B) will have to be priced relatively low. C) will see a decrease in sales volume. D) is not suited to these markets. E) will fail to make a profit.

Question Details Accessibility : Keyboard Navigation Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

30) An international business can command higher prices for a particular product in a foreign market when A) the product is widely available in the foreign market. B) sales volume is relatively low in the foreign market. C) the product offers greater value to customers in the foreign market. D) the product is more suitable to other foreign markets. E) domestic competitors are selling alternatives at reduced prices.

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31) Top Line Ovens Inc. wants to expand internationally and is deciding if its line of energysaving ovens can be sold at a high price in Europe. One way for Top Line Ovens to assess this is to determine whether these types of ovens in the foreign market offer customers greater A) cost. B) exports. C) value. D) competition. E) production.

Question Details Accessibility : Keyboard Navigation Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

32) Breezy Days Inc. is the first wind-based energy plant in Mexico, and it has captured a large portion of the market. It has created a strong brand name that everyone associates with energy efficiency and cost savings. In this market, Breezy Days Inc. is demonstrating A) first-mover advantages. B) the small-scale entry. C) pioneering costs. D) a greenfield venture. E) purchasing power parity.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

33)

First-mover disadvantages refer to

A) disadvantages associated with entering a foreign market before other international businesses. B) costs that a late entrant to a foreign market has to bear. C) a direct restriction on the quantity of a good that can be imported into a country. D) imperfections in the operation of the market mechanism. E) disadvantages experienced by being a late entrant in a foreign market.

34) Home Safe Inc. is spending significant money educating customers on the value of its home safety products such as video doorbells and automatic door locks as it moves into several new international markets. The money the company is spending to educate customers is a form of A) first-mover advantages. B) political costs. C) licensing fees. D) pioneering costs. E) opportunity costs.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

35)

The liability associated with foreign expansion is greater for foreign firms that A) choose to ride on an early entrant's investments. B) use countertrade agreements C) enter a national market early. D) ride down the experience curve behind their rivals. E) avoid pioneering costs.

36)

The probability of survival for an international business increases if it A) enters a national market after several other foreign firms have already done so. B) avoids the use of countertrade agreements. C) enters a national market early. D) enters a foreign market via turnkey projects. E) avoids engaging in joint ventures.

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37) In international business, an advantage of being a late entrant in a foreign market is the ability to A) create switching costs that tie customers into products or services. B) capture demand by establishing a strong brand name. C) build sales volume and ride down the experience curve before early entrants. D) ride on an early entrant's investments in learning and customer education. E) create a cost advantage over first movers.

38) When Good Grip Lawncare Equipment Inc. decided to be a first-mover in the European market, it had to spend 40 percent of its budget on promotional videos and other educational tools that explained why a Good Grip product was a necessary lawncare tool for every homeowner. The costs the company incurred to promote the products are known as A) retail costs. B) competitive costs. C) greenfield costs. D) pioneering costs. E) moving costs.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

39) According to Christopher Bartlett and Sumantra Ghoshal, how can local companies differentiate themselves from foreign multinationals? A) licensing their core technologies B) entering into turnkey projects C) standardizing their product offerings D) focusing on market niches E) raising trade barriers

40) Soft Locks is a popular brand of shampoo locally manufactured in Italy. However, with the entry of a foreign multinational into the market, Soft Locks begins to lose market share. According to Christopher Bartlett and Sumantra Ghoshal, how can the producer of Soft Locks shampoo best differentiate itself from foreign multinationals? A) licensing their core technologies B) entering into turnkey projects C) standardizing their product offerings D) focusing on market niches E) raising trade barriers

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Question Details Accessibility : Keyboard Navigation Learning Objective : 13-01 Explain the three basic decisions that firms contemplating foreign expansi Topic : Factors Influencing Entry Modes Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

41)

One disadvantage of large-scale entry into a foreign market is the A) decrease in a firm's exposure to the foreign market. B) difficulty attracting customers and distributors for the product. C) inability to build rapid market-share irrespective of the scale of entry. D) limited product acceptance due to the avoidance of potential losses. E) availability of fewer resources to support expansion in other desirable markets.

42) When Yum Brands (which owns KFC, Taco Bell, and Pizza Hut) entered China, it had to spend heavily to establish itself in that market. What would be a disadvantage of Yum Brands' large-scale entry into China? A) decrease in a firm's exposure to the foreign market B) difficulty attracting customers and distributors for the product C) inability to build rapid market-share irrespective of the scale of entry D) limited product acceptance due to the avoidance of potential losses E) availability of fewer resources to support expansion in other desirable markets

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43) Which type of entry allows a company to learn about the foreign market while limiting the firm's exposure to that market? A) early entry B) small-scale entry C) large-scale entry D) late entry E) rapid entry

44) Chevon’s Champagne is considering small-scale entry into the European market. What would be a disadvantage of small-scale entry for this firm? A) possibility of escalating commitment leading to major financial losses B) limited availability of resources for use in other markets C) lack of flexibility associated with strategic commitments D) increase in economic exposure due to minimal time spent in evaluating a foreign market E) difficulty of building market share and capturing first-mover advantages

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45)

Small-scale entry into a foreign market makes it difficult to build market share because it A) necessitates rapid entry into a foreign market. B) is associated with a lack of commitment demonstrated by the foreign firm. C) leads to escalating strategic commitments D) requires that extra time be spent in analyzing a foreign market. E) leads to increased exposure to a foreign market.

46) A likely outcome of a foreign firm entering a developed nation on a small scale after other international businesses in the industry is A) capturing first-mover advantages. B) higher pioneering costs. C) rapid increase in market share. D) limited future growth potential. E) rapid increase in sales volume.

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47) When considering modes of entry, Christopher Bartlett and Sumantra Ghoshal suggest that companies based in developing nations should A) build up financial resources to match those of the largest global competitors. B) enter foreign markets at a similar time and scale as multinational companies. C) enter markets rapidly and exit at an equally rapid pace to avoid heavy losses. D) benchmark operations and performance against foreign multinationals. E) not focus on market niches that multinational companies ignore.

48) Heat Tough Inc. makes heat-proof copper cookware in the United States, and it is looking to distribute its products in Europe. Rather than build and maintain a manufacturing facility in the United Kingdom, the company decides to ship its products directly from its plant in Illinois. What type of entry mode is the company using? A) exporting B) turnkey project C) acquisition D) greenfield venture E) licensing

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Question Details Accessibility : Keyboard Navigation Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

49) Fabric and Feathers Group wants to expand internationally. Sales Director Ti-La prefers that the company export to foreign markets. What rationale should Ti-La use to show the advantage of exporting as a mode of entry? A) A firm can avoid the cost of establishing manufacturing operations in the host country. B) A firm shares the development costs and risks with its host partner. C) A firm can earn returns from process technology skills in countries where FDI is restricted. D) A firm has access to local partner's knowledge. E) A firm has the ability to engage in global strategic coordination.

Question Details Accessibility : Keyboard Navigation Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

50) Nelson Manufacturing produces bulky heating systems that are installed in large office buildings. The company wants to avoid paying the high costs associated with shipping their product overseas. What would be the best way for Nelson Manufacturing to accomplish this?

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A) The company should acquire a bulk transport company. B) The company should export the products. C) The company should manufacture the products regionally. D) The company should set up subsidiaries irrespective of market reach. E) The company should reduce the quantity of the product offering.

Question Details Accessibility : Keyboard Navigation Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

51)

High transportation costs are a disadvantage for companies that A) are service based. B) produce and ship products regionally. C) ship large, bulky products. D) use customization. E) ship component parts.

52) Shock Soda hired a local agent to handle marketing when it started exporting products to South America. Unfortunately, the local agent also handled the marketing for a competitor, Wake Cola and Shock Soda soon realized the agent could not be “loyal” to their product. What should Shock Soda do to best remedy this situation to its advantage?

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A) Implement a tariff on their products. B) Discontinue their exporting efforts. C) Export only process technology to foreign firms. D) Develop a licensing deal instead of exporting. E) Set up a wholly owned subsidiary to handle local marketing.

Question Details Accessibility : Keyboard Navigation Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

53) Drench Hair Care Inc. decided to export its products by hiring local marketing agents in each country. Over the years, Drench Hair Care ran into various problems with these local marketing agents that affected both sales and profitability. The company can overcome its problems with local marketing agents by A) selling intangible property to a franchisee and insisting on rules to conduct the business. B) changing agents frequently. C) engaging in turnkey projects and exporting process technology to foreign firms. D) entering into cross-licensing agreements with foreign firms. E) setting up wholly owned subsidiaries in foreign nations to handle local marketing.

Question Details Accessibility : Keyboard Navigation Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

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54) In a __________, a firm agrees to set up an operating plant for a foreign client and hand over the plant when it is fully operational. A) franchising agreement B) turnkey project C) licensing agreement D) wholly owned subsidiary E) joint venture

55) Large-scale equipment is needed to produce the products at Earth Movers Inc. For this reason, the company plans to have a plant built in Spain that is ready for full operation and will be used for products sold in Europe. What type of entry mode is Earth Movers Inc. using? A) wholly owned subsidiary B) licensing C) turnkey project D) franchising E) direct exporting

56)

What is an advantage of turnkey projects as a mode of entry into foreign markets?

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A) It is an ideal way to gain entry into a country where FDI is not limited by government regulations. B) It is a useful strategy to earn great returns from the know-how of a technologically complex process. C) It is an ideal way to establish a firm's long-term presence in a foreign country. D) It helps protect a firm's competitive advantage. E) The firm that enters into a turnkey project with a foreign enterprise avoids giving rise to potential competitors.

57) An oil-rich country in the Middle East wants to develop its own refining industry but lacks the technology to do so. To accomplish their goal, they decide to enter into an agreement with a U.S. firm that has this technology. The U.S. firm is pleased to make this agreement because without it, they could never gain value from their technology in this country due to its limits on FDI. What type of agreement did these companies use? A) acquisition B) turnkey C) export D) subsidiary E) franchise

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58) Turnkey projects, being short-term propositions, can be disadvantageous for a firm if a country subsequently proves to be a major market for the output of the process that has been exported. The firm can get around this problem by A) selling competitive advantage to competitors. B) competing with the local firm in the global market. C) taking a minority equity interest in the operation. D) withholding vital process technology from the local firm. E) establishing a joint venture with a local firm.

59) As the Chief Financial Officer for a cargo ship factory, Rhea disagrees with using a turnkey strategy to enter into the Asian market. She is concerned that the company will not benefit from a long-term interest and could lose financially if the market proves to be successful. What is one way the cargo ship factory could get around this concern? A) Sell competitive advantage to competitors. B) Agree to import another product from the Asian market. C) Take a minority equity interest in the operation. D) Withhold vital process technology from the local firm. E) Establish a franchise operation.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

60)

What is an example of an intangible property? A) infrastructure B) machinery C) leased equipment D) advanced computing systems E) patent

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets Gradable : automatic

61) Renata developed a hair dye additive that is guaranteed to cover grey hair. She granted the right to use this additive to a major hair color manufacturer, and Renata now receives a $1.00 royalty for every box of hair dye sold that contains this additive. What is this an example of? A) franchising B) acquisition C) licensing D) exporting E) turnkey project

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62)

What is a drawback of licensing as a mode of entry into foreign markets?

A) The licensor has to bear all costs and risks associated with developing a foreign market. B) Licensing does not give a firm tight control over manufacturing, marketing, and strategy. C) Licensing does not benefit firms lacking the capital to expand operations overseas. D) Licensing deals fail when there are barriers to foreign investment in a particular country. E) A firm that enters into a licensing deal with a foreign country will have no long-term interest in that country.

63) __________ would be an example of an industry in which cross-licensing agreements are becoming increasingly common. A) Glass-blowing B) Biotechnology C) Organic farming D) Textiles E) Weaving

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64)

Franchising as a mode of entry is employed primarily by A) service firms. B) manufacturing companies. C) online outfits. D) high-technology companies. E) primary industries.

65) Jason Williamson wants to open a KFC restaurant in Singapore and has an agreement with the restaurant chain in which he can use the trademark, but he must also follow a strict set of guidelines detailing how the business should operate. The KFC Corporation will receive a percentage of Jason’s revenues from his restaurant. What type of entry mode does this represent? A) franchising B) wholly owned subsidiary C) licensing D) acquisition E) turnkey operation

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66)

What is a disadvantage of franchising?

A) The franchiser has to bear development costs and risks associated with foreign expansion. B) Franchising leads to undesirable results for service firms. C) It is difficult to maintain quality control across foreign franchisees that are distant from the franchiser. D) The franchiser has no long-term interests in the foreign country. E) It forces a franchiser to take out profits from one country to support competitive attacks in another.

67)

One advantage of joint ventures is that

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A) the foreign firm benefits from a local partner's knowledge of the host country. B) the foreign firm can protect its technology from being appropriated by its local partner. C) there is less cause for friction and conflict between the foreign and local partners. D) it gives a firm tight control over subsidiaries, which enables it to realize experience curve or location economies. E) the foreign firm does not have to bear any development costs and risks associated with opening a foreign market.

68)

When two or more independent firms establish a new firm together, it is an example of A) an acquisition. B) franchising. C) a joint venture. D) a wholly owned subsidiary. E) licensing.

69)

What is one way a wholly owned subsidiary can be established in a foreign market?

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A) through a turnkey operation with a local partner B) through franchising C) by setting up a greenfield venture D) by exporting E) through a licensing agreement

70) Which entry mode into a foreign market best serves a high-tech firm because it reduces the risk of losing that competence? A) turnkey projects B) franchising C) wholly owned subsidiaries D) joint ventures E) exporting

71) A company might not want to consider __________ as a means of entry into a foreign market because it is generally the most costly method from a capital investment standpoint.

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A) licensing B) a wholly owned subsidiary C) franchising D) a joint venture E) exporting

72)

The risks associated with learning to do business in a new culture are less if the firm A) engages in global strategic coordination. B) imposes strict marketing guidelines on how to do business. C) enters a greenfield venture in the host country. D) realizes substantial location economies. E) acquires an established host-country enterprise.

73)

An international firm considering foreign expansion should take into account that

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A) the timing and scale of entry of foreign expansion are minor details in comparison with the choice of foreign market. B) the long-run economic benefits of doing business in a country are solely a function of the country's population size. C) if the firm's core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology. D) the costs and risks associated with foreign expansion are higher in economically advanced nations. E) politically unstable and less developed nations offer favorable benefit-cost-risk tradeoff conditions.

74) Comp-U-Learn Inc. prides itself on a competitive advantage based on their proprietary educational software technology. What two entry modes should the company avoid in order to minimize the risk of losing this technology? A) joint venture and wholly owned subsidiary B) exporting and franchising C) acquisitions and greenfield ventures D) licensing and joint venture E) licensing and exporting

Question Details Accessibility : Keyboard Navigation Topic : Factors Influencing Entry Modes Learning Objective : 13-03 Identify the factors that influence a firm's choice of entry mode. Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

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75)

Which mode of entry into foreign markets can result in a lack of control over quality? A) exporting B) franchising C) turnkey projects D) wholly owned subsidiaries E) joint ventures

76)

Why should a high-tech firm avoid selecting licensing as a mode of entry? A) threat of creating efficient partners B) risk of losing control over technology C) fear of rapid imitation of core technology D) lack of a transitory technological advantage E) inability to deter development costs

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77) Solar Sports, an Australian company, wants to expand its operations to China, a country that is politically, culturally, and economically different. The firm needs to select a mode of entry that would give it access to local knowledge, allow sharing of development costs and risks, and also be politically acceptable. Which mode of entry into foreign markets is most suitable for Solar Sports? A) wholly owned subsidiary B) joint venture C) exporting D) greenfield investments E) licensing

Question Details Accessibility : Keyboard Navigation Topic : Factors Influencing Entry Modes Learning Objective : 13-03 Identify the factors that influence a firm's choice of entry mode. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

78) Senior System Technology is a high-tech firm looking to set up operations in a foreign country. The firm's core competency is in technological know-how. Which mode of entry would be most favorable to the firm if it wants to keep a tight control over its technology? A) wholly owned subsidiary B) joint venture C) franchising D) licensing E) turnkey project

Question Details Accessibility : Keyboard Navigation Topic : Factors Influencing Entry Modes Learning Objective : 13-03 Identify the factors that influence a firm's choice of entry mode. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

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79) Val-Com Inc. provides customer service support for a variety of industries. Their brand name is well known, and as a service firm, it does not have to protect any proprietary technology. What mode of entry is most suitable for service companies like Val-Com Inc. where its main asset is its brand name? A) exporting B) franchising C) licensing D) turnkey projects E) cross-licensing

Question Details Accessibility : Keyboard Navigation Topic : Factors Influencing Entry Modes Learning Objective : 13-03 Identify the factors that influence a firm's choice of entry mode. AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

80) What form of entry into a foreign market gives a firm tight control for coordinating a globally dispersed value chain? A) signing joint-venture agreements B) installing manufacturing units in locations with optimal factor conditions C) setting up wholly owned marketing subsidiaries D) establishing a greenfield venture E) using foreign marketing agents

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81) What is one disadvantage of wholly owned subsidiaries as a mode of entry into foreign markets? A) lack of control over quality B) high costs and risks C) problems with local marketing agents D) inability to engage in global strategic coordination E) lack of control over technology

82) Why do firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries? A) It gives firms sound knowledge of the local markets, culture, and the political environment. B) It helps protect competitive advantages based on technology. C) It allows firms to use the profits generated in one market to improve its competitive position in another market. D) It is the most politically accepted mode of entry into foreign markets. E) It has the least costs and risks associated with developing a foreign market.

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83)

One advantage of acquisitions as a means of entering foreign markets is that

A) they are quick to execute and help firms to rapidly build their presence in the target foreign market. B) it is much easier to change the culture of an existing organization than build a new organization. C) it is easier to convert the operating routines of acquired units than establish routines in new subsidiaries. D) they give firms access to valuable intangible assets while minimizing a pileup of tangible assets. E) acquired firms are often undervalued and hence assets can be purchased at minimal prices.

84) Kent told the board members that he was worried about the “hubris hypothesis” and how it would affect their acquisition of the foreign manufacturing facility. What is Kent concerned about? A) The host country places additional tariff barriers on companies who want to acquire another business. B) Home country managers are less likely to understand the culture associated with the acquired business. C) Top managers typically overestimate their ability to create value from the acquisition. D) The additional transportation costs devalue the potential for profit. E) The acquired company must surrender its technological know-how.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

85) Rather than build a new facility in Brazil where it wants to make a presence, San Diegobased Beach Bikes Inc. decides to purchase Big Tire Bikes based in São Paulo. This purchase allows Beach Bikes Inc. to establish a bigger presence much faster than exporting their products to customers in Brazil. What mode of entry did Beach Bikes Inc. use? A) turnkey project B) licensing C) wholly owned subsidiary D) acquisition E) franchising

Question Details Accessibility : Keyboard Navigation Learning Objective : 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

86)

Why do acquisitions fail sometimes?

A) There is a clash between the cultures of the acquiring and acquired firms. B) Acquisitions take a long time to execute. C) Acquisitions are easily preempted by making greenfield investments. D) The revenue and profit stream generated by an acquisition's resources is usually unknown. E) Losses produced by intangible assets outweigh profits from acquired tangible assets.

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87) HillTop Grading, an American construction firm, recently acquired another company, Earth Builders, in Indonesia. The high-level managers at Earth Builders eventually quit because they could not cope with the domineering and straightforward approach of their American counterparts. This illustrates how acquisitions may fail because A) managers overestimate their ability to create value from an acquisition. B) integration of operations between the two firms takes longer than forecasted. C) there is a clash between the cultures of the acquired and the acquiring firm. D) an acquiring firm overpays for the assets of an acquired firm. E) inadequate pre-acquisition screening has been done.

88)

The risk of failure associated with an acquisition can be reduced by A) undervaluing the assets of an acquired firm. B) ensuring that firms are acquired in the home country. C) replacing high-level managers of an acquired firm. D) a detailed auditing of operations, financial position, and management culture. E) investing only in a firm that is managing to break even.

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89)

To reduce the risks of failure of an acquisition, managers must A) pay more for the acquired unit to please its existing employees. B) encourage and facilitate management turnover. C) acquire a firm without wasting time on screening. D) move rapidly after an acquisition to put an integration plan in place. E) ensure that the work cultures are significantly different from each other.

90)

What is a disadvantage of greenfield ventures?

A) They have a higher potential for throwing up unpleasant surprises. B) It is much more difficult to build an organizational culture from scratch than to change the culture of an existing unit. C) Companies find it difficult to avoid falling into the trap of the hubris hypothesis. D) They are slower to establish than acquisitions. E) A firm does not have the freedom to build the kind of subsidiary that it wants.

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91) Shiffon Electric Group wants to enter the European market via a wholly owned subsidiary where there are already well-established incumbent enterprises, and where global competitors are also interested in establishing a presence. What would be a suitable mode of entry for Shiffon Electric? A) acquisition B) licensing deal C) greenfield venture D) turnkey project E) exporting deal

92) If a firm is considering entering a country where incumbents exist, and if the competitive advantage of the firm is based on the transfer of organizationally embedded competencies, skills, routines, and culture, what would be the preferable mode of entry? A) greenfield venture B) joint venture C) licensing agreement D) franchising deal E) turnkey project

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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 93) What are first-mover advantages? Describe three first-mover advantages for international businesses.

94)

Explain how pioneering costs can affect a business.

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95) What are the consequences of an international firm entering a foreign market on a significant scale?

96) List and briefly describe the six different modes a business can use to enter a foreign market.

97) What are the advantages and disadvantages of turnkey projects as a mode of entry into foreign markets?

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98)

Explain how a cross-licensing agreement helps reduce risk.

99)

Describe the disadvantages of licensing as a mode of entry into the foreign market.

100) Explain franchising and provide examples of companies that would typically use this form of entry into a foreign market.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 13-02 Compare and contrast the different modes that firms use to enter foreign m Topic : Different Modes for Entering Foreign Markets AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : manual

101)

What is a wholly owned subsidiary? List its advantages.

102) Define a joint venture and describe the joint venture agreement between Xerox and Fuji Photo.

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103)

Describe how pressures for cost reductions affect the choice of entry mode.

104)

Describe the advantages and disadvantages of acquisitions.

105)

Describe the pros and cons of greenfield ventures.

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106) Describe the factors that should be considered for a firm choosing between a greenfield venture and an acquisition.

Question Details Accessibility : Keyboard Navigation Learning Objective : 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as Topic : Advantages and Disadvantages of Strategic Alliances, Collaborative Arrangements and Acquisiti Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : manual

107) Describe the factors that affect the long-run economic benefits of doing business in a foreign country.

Question Details Accessibility : Keyboard Navigation Learning Objective : 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Topic : Economic Development Gradable : manual

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Answer Key Test name: Hill_13 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) FALSE 9) FALSE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) TRUE 20) TRUE 21) FALSE 22) FALSE 23) TRUE 24) TRUE 25) TRUE 26) A Version 1

While some markets are very large when measured by number of consumers (e.g., China, India, Indonesia), one must also look at living standards and economic growth. On this basis, China and India, while relatively poor, are growing so rapidly that they are attractive targets for inward investment. 27) B The benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems, and where there is not a dramatic upsurge in either inflation rates or private-sector debt. 28) C An important factor for a firm considering foreign expansion is the value an international business can create in a foreign market. This depends on the suitability of its product offering to that market and the nature of indigenous competition. 29) A If an international business can offer a product that has not been widely available in a market and that satisfies an unmet need, the value of that product to consumers is likely to be much greater than if the international business simply offers the same type of product that indigenous competitors and other foreign entrants are already offering. 30) C The value created in a market by a company's product offering is an important factor in entry decisions. Greater value translates into an ability to charge higher prices and/or to build sales volume more rapidly. 31) C

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The value created in a market by a company's product offering is an important factor in entry decisions. Greater value translates into an ability to charge higher prices and/or to build sales volume more rapidly. 32) A The advantages frequently associated with entering a market early are commonly known asfirst-mover advantages. One first-mover advantage is the ability to preempt rivals and capture demand by establishing a strong brand name. 33) A There can be disadvantages associated with entering a foreign market before other international businesses. These are often referred to as firstmover disadvantages. These disadvantages may give rise to pioneering costs, costs that an early entrant has to bear that a later entrant can avoid. 34) D Pioneering costs also include the costs of promoting and establishing a product offering, including the costs of educating customers. These can be significant when the product being promoted is unfamiliar to local consumers. 35) C A certain liability is associated with being a foreigner, and this liability is greater for foreign firms that enter a national market early. Research seems to confirm that the probability of survival increases if an international business enters a national market after several other foreign firms have already done so. 36) A

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A certain liability is associated with being a foreigner, and this liability is greater for foreign firms that enter a national market early. Research seems to confirm that the probability of survival increases if an international business enters a national market after several other foreign firms have already done so. 37) D Pioneering costs include the costs of promoting and establishing a product offering, including the costs of educating customers. Later entrants may be able to ride on an early entrant's investments in learning and customer education by watching how the early entrant proceeded in the market, by avoiding costly mistakes made by the early entrant, and by exploiting the market potential created by the early entrant's investments in customer education. 38) D Pioneering costs include the costs of promoting and establishing a product offering, including the costs of educating customers. Later entrants may be able to ride on an early entrant's investments in learning and customer education by watching how the early entrant proceeded in the market, by avoiding costly mistakes made by the early entrant, and by exploiting the market potential created by the early entrant's investments in customer education. 39) D The local company may be able to find ways to differentiate itself from a foreign multinational, for example, by focusing on market niches that the multinational ignores or is unable to serve effectively if it has a standardized global product offering. 40) D

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The local company may be able to find ways to differentiate itself from a foreign multinational, for example, by focusing on market niches that the multinational ignores or is unable to serve effectively if it has a standardized global product offering. 41) E Entering a market on a large scale involves the commitment of significant resources and implies rapid entry. On the negative side, by committing itself heavily to one market, the company may have fewer resources available to support expansion in other desirable markets. 42) E Entering a market on a large scale involves the commitment of significant resources and implies rapid entry. On the negative side, by committing itself heavily to one market, the company may have fewer resources available to support expansion in other desirable markets. 43) B Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale and how best to enter. Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market. 44) E The lack of commitment associated with small-scale entry may make it more difficult for the small-scale entrant to build market share and to capture first-mover or early-mover advantages. The risk-averse firm that enters a foreign market on a small scale may limit its potential losses, but it may also miss the chance to capture first-mover advantages. 45) B

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The lack of commitment associated with small-scale entry may make it more difficult for the small-scale entrant to build market share and to capture first-mover or early-mover advantages. The risk-averse firm that enters a foreign market on a small scale may limit its potential losses, but it may also miss the chance to capture first-mover advantages. 46) D Entering developed nations after other international businesses in the firm's industry and entering on a small scale to first learn more about those markets, will be associated with much lower levels of risk. However, the potential long-term rewards are also likely to be lower because the firm is essentially forgoing the opportunity to capture firstmover advantages and because the lack of commitment signaled by small-scale entry may limit its future growth potential. 47) D Christopher Bartlett and Sumantra Ghoshal argue that companies based in developing nations should use the entry of foreign multinationals as an opportunity to learn from these competitors by benchmarking their operations and performance against them. 48) A This company is exporting product overseas. An advantage of exporting as a mode of entry into a foreign market is that it avoids the often substantial costs of establishing manufacturing operations in the host country. 49) A An advantage of exporting as a mode of entry into a foreign market is that it avoids the often substantial costs of establishing manufacturing operations in the host country. 50) C Version 1

One drawback to exporting is that high transport costs can make exporting uneconomical, particularly for bulk products. A way of getting around this is to manufacture bulk products regionally. This strategy enables the firm to realize some economies from large-scale production and at the same time to limit its transport costs. 51) C One drawback to exporting is that high transport costs can make exporting uneconomical, particularly for bulk products. A way of getting around this is to manufacture bulk products regionally. This strategy enables the firm to realize some economies from large-scale production and at the same time to limit its transport costs. 52) E The way around the problem of local marketing agents in exporting is to set up wholly owned subsidiaries in foreign nations to handle local marketing, sales, and service. By doing this, the firm can exercise tight control over marketing and sales in the country while reaping the cost advantages of manufacturing the product in a single location, or a few choice locations. 53) E The way around the problem of local marketing agents in exporting is to set up wholly owned subsidiaries in foreign nations to handle local marketing, sales, and service. By doing this, the firm can exercise tight control over marketing and sales in the country while reaping the cost advantages of manufacturing the product in a single location, or a few choice locations. 54) B

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In a turnkey project, the contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel. At completion of the contract, the foreign client is handed the "key" to a plant that is ready for full operation—hence, the term turnkey. 55) C In aturnkey project, the contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel. At completion of the contract, the foreign client is handed the “key” to a plant that is ready for full operation—hence, the termturnkey. 56) B The know-how required to assemble and run a technologically complex process, such as refining petroleum or steel, is a valuable asset. Turnkey projects are a way of earning great economic returns from that asset. The strategy is particularly useful where FDI is limited by host-government regulations. 57) B The governments of many oil-rich countries have set out to build their own petroleum-refining industries, so they restrict FDI in their oilrefining sectors. But because many of these countries lack petroleumrefining technology, they gain it by entering into turnkey projects with foreign firms that have the technology. Such deals are often attractive to the selling firm because without them, they would have no way to earn a return on their valuable know-how in that country. 58) C

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A firm that enters into a turnkey deal will have no long-term interest in the foreign country. This can be a disadvantage if that country subsequently proves to be a major market for the output of the process that has been exported. One way around this is to take a minority equity interest in the operation. 59) C A firm that enters into a turnkey deal will have no long-term interest in the foreign country. This can be a disadvantage if that country subsequently proves to be a major market for the output of the process that has been exported. One way around this is to take a minority equity interest in the operation. 60) E A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified period, and in return, the licensor receives a royalty fee from the licensee. Intangible property includes patents, inventions, formulas, processes, designs, copyrights, and trademarks. 61) C A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified period, and in return, the licensor receives a royalty fee from the licensee. 62) B

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A disadvantage of licensing is that it does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies. Licensing typically involves each licensee setting up his or her own production operations. This severely limits the firm's ability to realize experience curve and location economies by producing its product in a centralized location. 63) B Cross-licensing agreements enable firms to hold each other hostage, which reduces the probability that they will behave opportunistically toward each other. Such cross-licensing agreements are increasingly common in high-technology industries. 64) A Whereas licensing is pursued primarily by manufacturing firms, franchising is employed primarily by service firms. 65) A Franchising is similar to licensing, although franchising tends to involve longer-term commitments than licensing.Franchising is basically a specialized form of licensing in which the franchiser not only sells intangible property (normally a trademark) to the franchisee but also insists that the franchisee agree to abide by strict rules as to how it does business. 66) C A disadvantage of franchising is that the geographical distance of the firm from its foreign franchisees can make poor quality difficult to detect. In addition, the sheer numbers of franchisees can make quality control difficult. Due to these factors, quality problems may persist. 67) A

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One of the advantages of joint ventures is that a firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems. 68) C Ajoint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. 69) C Establishing a wholly owned subsidiary in a foreign market can be done two ways. The firm either can set up a new operation in that country, often referred to as a greenfield venture, or it can acquire an established firm in that host nation and use that firm to promote its products. 70) C When a firm's competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence. Many high-tech firms prefer this entry mode for overseas expansion. 71) B Establishing a wholly owned subsidiary is generally the most costly method of serving a foreign market from a capital investment standpoint. Firms doing this must bear the full capital costs and risks of setting up overseas operations. 72) E The risks associated with learning to do business in a new culture are less if the firm acquires an established host-country enterprise. 73) C

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If a firm's core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the jointventure partner, in which case the strategy may seem unattractive. 74) D If a firm’s competitive advantage (its core competence) is based on control over proprietary technological know-how, licensing and jointventure arrangements should be avoided if possible to minimize the risk of losing control over that technology. 75) B One of the disadvantages of franchising is that it can result in a lack of control over quality. 76) B The attractions of licensing are frequently outweighed by the risks of losing control over technology, and if this is a risk, licensing should be avoided, if a high-tech firm wants to set up operations in a foreign country to profit from a core competency in technological know-how. 77) B The advantages of joint ventures include access to local partner's knowledge, sharing of development costs and risks, and political acceptability. 78) A If a firm's competitive advantage (its core competence) is based on control over proprietary technological know-how, licensing and jointventure arrangements should be avoided if possible to minimize the risk of losing control over that technology. Thus, if a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how, it will probably do so through a wholly owned subsidiary. Version 1

79) B The competitive advantage of many service firms is based on management know-how. For such firms, the risk of losing control over the management skills and technology to franchisees or joint-venture partners is not that great. These firms' valuable asset is their brand name, and brand names are generally well protected by international laws pertaining to trademarks. As a result, many service firms favor a combination of franchising and subsidiaries to control the franchises within particular countries or regions. 80) C Setting up wholly owned marketing subsidiaries is preferable to jointventure arrangements and to using foreign marketing agents because it gives the firm tight control that might be required for coordinating a globally dispersed value chain. 81) B A disadvantage of wholly owned subsidiaries is the high costs and risks involved. 82) C Firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries because it gives the firm the ability to use the profits generated in one market to improve its competitive position in another market. 83) A Acquisitions are quick to execute. By acquiring an established enterprise, a firm can rapidly build its presence in the target foreign market. 84) C

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The hubris hypothesis postulates that top managers typically overestimate their ability to create value from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities. 85) D A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the ground up, the so-called greenfield strategy, or by acquiring an enterprise in the target market. Acquisitions have three major points in their favor. In this case, the first point—they are quick to execute—is in their favor. By acquiring an established enterprise, a firm can rapidly build its presence in the target foreign market. 86) A A reason why acquisitions fail is because there is a clash between the cultures of the acquiring and acquired firms. After an acquisition, many acquired companies experience high management turnover, possibly because their employees do not like the acquiring company's way of doing things. 87) C Many acquisitions fail because there is a clash between the cultures of the acquiring and acquired firm. After an acquisition, many acquired companies experience high management turnover, possibly because their employees do not like the acquiring company's way of doing things. 88) D

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Screening of the foreign enterprise to be acquired, including a detailed auditing of operations, financial position, and management culture, can help to make sure the firm (1) does not pay too much for the acquired unit, (2) does not uncover any nasty surprises after the acquisition, and (3) acquires a firm whose organization culture is not antagonistic to that of the acquiring enterprise, thus reducing risk of failure. 89) D Managers must move rapidly after an acquisition to put an integration plan in place and to act on that plan. Some people in both the acquiring and acquired units will try to slow or stop any integration efforts, particularly when losses of employment or management power are involved, and managers should have a plan for dealing with such impediments before they arise. 90) D Greenfield ventures are slower to establish. They are also risky. As with any new venture, a degree of uncertainty is associated with future revenue and profit prospects. 91) A If a firm is seeking to enter a market where there are already wellestablished incumbent enterprises, and where global competitors are also interested in establishing a presence, it may pay the firm to enter via an acquisition. In such circumstances, a greenfield venture may be too slow to establish a sizable presence. 92) A

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If a firm is considering entering a country where there are no incumbent competitors to be acquired, then a greenfield venture may be the only mode. Even when incumbents exist, if the competitive advantage of the firm is based on the transfer of organizationally embedded competencies, skills, routines, and culture, it may still be preferable to enter via a greenfield venture. 93)The advantages frequently associated with entering a market early are commonly known as first-mover advantages. One first-mover advantage is the ability to preempt rivals and capture demand by establishing a strong brand name. A second advantage is the ability to build sales volume in that country and ride down the experience curve ahead of rivals, giving the early entrant a cost advantage over later entrants. A third advantage is the ability of early entrants to create switching costs that tie customers into their products or services. Such switching costs make it difficult for later entrants to win business. 94)Pioneering costs are costs that an early entrant has to bear that a later entrant can avoid. Pioneering costs arise when the business system in a foreign country is so different from that in a firm's home market that the enterprise has to devote considerable effort, time, and expense to learning the rules of the game. Pioneering costs include the costs of business failure if the firm, due to its ignorance of the foreign environment, makes major mistakes. Pioneering costs also include the costs of promoting and establishing a product offering, including the costs of educating customers. These can be significant when the product being promoted is unfamiliar to local consumers. In contrast, later entrants may be able to ride on an early entrant's investments in learning and customer education by watching how the early entrant proceeded in the market, by avoiding costly mistakes made by the early entrant, and by exploiting the market potential created by the early entrant's investments in customer education. Version 1

95)The consequences of entering on a significant scale—entering rapidly—are associated with the value of the resulting strategic commitments. A strategic commitment has a long-term impact and is difficult to reverse. Deciding to enter a foreign market on a significant scale is a major strategic commitment. Strategic commitments, such as rapid large-scale market entry, can have an important influence on the nature of competition in a market. Significant strategic commitments are neither unambiguously good nor bad. Rather, they tend to change the competitive playing field and unleash a number of changes, some of which may be desirable and some of which will not be. It is important for a firm to think through the implications of large-scale entry into a market and act accordingly. Of particular relevance is trying to identify how actual and potential competitors might react to large-scale entry into a market. Also, the large-scale entrant is more likely than the smallscale entrant to be able to capture first-mover advantages associated with demand preemption, scale economies, and switching costs. The value of the commitments that flow from rapid large-scale entry into a foreign market must be balanced against the resulting risks and lack of flexibility associated with significant commitments. But strategic inflexibility can also have value.

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96)Firms can use six different modes to enter foreign markets: exporting, turnkey projects, licensing, franchising, establishing joint ventures with a host-country firm, or setting up a new wholly owned subsidiary in the host country. Exporting is the sale of products produced in one country to residents of another country. A turnkey project occurs when a firm agrees to set up an operating plant for a foreign client and hand over the “key” when the plant is fully operational. Licensing is an arrangement in which a licensor grants the right to intangible property to a licensee for a specified period and receives a royalty fee in return. Franchising is a specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business. A joint venture is a cooperative undertaking between two or more firms. A wholly owned subsidiary is a subsidiary in which the firm owns 100 percent of the stock.

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97) The know-how required to assemble and run a technologically complex process, such as refining petroleum or steel, is a valuable asset. Turnkey projects are a way of earning great economic returns from that asset. The strategy is particularly useful where foreign direct investment (FDI) is limited by host-government regulations. For example, the governments of many oil-rich countries have set out to build their own petroleum-refining industries, so they restrict FDI in their oil-refining sectors. But because many of these countries lack petroleum-refining technology, they gain it by entering into turnkey projects with foreign firms that have the technology. Such deals are often attractive to the selling firm because without them, they would have no way to earn a return on their valuable know-how in that country. A turnkey strategy can also be less risky than conventional FDI. In a country with unstable political and economic environments, a longer-term investment might expose the firm to unacceptable political and/or economic risks (e.g., the risk of nationalization or of economic collapse). Three main drawbacks are associated with a turnkey strategy. First, the firm that enters into a turnkey deal will have no long-term interest in the foreign country. This can be a disadvantage if that country subsequently proves to be a major market for the output of the process that has been exported. One way around this is to take a minority equity interest in the operation. Second, the firm that enters into a turnkey project with a foreign enterprise may inadvertently create a competitor. For example, many of the Western firms that sold oil-refining technology to firms in Saudi Arabia, Kuwait, and other Gulf states now find themselves competing with these firms in the world oil market. Third, if the firm’s process technology is a source of competitive advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors.

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98)A problem with licensing is the risk associated with licensing technological know-how to foreign companies. There are ways of reducing this risk. One way is by entering into a cross-licensing agreement with a foreign firm. Under a cross-licensing agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm. Such agreements are believed to reduce the risks associated with licensing technological know-how, because the licensee realizes that if it violates the licensing contract (by using the knowledge obtained to compete directly with the licensor), the licensor can do the same to it. Cross-licensing agreements enable firms to hold each other hostage, which reduces the probability that they will behave opportunistically toward each other. Such cross-licensing agreements are increasingly common in high-technology industries. Another way of reducing the risk associated with licensing is to follow the Fuji Xerox model and link an agreement to license know-how with the formation of a joint venture in which the licensor and licensee take important equity stakes. Such an approach aligns the interests of licensor and licensee, because both have a stake in ensuring that the venture is successful.

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99) Licensing, a mode of entry into a foreign market, has three serious drawbacks. First, it does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies. Licensing typically involves each licensee setting up his or her own production operations. This severely limits the firm's ability to realize experience curve and location economies by producing its product in a centralized location. When these economies are important, licensing may not be the best way to expand overseas. Second, competing in a global market may require a firm to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another. By its very nature, licensing limits a firm's ability to do this. A licensee is unlikely to allow a multinational firm to use its profits (beyond those due in the form of royalty payments) to support a different licensee operating in another country. A third problem is the risk associated with licensing technological know-how to foreign companies. Technological know-how constitutes the basis of many multinational firms' competitive advantage. Most firms wish to maintain control over how their know-how is used, and a firm can quickly lose control over its technology by licensing it. Many firms have made the mistake of thinking they could maintain control over their know-how within the framework of a licensing agreement.

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100) Franchising is similar to licensing, although franchising tends to involve longer-term commitments than licensing.Franchising is basically a specialized form of licensing in which the franchiser not only sells intangible property (normally a trademark) to the franchisee but also insists that the franchisee agree to abide by strict rules as to how it does business. The franchiser will also often assist the franchisee to run the business on an ongoing basis. As with licensing, the franchiser typically receives a royalty payment, which amounts to some percentage of the franchisee’s revenues. Whereas licensing is pursued primarily by manufacturing firms, franchising is employed primarily by service firms. Fast food chains and service firms are two examples that typically use this form of entry. Student examples will vary.

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101)In a wholly owned subsidiary, the firm owns 100 percent of the stock. Establishing a wholly owned subsidiary in a foreign market can be done two ways. The firm either can set up a new operation in that country, often referred to as a greenfield venture, or it can acquire an established firm in that host nation and use that firm to promote its products. There are several clear advantages of wholly owned subsidiaries. First, when a firm's competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence. Many high-tech firms prefer this entry mode for overseas expansion. Second, a wholly owned subsidiary gives a firm tight control over operations in different countries. This is necessary for engaging in global strategic coordination. Third, a wholly owned subsidiary may be required if a firm is trying to realize location and experience curve economies. When cost pressures are intense, it may pay a firm to configure its value chain in such a way that the value added at each stage is maximized. Thus, a national subsidiary may specialize in manufacturing only part of the product line or certain components of the end product, exchanging parts and products with other subsidiaries in the firm's global system. Establishing such a global production system requires a high degree of control over the operations of each affiliate. The various operations must be prepared to accept centrally determined decisions as to how they will produce, how much they will produce, and how their output will be priced for transfer to the next operation. Because licensees or joint-venture partners are unlikely to accept such a subservient role, establishing wholly owned subsidiaries may be necessary. Finally, establishing a wholly owned subsidiary gives the firm a 100 percent share in the profits generated in a foreign market.

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102)A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. Fuji Xerox, for example, was set up as a joint venture between Xerox and Fuji Photo. Establishing a joint venture with a foreign firm has long been a popular mode for entering a new market. The most typical joint venture is a 50–50 venture, in which there are two parties, each holding a 50 percent ownership stake and contributing a team of managers to share operating control. This was the case with the Fuji–Xerox joint venture until 2001; it is now a 25–75 venture with Xerox holding 25 percent. The GM SAIC venture to build automobiles in China was a 50–50 venture until 2010, when it became a 51–49 venture, with SAIC holding the 51 percent stake. 103)The greater the pressures for cost reductions are, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries. By manufacturing in those locations where factor conditions are optimal and then exporting to the rest of the world, a firm may be able to realize substantial location and experience curve economies. The firm might then want to export the finished product to marketing subsidiaries based in various countries. These subsidiaries will typically be wholly owned and have the responsibility for overseeing distribution in their particular countries. Setting up wholly owned marketing subsidiaries is preferable to joint-venture arrangements and to using foreign marketing agents because it gives the firm tight control that might be required for coordinating a globally dispersed value chain. It also gives the firm the ability to use the profits generated in one market to improve its competitive position in another market. In other words, firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries.

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104) Acquisitions have three major points in their favor. First, they are quick to execute. By acquiring an established enterprise, a firm can rapidly build its presence in the target foreign market. Second, in many cases firms make acquisitions to preempt their competitors. The need for preemption is particularly great in markets that are rapidly globalizing, such as telecommunications, where a combination of deregulation within nations and liberalization of regulations governing cross-border foreign direct investment has made it much easier for enterprises to enter foreign markets through acquisitions. Such markets may see concentrated waves of acquisitions as firms race each other to attain global scale. Third, managers may believe acquisitions to be less risky than greenfield ventures. When a firm makes an acquisition, it buys a set of assets that are producing a known revenue and profit stream. Acquisitions fail for several reasons. First, the acquiring firms often overpay for the assets of the acquired firm. Second, many acquisitions fail because there is a clash between the cultures of the acquiring and acquired firm. Third, many acquisitions fail because attempts to realize synergies by integrating the operations of the acquired and acquiring entities often run into roadblocks and take much longer than forecast. Finally, many acquisitions fail due to inadequate pre-acquisition screening.

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105) The advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. For example, it is much easier to build an organization culture from scratch than it is to change the culture of an acquired unit. Similarly, it is much easier to establish a set of operating routines in a new subsidiary than it is to convert the operating routines of an acquired unit. This is a very important advantage for many international businesses, where transferring products, competencies, skills, and know-how from the established operations of the firm to the new subsidiary are principal ways of creating value. Set against this significant advantage are the disadvantages of establishing a greenfield venture. Greenfield ventures are slower to establish. They are also risky. As with any new venture, a degree of uncertainty is associated with future revenue and profit prospects. However, if the firm has already been successful in other foreign markets and understands what it takes to do business in other countries, these risks may not be that great. A final disadvantage is the possibility of being preempted by more aggressive global competitors who enter via acquisitions and build a big market presence that limits the market potential for the greenfield venture.

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106)The choice between acquisitions and greenfield ventures is not an easy one. Both modes have their advantages and disadvantages. In general, the choice will depend on the circumstances confronting the firm. If the firm is seeking to enter a market where there are already well-established incumbent enterprises, and where global competitors are also interested in establishing a presence, it may pay the firm to enter via an acquisition. In such circumstances, a greenfield venture may be too slow to establish a sizable presence. If the firm is considering entering a country where there are no incumbent competitors to be acquired, then a greenfield venture may be the only mode. Even when incumbents exist, if the competitive advantage of the firm is based on the transfer of organizationally embedded competencies, skills, routines, and culture, it may still be preferable to enter via a greenfield venture. 107)The long-run economic benefits of doing business in a country are a function of factors such as the size of the market (in terms of demographics), the present wealth (purchasing power) of consumers in that market, and the likely future wealth of consumers, which depends on economic growth rates. While some markets are very large when measured by number of consumers (e.g., China, India, Brazil, Russia, and Indonesia), one must also look at living standards and economic growth. On this basis, China and India, while relatively poor, are growing so rapidly that they are attractive targets for inward investment. Alternatively, weak growth in Indonesia implies that this populous nation is a far less attractive target for inward investment. Likely future economic growth rates appear to be a function of a free market system and a country’s capacity for growth (which may be greater in less developed nations). Also, the costs and risks associated with doing business in a foreign country are typically lower in economically advanced and politically stable democratic nations, and they are greater in less developed and politically unstable nations. Version 1

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Only large companies have benefited significantly from the moneymaking opportunities of exporting. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-01 Explain the promises and risks associated with exporting. Topic : Overview of Importing and Exporting Gradable : automatic

2) While large firms tend to be reactive in seeking export opportunities, most smaller firms tend to be proactive in the process. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-01 Explain the promises and risks associated with exporting. Topic : Overview of Importing and Exporting Gradable : automatic

Reactive firms do not consider exporting until their domestic market is saturated. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Difficulty : 1 Easy Learning Objective : 14-01 Explain the promises and risks associated with exporting. Topic : Overview of Importing and Exporting Bloom's : Understand Gradable : automatic

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Japan is considered one of the world’s most successful exporting nations. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Topic : Information Sources and Government Assistance to Exporting Gradable : automatic

5) For U.S. firms, the most comprehensive source of information on export opportunities is the Small Business Administration. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Topic : Information Sources and Government Assistance to Exporting Gradable : automatic

6) Compared to a decade ago, commercial banks and major accounting firms are more willing to assist small firms in starting export operations. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Topic : Information Sources and Government Assistance to Exporting Difficulty : 2 Medium Gradable : automatic

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7) A company would hire a customs broker if it wanted to minimize shipping costs and combine many smaller shipments into one large shipment. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Difficulty : 2 Medium Topic : Foreign Freight Forwarders Gradable : automatic

8) It often makes sense for a firm to enter a foreign market on a large scale to reduce the costs of any subsequent failure. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Difficulty : 2 Medium Topic : Choosing An International Business Strategy Gradable : automatic

9) The CORE tool is used by all-sized companies to determine a company’s readiness to export a product. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Topic : Information Sources and Government Assistance to Exporting Gradable : automatic

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10) Lack of trust in international trade can be exacerbated by the distance between the two parties in terms of space, language, and culture. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing Gradable : automatic

11) Issued by a bank at the request of an importer, a letter of credit states that the bank will pay a specified sum of money to the exporter, on presentation of particular, specified documents. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing Gradable : automatic

12) A bill of exchange is simply a list of the products being exported and the date they are shipped. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing Gradable : automatic

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13)

A draft instructs the exporter to ship product. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing Gradable : automatic

14) In international commerce, a person or business initiating a draft is known as the drafter and the party to whom the draft is presented is known as the draftee. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing Gradable : automatic

15) In domestic trade transactions, a buyer can often obtain possession of merchandise without signing a formal document acknowledging his or her obligation to pay. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing Gradable : automatic

16)

An international business would use a time draft when it wishes to delay payment.

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⊚ ⊚

true false

17)

In international commerce, time drafts are non-negotiable instruments. ⊚ true ⊚ false

18) A bill of lading proves that the carrier has received the merchandise described on the document. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing Gradable : automatic

19)

The Export-Import Bank provides financing aid to prospective U.S. exporters. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Information Sources and Government Assistance to Exporting Learning Objective : 14-04 Identify information sources and government programs that exist to help ex Gradable : automatic

20) In the United States, the Foreign Credit Insurance Association helps protect businesses from financial losses they would incur if a foreign buyer fails to pay for goods. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Information Sources and Government Assistance to Exporting Difficulty : 2 Medium Learning Objective : 14-04 Identify information sources and government programs that exist to help ex Gradable : automatic

21) Without a letter of credit, an exporter faces the risk that the foreign importer will not make payment. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Information Sources and Government Assistance to Exporting Difficulty : 2 Medium Learning Objective : 14-04 Identify information sources and government programs that exist to help ex Gradable : automatic

22)

A countertrade indicates the exchange of money for goods and services. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 14-05 Describe how countertrade can be used to facilitate exports. Topic : Countertrade Gradable : automatic

23)

Barter is the only form of countertrade that involves a cash transaction. ⊚ true ⊚ false

24) An offset agreement limits the flexibility to choose the goods an exporter wants to purchase. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 14-05 Describe how countertrade can be used to facilitate exports. Topic : Countertrade Gradable : automatic

25) Countertrade's main attraction is that it can give a firm a way to finance an export deal when other means are not available. ⊚ true ⊚ false

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MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Exporting is nearly always a way to increase the revenue and profit base of a company because A) there is little competition in the international market. B) foreign governments encourage imports from other countries. C) international markets are less complex than their domestic counterparts. D) the international market is much larger than the domestic market. E) it does not involve wasting resources on paperwork.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 14-01 Explain the promises and risks associated with exporting. Topic : Overview of Importing and Exporting Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

27) Seth, the sales manager for Trenton Foods, a small family business, is eager to get the company on an export path. The CEO of the company is not convinced, however. To convince the CEO, Seth should point out that firms that do not export often A) face problems of currency conversion. B) lose out on significant opportunities for cost reduction. C) are able to reduce their unit costs. D) typically grow faster than those that do. E) can more easily leverage their technology in foreign markets.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 14-01 Explain the promises and risks associated with exporting. Topic : Overview of Importing and Exporting AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

28)

When seeking opportunities for profitable exporting, large firms generally tend to be A) passive. B) risk averse. C) wary. D) proactive. E) neutral.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-01 Explain the promises and risks associated with exporting. Topic : Overview of Importing and Exporting Gradable : automatic

29)

In terms of exporting, what can be said of medium-sized and small firms? A) They are proactive about seeking opportunities for profitable exporting. B) They consider exporting only after their domestic market is saturated. C) They are not intimidated by the complexities of foreign legal systems. D) They have a high degree of familiarity with foreign market opportunities. E) They explore foreign markets to find opportunities for leveraging their technology.

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30)

Many medium-size firms are not proactive in seeking export opportunities because

A) they are familiar with the foreign market and do not find it challenging enough. B) the export market is similar to the home market in terms of legal and business practices. C) they are intimidated by the complexities and mechanics of exporting to foreign countries. D) domestic regulations limit their ability to export profitably. E) they can't recruit managers with the expertise needed to cultivate business in foreign countries.

31)

A common pitfall that novice exporters come across involves A) poor understanding of the domestic market. B) low unit costs. C) increased economies of scale. D) an ineffective distribution program. E) low interest rate financing.

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32)

One characteristic of exporting that many first-time exporters do not realize is that

A) many foreign customers require face-to-face negotiations on their home turf. B) large firms tend to wait for the world to come to them, rather than going out into the world to seek opportunities. C) exporters have the advantage of reduced paperwork and fewer formalities. D) medium-size and small firms are proactive about seeking opportunities for profitable exporting. E) firms that focus only on exporting often lose out on significant opportunities for growth and cost reduction.

33) Unhappy with the speed with which the company's export initiative was going, the CEO called Tyrell, the person in charge of exports at Shiffman Home Goods. What aspect of exporting can Tyrell use to validate the slow progress of the company’s efforts?

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A) The U.S. government does not provide any help for exporters. B) Novice exporters tend to overestimate the time required to cultivate business in foreign countries. C) Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors. D) Small firms are usually familiar with foreign market opportunities. E) Large firms do not consider exporting until their domestic market is saturated.

34)

Sogo shosha in Japan are a type of A) freight forwarder. B) trading house. C) currency exchange. D) production site. E) customer service center.

35)

The function of sogo shosha in Japan is to

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A) proactively and continuously seek export opportunities for their affiliated companies. B) exclusively serve the largest and most prestigious companies in Japan. C) assist offices concentrated in the business district of Tokyo. D) monopolize the export market in the country. E) advocate for exports only when there is excess production at home.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Topic : Information Sources and Government Assistance to Exporting Difficulty : 2 Medium Gradable : automatic

36) What is an accurate assessment when comparing exports of Germany, Japan, and the United States? A) Historically, only the United States has made its living as a trading nation. B) Germany and Japan are relatively self-contained continental economies in which international trade played a minor role. C) Unlike Japan or Germany, U.S. firms have a strong information advantage when they seek export opportunities. D) The United States has not yet evolved an institutional structure for promoting exports similar to that of Germany or Japan. E) The Ministry of International Trade and Industry (MITI) in the United States is always on the lookout for export opportunities. There is no such organization elsewhere.

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37) Kellen works for JetWorks Plumbing in Cleveland, Ohio. Her company is seeking information on export opportunities. What is the best government resource Kellen can use to learn about exporting? A) Small Business Administration B) Department of Commerce C) Federal Trade Commission D) United Nations E) Federal Deposit Insurance Corporation

Question Details Accessibility : Keyboard Navigation Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Topic : Information Sources and Government Assistance to Exporting Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

38) Which institution within the U.S. Department of Commerce is dedicated to providing businesses with intelligence and assistance for entering foreign markets? A) International Trade Administration B) Small Business Administration C) Federal Trade Commission D) Bureau of Competition E) Bank of New York

39)

One way the U.S. Department of Commerce helps potential exporters is by

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A) overseeing volunteers with international trade experience. B) assembling a "comparison shopping service" for countries that are major markets for U.S. exports. C) coordinating a nationwide group of international trade attorneys who provide free initial consultations to small businesses. D) providing export specialists who act as the export marketing departments for their client firms. E) starting exporting operations for firms until they are well established.

40) Samantha, the CEO of Xanon Products, a small manufacturer of video presentation software, is going abroad along with representatives of the U.S. Department of Commerce and other U.S. businesspeople to meet with qualified agents, distributors, and customers. Samantha is most likely participating in the A) matchmaker program. B) "best prospects" listing. C) SCORE program. D) "comparison shopping service." E) export-import program.

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41) The government organization that employs 76 district international trade officers and 10 regional international trade officers throughout the United States as well as a 10-person international trade staff in Washington, D.C., to help to help potential exporters is the A) Federal Trade Commission. B) U.S. Commercial Service. C) International Trade Administration. D) Small Business Administration. E) sogo shosha.

42) The Small Business Administration oversees almost 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses through its program known as the A) Export Legal Assistance Network. B) Service Corps of Retired Executives. C) International Trade Veteran's Group. D) Network of Foreign Trade Executives. E) Export Management Company.

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43) The Small Business Administration coordinates a group of __________ in the ELAN program who provide free initial consultations to small businesses on export matters. A) engineers B) politicians C) accountants D) attorneys E) marketers

44) Finnegan Traders exports handmade wool sweaters from companies based in Maine, Massachusetts, and New York. The company identifies companies in Europe and Asia that market and sell these products. Finnegan Traders handles all documentation, logistics, and transportation for the products. What type of business is Finnegan Traders? A) export trading company B) wholly owned subsidiary C) franchise D) confirming house E) piggyback marketers

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45) A medium-size beauty supply company based in Iowa plans to expand operations into four countries in Europe. The company decides to hire a(n) __________ that can help the company with the specific laws and documentation requirements for imports for the four countries. A) confirming house B) customs broker C) export packaging company D) franchisee E) buying agent

Question Details Accessibility : Keyboard Navigation Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Topic : Information Sources and Government Assistance to Exporting AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

46) Rest Assured Inc. has a contract with a foreign client to provide hospitality kits that include a toothbrush, toothpaste, shampoo, and other essential items hotel guests might have forgotten to pack. Rest Assured does not have one of the items the foreign client wants in the kits, so it decides to contract with No-Nick Razors to fulfill this contract. What is this an example of? A) piggyback marketing B) an acquisition C) a customs broker D) licensing E) a remarketer

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47) No Fear Hiking Gear wants to export but, as a small family business, is cautious, particularly with respect to financial risk. What is a strategic step that you would advise No Fear Hiking Gear to take to increase its probability of exporting successfully? A) Avoid the use of export management companies to contain costs. B) Enter several markets simultaneously to hedge risk. C) Enter a foreign market on a small scale. D) Wait for export opportunities to come to them. E) Avoid recruitment of local personnel.

Question Details Accessibility : Keyboard Navigation Topic : Overview of Importing and Exporting Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

48) Firms engaged in international trade deal with people they may have never seen, who live in different countries, who speak different languages, and who abide by different legal systems. These factors can result in A) easy tracking of the parties involved. B) a lack of trust between the parties. C) strict enforcement of contractual obligations. D) rapid acculturation. E) better understanding of how transactions should be configured.

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49) All-Best BBQ is a fourth-generation family business. The company has concentrated on the U.S. market by selling its products primarily in the United States but now wants to sell abroad. The board of directors is hesitant about new markets because of their lack of knowledge regarding foreign legal systems and languages. What is the likely reason behind this hesitation? A) poor education B) a lack of trust C) tariff barriers D) rapid E) licensing arrangements

Question Details Accessibility : Keyboard Navigation Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

50) As an exporter, Delta Trading wants to be paid before a consignment is shipped. Correspondingly, its importer in France, Bonjour Imports, wants to pay only upon receipt of the consignment. These conflicting preferences of Delta Trading and Bonjour Imports are most likely a manifestation of

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A) corporate greed. B) acculturation. C) lack of trust. D) cultural insensitivity. E) countertrading opportunities.

51) the

A lack of trust between two parties engaged in international trade can be exacerbated by

A) saturation of the domestic market. B) similar preferences of the parties regarding how a transaction should be configured. C) narrowing distance between the two parties due to technological advances. D) problems of using an underdeveloped international legal system to enforce contractual obligations. E) possibility of doing business with someone with whom they have been associated for a long time.

52) When using a third party in international trade, title to the products is given to a bank by the exporter in the form of a document known as a

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A) merchandise bill. B) bill of lading. C) bill of exchange. D) draft. E) letter of credit.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing Gradable : automatic

53) No-Carb Pasta Corp. is exporting for the first time to South America and has contracted with Good Foods Imports in Brazil for an initial order valued at $75,000. No-Carb Pasta Corp. wants Good Foods Imports to secure a document from a Brazilian bank that indicates the bank will pay No-Carb Pasta Corp. $75,000 upon presentation of specified documents by the exporter. What document is No-Carb Pasta Corp. asking for? A) bill of lading B) time draft C) letter of credit D) sight draft E) bill of exchange

54)

What is the purpose of a letter of credit?

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A) It states that the bank will pay a specified sum of money to a beneficiary on presentation of particular, specified documents. B) It is a document written by an exporter instructing an importer to pay a specified amount of money at a specified time. C) It serves as a receipt, a contract, and a document of title. D) It indicates that the carrier has received the merchandise described on the face of the document. E) It allows buyers to obtain possession of merchandise without signing a formal document acknowledging his or her obligation to pay.

55)

What is an advantage of having a letter of credit? A) It allows payment for merchandise after its delivery. B) The exporter is guaranteed payment. C) It allows an exporter to get a higher price for his or her goods. D) It helps exporters incur lower shipping costs. E) It does not require the importer to pay any fee.

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56) Madison Manufacturing wants to import a machine from Germany. However, the company's head of manufacturing is reluctant to spend the time required to obtain a letter of credit that the German exporter insists on. You are the company's CFO. What advantage of a letter of credit will help convince the head of manufacturing that this is worthwhile? A) The importer does not have to pay for the merchandise until the documents have arrived. B) Obtaining pre-export financing becomes easier. C) It helps the importer to get goods for a lower price. D) It results in lower shipping costs. E) The importer does not have to pay the third party a fee for facilitating the transaction.

Question Details Accessibility : Keyboard Navigation Learning Objective : 14-03 Recognize the basic steps involved in export financing. Topic : Export and Import Financing AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

57) For an importer, what is a disadvantage of using a letter of credit for international transactions? A) It results in the importer losing control over the process of trading. B) It reduces the exporter's level of trust in the importer. C) It may limit the importer's ability to borrow funds for other purposes. D) It requires the importer to repay the loan even before the merchandise is sold. E) It is not issued at the importer's request.

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58) Copper Corp., a rapidly growing company, is looking to buy a large industrial ventilation system from Thailand that is expected to cost $3 million. The exporter wants Copper Corp. to produce a letter of credit, but its CFO is reluctant to do so. What disadvantage of letter of credits is the likely reason for the CFO's reluctance? A) It results in the importer losing control over the process of trading. B) It reduces the exporter's level of trust in the importer. C) It reduces the importer's ability to borrow funds for other purposes. D) It requires the importer to repay the loan even before the merchandise is sold. E) It is not issued at the importer's request

59) All-Season Growers Inc., based in Mexico, has contracted with a company in Italy to export five tons of seedlings. All-Season Growers has written an order requesting that the Italian company pay €15,000 by June 15 prior to the shipping date. This order is an example of a A) bill of lading. B) draft. C) letter of credit. D) counterpurchase. E) buyback

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60)

How do international and domestic practices of settling trade transactions differ?

A) In an international transaction, a formal promise to pay is required before the buyer can obtain the merchandise. B) In an international transaction, the seller usually ships merchandise on an open account. C) In a domestic transaction, a draft is used to settle trade transactions. D) In an international transaction, the exporter sends a commercial invoice that specifies the amount due and terms of payment to the importer. E) In an international transaction, there is more trust between the exporter and the importer than in a domestic transaction.

61) Kent Steel, a rapidly growing small steel company with annual revenues of $14 million, is looking to buy a large industrial furnace from Sampson Manufacturing, a Japan-based company. Rather than have a letter of credit binding the two parties, both agree on a draft. In international commerce, Sampson Manufacturing, the party initiating the draft, is known as the

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A) maker. B) drawee. C) buyer D) agent. E) drafter.

62) Rocky Mountain Products, a U.S. company, is exporting camping gear to a Japanese company. The two parties agree on a draft, but Rocky Mountain Products wants it to be a draft that is payable on presentation to the Japanese company. Rocky Mountain Products is asking for a(n) A) bill of lading. B) sight draft. C) letter of credit. D) time draft. E) offset.

63) When The Right Keys Inc. exported piano component parts to a company in Taiwan, it allowed the company 90 days to pay for the parts. This is an example of a(n)

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A) sight draft. B) time draft. C) bill of lading. D) counterpurchase. E) offset.

64)

When a time draft is presented to a drawee, the company signifies acceptance of it by A) delivering the goods immediately. B) paying the draft amount immediately. C) providing a collateral for the amount specified in the bill. D) writing or stamping a notice of acceptance on its face. E) selling the draft to an investor at a discount from its face value.

65)

Once accepted by the drawee, a time draft becomes a(n)

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A) asset for the drawee. B) in-transit bill. C) promise to pay by the accepting party. D) bill of lading. E) letter of credit held by the bank.

66)

When a time draft is drawn on and accepted by a bank, it is known as a A) trade acceptance. B) banker's check. C) banker's acceptance. D) bill of lading. E) letter of credit.

67)

When a time draft is drawn on and accepted by a business firm, it is known as a(n)

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A) trade acceptance. B) in-transit bill. C) banker's acceptance. D) bill of lading. E) letter of credit.

68)

A time draft is a negotiable instrument, which means that it A) has no value given the deferred nature of the document. B) is generally not preferred in international transactions. C) can be sold to an investor. D) is also known as a bill of lading. E) cannot be transferred.

69) A __________ is issued to an exporter by a common carrier transporting the merchandise and serves as a receipt, a contract, and a document of title.

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A) bill of lading B) collateral title C) draft D) letter of credit E) bill of exchange

70) When a bill of lading specifies that the carrier has received the merchandise listed on the document, it is acting as a A) contract. B) receipt. C) document of title. D) letter of credit. E) bill of exchange.

71) Fore Ways Golf has a bill of lading for an order of 10,000 golf clubs it will be exporting to a foreign distributor. The company takes this bill of lading to the local bank and uses it to obtain funds to hold the company over until final payment is received from the foreign distributor. In this situation, the bill of lading is being used as

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A) collateral. B) licensing C) a draft. D) a contract. E) a receipt.

72) When a bill of lading is used to obtain payment or a written promise of payment before the merchandise is released to the importer, it serves as a A) document of title. B) contract. C) receipt. D) time draft. E) collateral.

73)

What is the first step in a typical international trade transaction?

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A) The exporter agrees to ship under a letter of credit and specifies relevant information such as prices and delivery terms. B) The importer applies to a trusted third party (usually a bank) for a letter of credit to be issued in favor of the exporter for the merchandise the importer wishes to buy. C) The importer places an order with the exporter and asks the exporter if they would be willing to ship under a letter of credit. D) The exporter ships the goods to the importer on a common carrier. An official of the carrier gives the exporter a bill of lading. E) The trusted third party (usually a bank) issues a letter of credit in the importer's favor and sends it to the exporter's bank.

74) Financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries is provided by the A) International Monetary Fund. B) World Bank. C) Overseas Commercial Service. D) Ex-Im Bank. E) Export Credit Insurance Association.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Export and Import Financing Learning Objective : 14-04 Identify information sources and government programs that exist to help ex Gradable : automatic

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75) Repayment of medium- and long-term loans that U.S. commercial banks make to foreign borrowers for purchasing U.S. exports is guaranteed by the A) Federal Deposit Insurance Corporation. B) Central Bank. C) World Bank. D) Ex-Im Bank. E) Export Credit Insurance Association.

76)

An exporter might have to forgo a letter of credit when A) the exporter is the only option a business has to receive a particular good. B) the importer is facing stiff competition from other importers. C) the exporter is a dominant player in a noncompetitive market. D) the importer is playing competing suppliers against each other. E) he or she knows that the importer will default on payment.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Export and Import Financing Learning Objective : 14-04 Identify information sources and government programs that exist to help ex Gradable : automatic

77)

A U.S. company would invest in export credit insurance when it

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A) is exposed to the risk that an importer may default on payment. B) is dealing in a country that has a nonconvertible currency. C) is unable to obtain any pre-export financing. D) has received a letter of credit from the importer's bank. E) has to enter a barter-like agreement.

78)

In the United States, export credit insurance is provided by the A) Export-Import Bank. B) Bank of New York. C) Foreign Credit Insurance Association. D) Federal Deposit Insurance Corporation. E) Federal Reserve Bank.

79) The Foreign Credit Insurance Association (FCIA) is an association of private commercial institutions operating under the guidance of the

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A) Federal Mediation and Conciliation Service. B) U.S. Department of Commerce. C) Export-Import Bank. D) International Trade Administration. E) Ministry of International Trade and Industry.

80)

Countertrade is a form of A) licensing. B) dumping. C) bartering. D) brokering. E) franchising.

81) A range of barterlike agreements by which goods and services are traded for other goods and services when they cannot be traded for money is known as

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A) countertrade. B) carry trade. C) free trade. D) counter sale. E) countervailing duty.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 14-05 Describe how countertrade can be used to facilitate exports. Topic : Countertrade Gradable : automatic

82) Saudi Arabia agreed to purchase 5,000 refrigeration systems from Polar Trends Corp. with payment in the form of crude oil that is discounted 22 percent below posted world oil prices. This transaction is a form of A) countertrade. B) acquisition. C) licensing. D) greenfield venture. E) piggyback marketing.

Question Details Accessibility : Keyboard Navigation Learning Objective : 14-05 Describe how countertrade can be used to facilitate exports. Topic : Countertrade AACSB : Knowledge Application Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

83) During the 1960s, the then-communist states of eastern Europe relied on countertrade to purchase imports because

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A) their currencies traded at higher levels than all other currencies. B) their currencies were generally nonconvertible. C) they favored dumping policies. D) spot exchange rates favored their currencies. E) licensing options had diminished.

84)

What is a characteristic of countertrade?

A) The governments of developing nations sometimes insist on a certain amount of countertrade. B) Countertrade is a means of structuring an international sale when conventional means of payment are cost-effective. C) Nonconvertibility is an advantage for exporters. D) Nonconvertibility implies that the exporter will be paid only in his or her home currency. E) Most exporters desire payment in a currency that is not convertible.

85) Let’s assume that rather than requiring cash payments, France traded wine with the United States in exchange for wheat. This is an example of which form of countertrade?

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A) switch trading B) counterpurchase C) buyback D) barter E) offset

86) The direct exchange of goods and/or services between two parties without a cash transaction is referred to as A) switch trading. B) counterpurchase. C) barter. D) offset E) buyback.

87)

The most restrictive countertrade arrangement is

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A) counterpurchase. B) offset. C) barter. D) switch trading. E) buyback.

88)

What is a disadvantage of barter as a countertrade arrangement? A) It is a very complex arrangement. B) If goods are exchanged simultaneously, one party ends up financing the other. C) Firms cannot resell the goods at a reasonable price. D) It involves huge cash transactions. E) It cannot be used in transactions with trading partners who are not creditworthy.

89) To cater to the growing demand for luxury carpets, Germany agrees to buy 20,000 carpets from Plush Floors Inc. in exchange for 500 barrels of oil. Since Plush Floors Inc. is not seen as creditworthy, Germany decides to make this a one-time-only deal. What form of countertrade is Germany using?

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A) counterpurchase B) offset C) switch trading D) barter E) buyback

90) The type of countertrade where a firm agrees to purchase a certain amount of materials back from a country to which a sale is made is called A) barter. B) counterpurchase. C) compensation D) switch trading. E) buyback

91) Quick Electric sells some lighting products to Indonesia. Indonesia pays Quick Electric in dollars but in exchange the firm agrees to spend some of the proceeds from the sale on textiles produced in Indonesia. What type of countertrade arrangement are the two parties engaged in?

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A) switch trading B) buyback C) counterpurchase D) barter E) compensation

92) A buying agreement where the exporting country can fulfill the agreement with any firm in the country to which the sale is being made is called a(n) A) switch trade. B) offset. C) buyback. D) arbitrage. E) barter.

93) From an exporter's perspective, why is an offset more attractive than a straight counterpurchase agreement?

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A) It is the simplest countertrade arrangement. B) It gives the exporter greater flexibility to choose the goods that it wishes to purchase. C) It allows the use of a specialized third-party trading house. D) It gives the exporter counterpurchase credits, which can be used in another country. E) It allows direct exchange of goods and/or services between two parties without a cash transaction.

94) A type of countertrade where a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them is called A) barter. B) switch trading. C) offset. D) buyback. E) compensation.

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95) Chill Blaster Outerwear concludes a counterpurchase agreement with England for which it receives some counterpurchase credits. Chill Blaster Outerwear does not want any foreign goods, however, so it sells the credits to a third-party trading house at a discount. The trading house finds a firm that can use the credits and sells them at a profit. This is an example of A) barter. B) switch trading. C) an offset. D) a buyback. E) compensation.

Question Details Accessibility : Keyboard Navigation Learning Objective : 14-05 Describe how countertrade can be used to facilitate exports. Topic : Countertrade Bloom's : Apply Difficulty : 3 Hard AACSB : Reflective Thinking Gradable : automatic

96) Solar Source International builds a plant in Australia and agrees to take a certain percentage of the plant's output as partial payment for the contract. This type of countertrade is called a(n) A) counterpurchase. B) offset. C) switch trade. D) buyback. E) barter.

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97) Global Petroleum negotiated a deal with Saudi Arabia in which Global Petroleum would build several refineries in Saudi Arabia and receive oil as partial payment over a 20-year period. This is an example of A) switch trading. B) a buyback. C) a counterpurchase. D) an offset. E) barter.

98)

A drawback of countertrade is that

A) it fails to enable firms to finance an export deal. B) it is detrimental to the economy of the importing country. C) developing nations have trouble raising the foreign exchange necessary to pay for imports. D) it does not allow firms to invest in an in-house trading department dedicated to arranging and managing deals. E) it may involve the exchange of poor-quality goods that cannot be disposed of profitably.

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99)

One drawback of a countertrade agreement is that

A) it fails to give firms a way to finance an export deal. B) it requires an in-house trading department to be maintained, which can be expensive and time-consuming. C) it is detrimental to the economy of the importing country. D) developing nations may have trouble raising the foreign exchange necessary to pay for imports. E) it is not an acceptable means of trading in most developing countries.

100)

Countertrade is most attractive for A) small exporters. B) large multinational enterprises. C) only U.S.-based firms. D) any firm in democratic nations. E) new companies.

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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 101) Describe some of the common pitfalls encountered by companies trying to do business abroad for the first time.

102) Compare and contrast the experience of exporting for U.S. firms with that of German and Japanese firms.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Overview of Importing and Exporting Bloom's : Understand Learning Objective : 14-02 Identify the steps managers can take to improve their firm's export perfor Difficulty : 2 Medium Gradable : manual

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103) Discuss the “best prospects list,” “comparison shopping service,” and matchmaker program available to U.S. firms looking to export. Which government agencies provide these services?

104)

How does the Small Business Administration (SBA) help potential exporters?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Information Sources and Government Assistance to Exporting Difficulty : 2 Medium Learning Objective : 14-04 Identify information sources and government programs that exist to help ex Gradable : manual

105)

Describe the role of export packaging companies.

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106)

Discuss the export processing zones around the world.

107)

What are two steps firms can take to make their first-time export efforts successful?

108) Briefly describe the various financial devices that help exporters solve the problem of a lack of trust in international trade.

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109)

Explain the difference between a sight draft and a time draft.

110) Briefly describe the different forms of government-backed assistance that help potential U.S. exporters finance their export programs.

111)

Describe the mission of the Ex-Im Bank.

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112)

Explain why a company would use export credit insurance.

113)

What is countertrade? When can it be used?

114)

Briefly describe the different types of countertrade arrangements.

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115)

Describe the types of companies that benefit most from countertrade.

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Answer Key Test name: Hill_14 1) FALSE 2) FALSE 3) TRUE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) FALSE 9) TRUE 10) TRUE 11) TRUE 12) FALSE 13) FALSE 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) TRUE 19) TRUE 20) TRUE 21) TRUE 22) FALSE 23) FALSE 24) FALSE 25) TRUE 26) D Version 1

The great promise of exporting is that large revenue and profit opportunities are to be found in foreign markets for most firms in most industries. The international market is normally so much larger than the firm's domestic market that exporting is nearly always a way to increase the company's revenue and profit base. 27) B By expanding the size of the market, exporting can enable a firm to achieve economies of scale, thereby lowering its unit costs. Firms that do not export often lose out on significant opportunities for growth and cost reduction. 28) D Studies have shown that while many large firms tend to be proactive about seeking opportunities for profitable exporting —systematically scanning foreign markets to find ways to leverage their technology, products, and marketing skills in foreign countries—many mediumsized and small firms are very reactive. 29) B Many medium-sized and small firms tend to be reactive in seeking opportunities for profitable exporting. Typically, such reactive firms do not even consider exporting until their domestic market is saturated and the emergence of excess productive capacity at home forces them to look for growth opportunities in foreign markets. 30) C One reason more firms are not proactive is that many would-be exporters, particularly smaller firms, are often intimidated by the complexities and mechanics of exporting to countries where business practices, language, culture, legal systems, and currency are very different from the home market. Version 1

31) D Many neophyte exporters run into significant problems when first trying to do business abroad, and this sours them on future exporting ventures. Common pitfalls include poor market analysis, a poor understanding of competitive conditions in the foreign market, a failure to customize the product offering to the needs of foreign customers, a lack of an effective distribution program, a poorly executed promotional campaign, and problems securing financing. 32) A Novice exporters tend to underestimate the time and expertise needed to cultivate business in foreign countries. Few realize the amount of management resources that have to be dedicated to this activity. Many foreign customers require face-to-face negotiations on their home turf. 33) C Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors. According to a UN report on trade and development, a typical international trade transaction may involve 30 parties, 60 original documents, and 360 document copies, all of which have to be checked, transmitted, reentered into various information systems, processed, and filed. The United Nations has calculated that the time involved in preparing documentation, along with the costs of common errors in paperwork, often amounts to 10 percent of the final value of goods exported. 34) B Many Japanese firms are affiliated in some way with thesogo shosha, Japan's great trading houses. Thesogo shosha have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small.

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35) A Many Japanese firms are affiliated in some way with thesogo shosha, Japan's great trading houses. Thesogo shosha have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small. 36) D Both Germany and Japan have long made their living as trading nations, whereas until recently the United States has been a relatively selfcontained continental economy in which international trade played a minor role. The United States has not yet evolved an institutional structure for promoting exports similar to that of either Germany or Japan. 37) B Despite institutional disadvantages, U.S. firms can increase their awareness of export opportunities. The most comprehensive source of information is the U.S. Department of Commerce and its district offices all over the country. Within that department are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the U.S. Commercial Service. 38) A The most comprehensive source of information on export opportunities for U.S. firms is the U.S. Department of Commerce and its district offices all over the country. Within the U.S. Department of Commerce are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the U.S. Commercial Service. 39) B

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Within the U.S. Department of Commerce are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the U.S. Commercial Service. The Department of Commerce has assembled a "comparison shopping service" for countries that are major markets for U.S. exports. For a small fee, a firm can receive a customized market research survey on a product of its choice. 40) A The Department of Commerce has a matchmaker program, in which department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers. 41) D The Small Business Administration (SBA) is a government organization that can help potential exporters. The SBA employs 76 district international trade officers and 10 regional international trade officers throughout the United States as well as a 10-person international trade staff in Washington, D.C. 42) B Through its Service Corps of Retired Executives (SCORE) program, the Small Business Administration oversees some 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses. 43) D The Small Business Administration coordinates the Export Legal Assistance Network (ELAN), a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters. 44) A Version 1

Export trading companies export products for companies that contract with them. They identify and work with companies in foreign countries that will market and sell the products. They provide comprehensive exporting services, including export documentation, logistics, and transportation. 45) B Customs brokers can help companies avoid the pitfalls involved in customs regulations. The customs requirements of many countries can be difficult for new or infrequent exporters to understand, and the knowledge and experience of the customs broker can be very important. For example, many countries have certain laws and documentation regulations concerning imported items that are not always obvious to the exporter. 46) A Piggyback marketing is an arrangement whereby one firm distributes another firm’s products. For example, a firm may have a contract to provide an assortment of products to an overseas client, but it does not have all the products requested. In such cases, another firm can piggyback its products to fill the contract’s requirements. 47) C It often makes sense for an exporter to enter a foreign market on a small scale to reduce the costs of any subsequent failure. Most importantly, entering on a small scale provides the time and opportunity to learn about the foreign country before making significant capital commitments to that market. 48) B

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Firms engaged in international trade have to trust someone they may have never seen, who lives in a different country, who speaks a different language, who abides by (or does not abide by) a different legal system, and who could be very difficult to track down if he/she defaults on an obligation. Consequently, neither party to the trade completely trusts the other. 49) B Firms engaged in international trade have to trust someone they may have never seen, who lives in a different country, who speaks a different language, who abides by (or does not abide by) a different legal system, and who could be very difficult to track down if he/she defaults on an obligation. Consequently, neither party to the trade completely trusts the other. 50) C Firms engaged in international trade have to trust someone they may have never seen, who lives in a different country, who speaks a different language, who abides by (or does not abide by) a different legal system, and who could be very difficult to track down if he or she defaults on an obligation. Due to the lack of trust between the two parties to an international transaction, each has his/her own preferences as to how the transaction should be configured. 51) D The lack of trust between two parties is exacerbated by the distance between the two parties—in space, language, and culture—and by the problems of using an underdeveloped international legal system to enforce contractual obligations. 52) B

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The problem of lack of trust in international trade is solved by using a third party trusted by both parties—normally a reputable bank—to act as an intermediary. Title to the products is given by the exporter to the bank that issued a letter of credit in the form of a document called a bill of lading. 53) C A letter of credit stands at the center of international commercial transactions. Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. 54) A A letter of credit, abbreviated as L/C, stands at the center of international commercial transactions. Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. 55) B The great advantage of this system is that both the importer and the exporter are likely to trust reputable banks, even if they do not trust each other. Once the exporter has seen a letter of credit, he or she knows that payment is guaranteed and will ship the merchandise. Also, an exporter may find that having a letter of credit will facilitate obtaining pre-export financing. 56) A

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When using a letter of credit for international transactions, an importer does not have to pay for the merchandise until the documents have arrived and unless all conditions stated in the letter of credit have been satisfied. 57) C Since the letter of credit is a financial liability against the importer, it may reduce his or her ability to borrow funds for other purposes. 58) C Since the letter of credit is a financial liability against the importer, it may reduce the firm's ability to borrow funds for other purposes. 59) B In international commerce, a draft is simply an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time. 60) A International practice is to use drafts to settle trade transactions. Due to the lack of trust in international transactions, payment or a formal promise to pay is required before the buyer can obtain the merchandise. 61) A A draft is simply an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time. The person or business initiating the draft is known as the maker. 62) B Drafts fall into two categories, sight drafts and time drafts. A sight draft is payable on presentation to the drawee. 63) B

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Drafts fall into two categories, sight drafts and time drafts. A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days. It is presented to the drawee, who signifies acceptance of it by writing or stamping a notice of acceptance on its face. Once accepted, the time draft becomes a promise to pay by the accepting party. 64) D When a time draft is presented to the drawee, he or she signifies acceptance of it by writing or stamping a notice of acceptance on its face. Once accepted, the time draft becomes a promise to pay by the accepting party. 65) C When a time draft is presented to the drawee, he or she signifies acceptance of it by writing or stamping a notice of acceptance on its face. Once accepted, the time draft becomes a promise to pay by the accepting party. 66) C A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days. When a time draft is drawn on and accepted by a bank, it is called a banker's acceptance. 67) A A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days. When a time draft is drawn on and accepted by a business firm, it is called a trade acceptance. 68) C Time drafts are negotiable instruments; that is, once the draft is stamped with an acceptance, the maker can sell the draft to an investor at a discount from its face value.

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69) A The bill of lading is a document issued to the exporter by the common carrier transporting the merchandise. It serves as a receipt, a contract, and a document of title. 70) B The bill of lading is issued to the exporter by the common carrier transporting the merchandise. It serves three purposes: it is a receipt, a contract, and a document of title. As a receipt, the bill of lading indicates that the carrier has received the merchandise described on the face of the document. 71) A The bill of lading is issued to the exporter by the common carrier transporting the merchandise. It serves three purposes: it is a receipt, a contract, and a document of title. The bill of lading can also function as collateral against which funds may be advanced to the exporter by its local bank before or during shipment and before final payment by the importer. 72) A The bill of lading is issued to the exporter by the common carrier transporting the merchandise. It serves three purposes: it is a receipt, a contract, and a document of title. As a document of title, the bill of lading can be used to obtain payment or a written promise of payment before the merchandise is released to the importer. 73) C The typical international trade transaction involves 14 steps. In the first step, the importer places an order with the exporter and asks the exporter if they would be willing to ship under a letter of credit. 74) D Version 1

The Export-Import Bank, often referred to as Ex-Im Bank, is an independent agency of the U.S. government. The mission of the ExportImport Bank is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries. 75) D The Export-Import Bank, often referred to as Ex-Im Bank, is an independent agency of the U.S. government. It guarantees repayment of medium- and long-term loans U.S. commercial banks make to foreign borrowers for purchasing U.S. exports. 76) D Sometimes an exporter who insists on a letter of credit will lose an order to one who does not require a letter of credit. Thus, when the importer is in a strong bargaining position and able to play competing suppliers against each other, an exporter may have to forgo a letter of credit. 77) A The lack of a letter of credit exposes the exporter to the risk that the foreign importer will default on payment. The exporter can insure against this possibility by buying export credit insurance. 78) C In the United States, export credit insurance is provided by the Foreign Credit Insurance Association (FCIA), an association of private commercial institutions operating under the guidance of the ExportImport Bank. 79) C

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In the United States, export credit insurance is provided by the Foreign Credit Insurance Association (FCIA), an association of private commercial institutions operating under the guidance of the ExportImport Bank. 80) C Countertrade is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent.Countertrade denotes a range of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money. 81) A Countertrade denotes a whole range of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money. 82) A Countertrade denotes a range of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money. 83) B In the modern era, countertrade arose in the 1960s as a way for the Soviet Union and the communist states of Eastern Europe, whose currencies were generally nonconvertible, to purchase imports. 84) A Given that countertrade is a means of financing international trade, albeit a relatively minor one, prospective exporters may have to engage in this technique from time to time to gain access to certain international markets. The governments of developing nations sometimes insist on a certain amount of countertrade. Version 1

85) D Barter is the direct exchange of goods and/or services between two parties without a cash transaction. 86) C Barter is the direct exchange of goods and/or services between two parties without a cash transaction. Although barter is the simplest arrangement, it is not common. 87) C The problems with barter are twofold. First, if goods are not exchanged simultaneously, one party ends up financing the other for a period. Second, firms engaged in barter run the risk of having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable price. For these reasons, barter is viewed as the most restrictive countertrade arrangement. 88) C The problems of barter, a countertrade arrangement, are twofold. First, if goods are not exchanged simultaneously, one party ends up financing the other for a period. Second, firms engaged in barter run the risk of having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable price. 89) D Barter is the direct exchange of goods and/or services between two parties without a cash transaction. It is primarily used for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy. 90) B

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Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. 91) C Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. 92) B An offset is a buying agreement similar to a counterpurchase, but the exporting country can fulfill the agreement with any firm in the country to which the sale is being made. 93) B From an exporter's perspective, an offset is more attractive than a straight counterpurchase agreement because it gives the exporter greater flexibility to choose the goods that it wishes to purchase. 94) B Switch trading occurs when a third-party trading house buys a firm's counterpurchase credits and sells them to another firm that can better use them. 95) B The term switch trading refers to the use of a specialized third-party trading house in a countertrade arrangement. Switch trading occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them. 96) D

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A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant's output as partial payment for the contract. 97) B A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant's output as partial payment for the contract. 98) E The drawbacks of countertrade agreements are substantial. Other things being equal, firms would normally prefer to be paid in hard currency. Countertrade contracts may involve the exchange of unusable or poorquality goods that the firm cannot dispose of profitably. 99) B The drawbacks of countertrade agreements are substantial. Even if the goods it receives are of high quality, the firm still needs to dispose of them profitably. To do this, countertrade requires the firm to invest in an in-house trading department dedicated to arranging and managing countertrade deals. This can be expensive and time-consuming. 100) B Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading. The masters of countertrade are Japan's giant trading firms, thesogo shosha, which use their vast networks of affiliated companies to profitably dispose of goods acquired through countertrade agreements.

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101)Novice exporters tend to underestimate the time and expertise needed to cultivate business in foreign countries. Few realize the amount of management resources that have to be dedicated to this activity. Many foreign customers require face-to-face negotiations on their home turf. An exporter may have to spend months learning about a country’s trade regulations, business practices, and more before a deal can be closed. Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors. According to a United Nations report on trade and development, a typical international trade transaction may involve 30 parties, 60 original documents, and 360 document copies— all of which have to be checked, transmitted, reentered into various information systems, processed, and filed. 102)German and Japanese firms can draw on the large reservoirs of experience, skills, information, and other resources of their respective export-oriented institutions. Unlike their German and Japanese competitors, many U.S. firms are relatively blind when they seek export opportunities; they are information-disadvantaged. In part, this reflects historical differences. Both Germany and Japan have long made their living as trading nations, whereas until recently, the United States has been a relatively self-contained continental economy in which international trade played a minor role. This is changing; both imports and exports now play a greater role in the U.S. economy than they did 20 years ago. However, the United States has not yet created an institutional structure for promoting exports similar to that of either Germany or Japan.

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103)The U.S. and Foreign Commercial Service and International Trade Administration are governmental agencies that provide the potential exporter with a “best prospects” list, which gives the names and addresses of potential distributors in foreign markets along with businesses they are in, the products they handle, and their contact person. In addition, the Department of Commerce has assembled a “comparison shopping service” for countries that are major markets for U.S. exports. For a small fee, a firm can receive a customized market research survey on a product of its choice. This survey provides information on marketability, the competition, comparative prices, distribution channels, and names of potential sales representatives. Each study is conducted on site by an officer of the Department of Commerce. The Department of Commerce also organizes trade events that help potential exporters make foreign contacts and explore export opportunities. The department organizes exhibitions at international trade fairs, which are held regularly in major cities worldwide. The department also has a matchmaker program, in which department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers. Affiliated with the U.S. Department of Commerce and its USEAC offices is a set of District Export Councils (DECs; connected also via the National District Export Council). DECs are composed of some 1,500 volunteers appointed by the U.S. Secretary of Commerce to help U.S. business be more competitive internationally.

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104)The Small Business Administration (SBA) is a government organization that helps potential exporters. The SBA employs 76 district international trade officers and 10 regional international trade officers throughout the United States as well as a 10-person international trade staff in Washington, D.C. Through its Service Corps of Retired Executives (SCORE) program, the SBA oversees some 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses. The SBA also coordinates the Export Legal Assistance Network (ELAN), a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters. 105)Export packaging companies, or export packers for short, provide services to companies that are unfamiliar with exporting. For example, some countries require packages to meet certain specifications, and the export packaging firm’s knowledge of these requirements is invaluable to new exporters in particular. The export packer can also advise companies on appropriate design and materials for the packaging of their items. Export packers can assist companies in minimizing packaging to maximize the number of items to be shipped. 106)There are now more than 600 export processing zones (EPZs) in the world, and they exist in more than 100 countries. The EPZs include foreign trade zones (FTZs), special economic zones, bonded warehouses, free ports, and customs zones. Many companies use EPZs to receive shipments of products that are then reshipped in smaller lots to customers throughout the surrounding areas. Founded in 1978 by the United Nations, the World Economic Processing Zones Association (wepza.org) is a private nonprofit organization dedicated to the improvement of the efficiency of all EPZs.

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107)The probability of exporting successfully can be increased dramatically by taking a handful of simple strategic steps. First, particularly for the novice exporter, it helps to hire an EMC or at least an experienced export consultant to identify opportunities and navigate the paperwork and regulations so often involved in exporting. Second, it often makes sense to initially focus on one market or a handful of markets. Learn what is required to succeed in those markets before moving to other markets. The firm that enters many markets at once runs the risk of spreading its limited management resources too thin. The result of such a shotgun approach to exporting may be a failure to become established in any one market.

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108) The financial devices that have evolved to cope with the problem of lack of trust in the context of international trade are: the letter of credit, the draft (or bill of exchange), and the bill of lading. A letter of credit is issued by a bank at the request of an importer. It states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. A draft, sometimes referred to as a bill of exchange, is the instrument normally used in international commerce to effect payment. A draft is simply an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time. A bill of lading is issued to the exporter by the common carrier transporting the merchandise. It serves three purposes: it is a receipt, a contract, and a document of title. As a receipt, the bill of lading indicates that the carrier has received the merchandise described on the face of the document. As a contract, it specifies that the carrier is obligated to provide a transportation service in return for a certain charge. As a document of title, it can be used to obtain payment or a written promise of payment before the merchandise is released to the importer. The bill of lading can also function as collateral against which funds may be advanced to the exporter by its local bank before or during shipment and before final payment by the importer.

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109)A sight draft is payable on presentation to the drawee. A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days. It is presented to the drawee, who signifies acceptance of it by writing or stamping a notice of acceptance on its face. Once accepted, the time draft becomes a promise to pay by the accepting party. Time drafts are negotiable instruments; that is, once the draft is stamped with an acceptance, the maker can sell the draft to an investor at a discount from its face value. 110)Prospective U.S. exporters can draw on two forms of governmentbacked assistance to help finance their export programs. They can get financing aid from the Export-Import Bank and export credit insurance from the Foreign Credit Insurance Association. The Export-Import Bank, often referred to as Ex-Im Bank, is an independent agency of the U.S. government. Its mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries. In the United States, export credit insurance is provided by the Foreign Credit Insurance Association (FCIA), an association of private commercial institutions operating under the guidance of the Export-Import Bank. The FCIA provides coverage against commercial risks and political risks.

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111)The Export-Import Bank, often referred to as Ex-Im Bank, is an independent agency of the U.S. government. Its mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries. It pursues its mission with various loan and loan-guarantee programs. The agency guarantees repayment of medium- and long-term loans U.S. commercial banks make to foreign borrowers for purchasing U.S. exports. The ExIm Bank guarantee makes the commercial banks more willing to lend cash to foreign enterprises. Ex-Im Bank also has a direct lending operation under which it lends dollars to foreign borrowers for use in purchasing U.S. exports. It grants loans that commercial banks would not if it sees a potential benefit to the United States in doing so. The foreign borrowers use the loans to pay U.S. suppliers and repay the loan to Ex-Im Bank with interest. 112)Exporters clearly prefer to get letters of credit from importers. However, sometimes an exporter who insists on a letter of credit will lose an order to one who does not require a letter of credit. Thus, when the importer is in a strong bargaining position and able to play competing suppliers against each other, an exporter may have to forgo a letter of credit. The lack of a letter of credit exposes the exporter to the risk that the foreign importer will default on payment. The exporter can insure against this possibility by buying export credit insurance. If the customer defaults, the insurance firm will cover a major portion of the loss.

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113) Countertrade is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent. A government may restrict the convertibility of its currency to preserve its foreign exchange reserves so they can be used to service international debt commitments and purchase crucial imports. This is problematic for exporters. Nonconvertibility implies that the exporter may not be paid in his or her home currency, and few exporters would desire payment in a currency that is not convertible. Countertrade is a common solution. Countertrade denotes a whole range of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money.

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114) The five distinct types of countertrade arrangements are: barter, counterpurchase, offset, switch trading, and compensation or buyback. Barter is the direct exchange of goods and/or services between two parties without a cash transaction. It is viewed as the most restrictive countertrade arrangement because if goods are not exchanged simultaneously, one party ends up financing the other for a period. The firms engaged in barter run the risk of having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable price. Barter is primarily used with trading partners who are not creditworthy or trustworthy. Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. An offset is similar to a counterpurchase insofar as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale. The difference is that this party can fulfill the obligation with any firm in the country to which the sale is being made. This is more attractive than a straight counterpurchase agreement. Switch trading refers to the use of a specialized third-party trading house in a countertrade arrangement. Switch trading occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them. A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant's output as partial payment for the contract.

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115) Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading. The masters of countertrade are Japan’s giant trading firms, thesogo shosha, which use their vast networks of affiliated companies to profitably dispose of goods acquired through countertrade agreements. Western firms that are large, diverse, and have a global reach (e.g., General Electric, Philip Morris, and 3M) have similar profit advantages from countertrade agreements. Indeed, 3M has established its own trading company—3M Global Trading Inc.—to develop and manage the company’s international countertrade programs. Unless there is no alternative, small and medium-sized exporters should probably try to avoid countertrade deals because they lack the worldwide network of operations that may be required to profitably utilize or dispose of goods acquired through them.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) In recent years, the trend among U.S. firms is to outsource the "production" of some service activities to developing nations to take advantage of lower labor costs. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Gradable : automatic

2) The part of the supply chain that plans, implements, and controls the effective flows and inventory of raw materials is known as purchasing. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

3) A business that supplies parts to a manufacturer would be part of the downstream supply chain. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

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4) W. Edwards Deming believed that achieving better quality requires the commitment of everyone in a company. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Gradable : automatic

5) When applying the Six Sigma approach, when there are a lower number of “sigmas,” there are a greater number of errors. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

6) The ISO 9000 system used in the European marketplace provides small companies with information regarding export opportunities. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Gradable : automatic

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7) In recent years, time-based competition has become more important in international business. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Gradable : automatic

8) In international business, when consumer demand is prone to large and unpredictable shifts, the firm that can adapt most quickly to these shifts will gain an advantage. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Gradable : automatic

9) Location externalities, such as the presence of supporting industries, can affect a company’s foreign direct investment decision. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

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10) In international business, a relatively high level of fixed costs makes it economical for a company to perform a particular activity in several locations at once. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

11) According to the concept of economies of scale, as plant output expands, unit costs increase. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

12) Minimum efficient scale refers to the level of output at which most plant-level scale economies are exhausted. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

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13) In terms of minimum efficient scale of output, the "unit cost curve" rises with output until a certain output level is reached, at which point further increases in output realize little reduction in unit costs. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

14) An advantage of a low minimum efficient scale is it allows a company to accommodate demands for local responsiveness. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

15) Flexible manufacturing technologies allow a company to produce a wider variety of end products at a unit cost that at one time could be achieved only through the mass production of a standardized output. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

16)

Flexible machine cells enhance a company’s ability to provide mass customization. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

17) One downfall of flexible manufacturing technology is that it does not help a company customize products for different national markets. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

18) Flexible manufacturing technologies force a company to establish manufacturing facilities in each major national market in order to meet demand. ⊚ true ⊚ false

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19) Industrial products have few national differences in consumer taste and preference, hence the need for local responsiveness is reduced for such products. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

20) Since paint products have a low value-to-weight ratio, when they are shipped anywhere around the world, the transportation costs account for a large percentage of total costs. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Gradable : automatic

21)

Source factories should be located where production costs are low. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Factors Affecting the Location of Production Activities Learning Objective : 15-03 Recognize how the role of foreign subsidiaries in production can be enhanc Gradable : automatic

22) A contributor factory acts as a stand-alone unit and has its own infrastructure for development, engineering, and production. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Factors Affecting the Location of Production Activities Learning Objective : 15-03 Recognize how the role of foreign subsidiaries in production can be enhanc Gradable : automatic

23) A “buy” decision is favored when there is a chance that supply cannot be guaranteed if the firm moves production overseas. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Factors Affecting the Location of Production Activities Learning Objective : 15-04 Identify the factors that influence a firm's decision of whether to source Gradable : automatic

24) The inform function of packaging refers to the package's ability to contain the products properly. ⊚ true ⊚ false Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-05 Understand the functions of logistics and purchasing (sourcing) within glo Topic : Supply Chain Management Gradable : automatic

25) A JIT system provides a company with enough buffer stock to meet any product demands. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Topic : Supply Chain Management Learning Objective : 15-06 Describe what is required to efficiently manage a global supply chain. Gradable : automatic

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 26) Selena works for a major video components manufacturer. It is her job to plan and control how the raw materials used to make the components come into the company and how the finished parts are shipped to end-users. Which part of the supply chain does Selena work in? A) promotion B) recruitment C) logistics D) benchmarking E) offshoring

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Question Details Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : The Importance of Production and Logistics Decisions Gradable : automatic

27) Johan works for Stafford Office Furniture Group. It is his job to source the raw materials, component parts, and products the company uses to manufacture office desks, filing systems, and storage units. Which part of the supply chain does Johan work in? A) logistics B) purchasing C) benchmarking D) production E) offshoring

Question Details Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Factors Affecting the Location of Production Activities AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

28) An important objective shared by both production and logistics functions of an international firm is to A) increase profits by lowering quality. B) increase foreign competition. C) lower costs by dispersing production activities. D) decrease inventory turnover. E) stock excess inventory on hand.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

29) A second strategic objective shared by production and supply chain management is to increase product quality and assure that a product has no defects and performs as expected. In this context, quality means A) affordability. B) flexibility. C) reliability. D) adaptability. E) patentability.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Gradable : automatic

30) Mobile Chair Corp. sources casters from E-Z Roll Inc. In this situation, E-Z Roll Inc. is part of the __________ portion of the global supply chain. A) downstream B) marketing C) upstream D) differential E) process

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Question Details Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

31) Best Brooms Corp. ships its products to thousands of retail stores all across the United States. These retail stores are part of the __________ portion of the global supply chain. A) upstream B) horizontal C) downstream D) differential E) process

32) The effect of improved quality control is to lower the costs of value creation by reducing production costs and A) decreasing inventory turnover. B) decreasing after-sales service costs. C) increasing scrap costs. D) increasing warranty costs. E) increasing time spent on fixing defects.

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33)

Manufacturing firms should typically aim at lowering the costs of value creation by A) decreasing inventory turnover. B) stocking huge amounts of inventory. C) lowering the quality of products. D) increasing after-sales services cost. E) reducing production costs.

34) Sasha accepted a job at Dexter Manufacturing. During her training, she was told that defective and poor-quality products are unacceptable, and the goal is to manufacture goods that meet 100 percent of standards. What methodology does this company use? A) TQM B) lean manufacturing C) JIT D) ISO 9000 E) mass customization

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35) What philosophy was widely adopted first by Japanese companies and then American companies during the 1980s and early 1990s, and from which the Six Sigma methodology directly descended? A) total quality management B) enterprise resource planning C) business process reengineering D) just-in-time E) business process outsourcing

36) What action did Deming suggest management take in order to achieve total quality management? A) create an environment where employees did not fear reporting problems B) import more component parts from countries having factor endowments C) increase the pay rate of all employees to establish credibility D) purchase machinery that replaced human interaction with production E) eliminate middle management positions from the chain of command

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37) that

One of W. Edwards Deming's beliefs about the total quality management philosophy is

A) quality of supervision should be improved by allowing more time for supervisors to work with employees. B) management should embrace the philosophy that mistakes are often acceptable. C) work standards should be defined only as numbers or quotas. D) achieving better quality requires commitment more at the top management than at any other level. E) management should create an environment in which employees will follow orders rather than recommend changes.

38) Which company is using the total quality management steps identified by W. Edwards Deming?

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A) Shorewood Inc. believes in reducing interactions between employees and their supervisors. B) LaPlaya Inc. empowers its employees to report problems or recommend improvements without any fear. C) Martin Inc. bases its work standards solely on numbers or quotas. D) Traxon Inc. believes that management is not responsible for training employees in new skills. E) Morrison Inc. asserts that achievement of better quality is solely dependent on lower management.

39) The relationship between the number of "sigmas" and the number of errors in the Six Sigma approach is best described as A) the higher the number of "sigmas," the greater the number of errors. B) if the number of "sigmas" is a positive value, then the number of errors is always a negative value. C) the higher the number of "sigmas," the smaller the number of errors. D) the number of "sigmas" is independent of the number of errors. E) if the number of "sigmas" is a negative value, then the number of errors is always positive.

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40) __________ is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. A) ISO 9000 B) Just-in-time C) Six Sigma D) Lean production E) Upstreaming

41)

A business would incorporate the Six Sigma philosophy as a way to A) locate customers. B) distribute product internationally. C) organize financial data. D) eliminate waste. E) count inventory.

42)

What is an accurate depiction of Six Sigma?

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A) The higher the number of "sigmas," the higher the number of errors. B) When using Six Sigma, a production process would be 90 percent accurate. C) Six Sigma work standards are based solely on numbers or quotas. D) It is almost impossible for a company to achieve Six Sigma perfection. E) Six Sigma is necessary to achieve balanced supply and demand.

43) Triple Root, Inc. a maker of high-end salon hair care products, plans to expand in the EU marketplace. To do so, the EU requires the company to A) adopt techniques of total quality management. B) achieve Six Sigma. C) use just-in-time inventory system. D) patent its designs and technology. E) certify its products under ISO 9000.

44)

What is a drawback of ISO 9000 certification?

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A) It is bureaucratic and costly for many firms. B) It is an impossible standard to achieve. C) It is losing its prominence in international business. D) It is ineffective in improving processes. E) It is ineffective in bringing about quality improvement.

45) Fitz Electronics Group wants to enter the European market but realizes that consumer tastes are not uniform across countries. To be able to accommodate demands for local responsiveness, Fitz Electronics should A) ignore national differences in consumer tastes and preferences. B) decentralize production activities to the major national or regional markets. C) ensure that the manufacturing processes in all units are identical. D) standardize the product coming out of all manufacturing units. E) refrain from hiring host country managers.

Question Details Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Topic : Global Sourcing and Supply Chain Management Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

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46) Tri-Star Technologies Inc. has manufacturing units in Canada. The country's stable economic and political environment helps the firm gain competitive advantage by lowering production costs and improving product quality. Other things being equal, the benefits realized from such a strategy can be typically referred to as A) economies of scope. B) location economies. C) a production possibility frontier. D) factor endowments. E) logistics economies.

Question Details Accessibility : Keyboard Navigation Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

47) When considering foreign direct investment in a country, what is one situation that will benefit a company? A) presence of supporting industries B) market with many other foreign competitors C) lack of intellectual property rights laws D) presence of a communist political system E) appreciation of local currency

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48) Maxwell Maritime Inc. was ready to sign an agreement to build a new facility in a foreign nation when it learned that the local currency in that nation had appreciated significantly in the past week. How might this affect the company’s decision to build the new facility? A) The company will want to make more foreign direct investment in that country. B) There will be a decrease in the dollar cost of products exported from that nation which benefits Maxwell Maritime. C) This will diminish the attractiveness of this country as a manufacturing base for Maxwell Maritime. D) This will transform the country into a low-cost location and make it more desirable for manufacturing. E) This will decrease the amount of imports brought into the country and make it more attractive for manufacturing.

Question Details Accessibility : Keyboard Navigation Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : Factors Affecting the Location of Production Activities Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

49) The cost to manufacture one unit of Boxer Packaging’s best-selling large shipping container is $94. The CFO of the company determines that if the company expands the output of its biggest U.S. plant by 20 percent, the unit cost would be reduced to $73. This analysis is based on the concept of A) minimum efficient scale. B) lean production. C) Six Sigma. D) economies of scale. E) total quality management.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 15-02 Explain how country differences, production technology, and production fac AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : The Importance of Production and Logistics Decisions Gradable : automatic

50)

The level of output at which most plant-level scale economies are exhausted is known as A) mass customization. B) break-even point. C) minimum efficient scale. D) just-in-time. E) lean production.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

51) As the global market for sunscreen products with a high SPF has become extremely competitive in recent months, Block-It Sun Products newly appointed CFO believes the company should address its minimum efficient scale and attempt to lower it. What is a consequence of a low minimum efficient scale? A) prevents a firm from utilizing capital equipment fully B) leads to centralized production in a single location or a limited number of locations C) prevents a firm from accommodating demands for local responsiveness D) increases the unit cost of products E) allows a firm to hedge against currency risk by manufacturing the same product in several locations

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Question Details Accessibility : Keyboard Navigation Learning Objective : 15-02 Explain how country differences, production technology, and production fac Bloom's : Apply Difficulty : 3 Hard Topic : The Importance of Production and Logistics Decisions AACSB : Knowledge Application Gradable : automatic

52) Beauty for All Skincare Corp. has wide variety in its product line. A firm with a wide product variety will find it A) difficult to achieve shorter product runs. B) difficult to increase its product sales. C) difficult to reduce its unit costs. D) easy to realize economies of scale. E) easy to reach optimum production efficiency.

53)

Producing a standardized product in large volumes will A) result in diseconomies of scale. B) increase production efficiency. C) increase production costs. D) result in shorter production runs. E) result in a high minimum efficient scale of output.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

54) Simpson Manufacturing purchased new equipment that reduces setup times when employees change templates between production runs. This equipment has also improved quality control measures throughout the entire manufacturing process. What type of technology is Simpson Manufacturing using? A) TQM B) lean production C) downstream D) JIT E) Six Sigma

55)

One objective of lean production is to A) reduce the quality of a product to keep unit costs low. B) reduce setup times for complex equipment. C) replace product variety with standardized output. D) decrease utilization of individual machines through scheduling. E) increase the level of minimum efficient scale of output.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

56)

Mass customization provides companies with the ability to meet which two goals? A) centralized production and long production runs B) product standardization and economies of scale C) high fixed costs and multiple production facilities D) low cost and product customization E) local responsiveness and decentralized production

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

57)

One problem companies have when using a mass production system is A) short production runs. B) failure to realize economies of scale. C) a reduction in the number of defects. D) the ability to accommodate consumer preferences for product diversity. E) massive inventories that have to be stored in large warehouses.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

58) A __________ includes a grouping of various types of machinery, a common materials handler, and a computer to control the production of a family of parts or products. A) specialized asset B) dynamic capability C) turnkey project D) flexible machine cell E) just-in-time inventory

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

59)

What is a consequence of using flexible machine cells? A) It fails to adapt to the production of different products. B) It generally results in stockpiles of partly finished products. C) It improves capacity utilization and reduces wastes. D) It increases setup time for complex equipment. E) It adds to the cost structure of a firm.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

60) When a company achieves mass customization via flexible manufacturing technologies, it increases the company's A) cost structure. B) waste. C) customer responsiveness. D) learning effects. E) externalities.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

61) Carson Steel Inc. wants to be able to customize products for different national markets and, in turn, increase its customer responsiveness. However, the fixed costs associated with its production are high. These functions will be performed most efficiently if Carson Steel A) sets up a new production facility that is well suited for mass production. B) establishes multiple manufacturing facilities in each major national market. C) increases each manufacturing unit's minimum efficient scale of output. D) adopts flexible manufacturing technologies to help achieve mass customization. E) locates its production unit in countries that have fluctuations in exchange rates.

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62)

Flexible manufacturing technologies are specially targeted at enabling companies to A) establish multiple manufacturing facilities in each major national market. B) build large inventories. C) achieve product standardization across markets. D) increase their work in progress. E) produce customized products without a significant cost penalty.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

63) What term refers to the production of a variety of end products at a unit cost that could once be achieved only through bulk production of a standardized output? A) decentralization of production B) just-in-time inventory C) mass customization D) economies of scale E) minimum efficient scale

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

64)

Small electronic parts have a high value-to-weight ratio, which means that they A) are cheap to produce and don’t weigh very much. B) weigh very little but are expensive. C) can cost less when mass produced. D) are poor candidates for international shipments. E) are taxed at a higher rate.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

65) A product's value-to-weight ratio affects location decisions primarily because of its influence on A) transportation costs. B) shelf life. C) work-in-progress inventory. D) inventory turnover. E) capacity utilization.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

66) Two product features impact location decisions. Which of the two reduces the need for local responsiveness? A) product's ability to serve universal needs B) product's life cycle C) product's packaging D) product's flexible manufacturing technology E) product's value-to-weight ratio

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

67) As the number one source for refined sugar, All Sweet, Inc. ships product all over the world. Since the product it ships has a low value-to-weight ratio, transportation costs are A) taxed by both the importer and exporter. B) a large percentage of the total cost. C) absorbed by the importer. D) not factored into the total cost. E) a small percentage of the total cost.

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68)

Products with high value-to-weight ratios tend to A) be expensive to transport. B) increase in weight after processing. C) be restricted under trade barriers. D) be expensive and not weigh very much. E) have a low inventory turnover.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

69) Which product is best manufactured in multiple locations close to major markets to reduce transportation costs? A) pharmaceuticals B) petroleum products C) books D) magazines E) electronics

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

70)

What is an example of a product with a low value-to-weight ratio? A) jewelry B) electronic components C) musical instruments D) paint E) pharmaceuticals

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

71) When determining the location decision for industrial products like steel, what should a company keep in mind? A) They serve needs that are the same all over the world. B) They have drastic national differences in consumer taste and preference. C) The need for local responsiveness for these products is more than consumer products. D) It makes sense to produce these products in multiple locations close to major markets. E) A plant must operate at the highest minimum efficient scale of output for these products.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

72) When manufacturing a product that serves universal needs, a company should remember that it A) becomes necessary to customize the product to suit small consumer groups. B) becomes necessary to accommodate demands for local responsiveness. C) increases the attractiveness of concentrating production at an optimal location. D) is difficult to serve national differences in consumer taste and preference. E) is always attractive to globally disperse production to all major markets.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : automatic

73)

Concentration of production makes most sense when A) the product serves universal needs. B) the product's value-to-weight ratio is low. C) important exchange rates are volatile. D) flexible manufacturing technology does not exist. E) the production technology has low fixed costs.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-03 Recognize how the role of foreign subsidiaries in production can be enhanc Topic : The Importance of Production and Logistics Decisions Gradable : automatic

74) A business would want to concentrate its production facilities in a centralized location when A) the production technology has a low minimum efficient scale. B) the production technology has low fixed costs. C) trade barriers are low. D) flexible manufacturing technologies are unavailable. E) the product's value-to-weight ratio is low.

75) Based on the information provided, which of these firms should concentrate its production in a centralized location?

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A) Nazer Inc. operates in an industry where the fixed costs are high, and services of supporting industries are of prime importance. B) Fast Fabrics Inc. manufactures women’s apparel for which national differences in consumer taste and preference are wide. C) Stoneware Inc. operates in an economy where volatile fluctuations in exchange rates are frequently expected. D) Grayson Corp. is a mining company that exports quartz—a product with low value-toweight ratio—to various countries. E) Darson Inc. customizes heavy machines without the use of flexible manufacturing technologies.

Question Details Accessibility : Keyboard Navigation Learning Objective : 15-03 Recognize how the role of foreign subsidiaries in production can be enhanc AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : The Importance of Production and Logistics Decisions Gradable : automatic

76)

When is decentralization of manufacturing facilities most appropriate? A) when the product serves universal needs B) when exchange rates are expected to remain relatively stable C) when the product's value-to-weight ratio is high D) when there are few trade barriers E) when the production technology has low fixed costs

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77)

The decentralization of production would be the best choice for

A) Forton Inc., which is in an industry where national differences in politics, economy, and culture have a substantial impact on cost of production. B) MayDay Inc., which operates in an industry where volatile fluctuations in important exchange rates are expected. C) Flint Technology, which manufactures industrial machines and equipment that serve universal needs. D) Stomper Inc., which customizes footwear with the aid of flexible manufacturing technologies. E) Med-Well Inc., which uses a production technology that has high fixed costs and high minimum efficient scale.

78) What are some automobile companies doing in situations where neither centralization nor decentralization of production is feasible? A) outsourcing production to developing countries B) inshoring production into the home country C) selling product patents and technology to competitors D) refraining from international trade E) establishing top-to-bottom manufacturing operations

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79) As a way to save costs, Get-Away Motorcycles Inc. set up a factory in a foreign country to produce the component parts it uses to manufacture motorcycles. The technology at this factory is kept to a minimum and management has no say in purchasing or production decisions. What type of factory is Get-Away Inc. using? A) server B) outpost C) contributor D) source E) offshore

80) The Handell Group decides that the best way to get around the exorbitant tariff barriers it encounters when shipping products to Malaysia is to build a factory there, which will have the same standards as the home factory and allow that factory to serve the Malaysian market. What type of factory is the Handell Group going to build? A) server B) outpost C) contributor D) source E) offshore

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81) Rhoden Corp. is an electronics retail giant with offices in Chicago. The company decides to build a facility in Silicon Valley where new products can be developed since this area is known for technological innovation. Which type of facility is Rhoden Corp. building? A) server factory B) outpost factory C) lead factory D) contributor factory E) offshore factory

82)

__________ is a hidden cost to basing production in a foreign location. A) Low employee turnover B) Low labor cost C) Poor product quality D) Expensive higher education system E) Low inventory turnover

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-03 Recognize how the role of foreign subsidiaries in production can be enhanc Topic : The Importance of Production and Logistics Decisions Gradable : automatic

83) RockWay Tile Inc. prides itself on quality control and advertises that “we won’t ship a product unless we make it the way you want.” Based on this, RockWay Tile Inc. most likely A) works in a regional market. B) buys products from a wholesaler for use in its products. C) works in a national market. D) is a monopoly. E) makes all of the products it ships.

Question Details Accessibility : Keyboard Navigation Learning Objective : 15-04 Identify the factors that influence a firm's decision of whether to source AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : The Importance of Production and Logistics Decisions Gradable : automatic

84) to

If a firm possesses proprietary product technology, the best option for that firm would be

A) manufacture the product in-house so that it does not lose its competitive advantage. B) outsource the production activities to independent suppliers in order to realize economies of scale. C) merge with competitors to reduce investments on technology. D) share the technology to make the industry more competitive. E) transfer the technology to less developed countries.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-04 Identify the factors that influence a firm's decision of whether to source Topic : The Importance of Production and Logistics Decisions Gradable : automatic

85) As the inventory control manager for a group of shoe stores, Xin-Xu calls the Bossie Boots warehouse when he needs to restock this product because the manufacturer stores all of its products there. Another name for this warehouse would be a A) wholesaler. B) offshoring site. C) acquisition. D) distribution center. E) franchisee.

Question Details Accessibility : Keyboard Navigation Learning Objective : 15-05 Understand the functions of logistics and purchasing (sourcing) within glo AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Factors to Consider When Designing International Distribution Strategies Gradable : automatic

86) The __________ function of packaging refers to the ability of a product in a package to handle being transported between areas within the global supply chain. A) protect B) partition C) inform D) impact E) perform

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-05 Understand the functions of logistics and purchasing (sourcing) within glo Topic : The Importance of Production and Logistics Decisions Gradable : automatic

87) During a planning meeting, the environmental team discusses how returned items should be disposed of or recycled. What aspect of the global supply chain are they discussing? A) reverse logistics B) geographic location C) mass customization D) flexible machine cells E) consumer tastes

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-05 Understand the functions of logistics and purchasing (sourcing) within glo AACSB : Reflective Thinking Topic : The Importance of Production and Logistics Decisions Gradable : automatic

88) Freeman Fiber Optics is based in the United States and has transferred its information technology processes to suppliers in Canada. What is this an example of? A) reverse logistics B) insourcing C) nearshoring D) mass customization E) co-sourcing

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Question Details Accessibility : Keyboard Navigation Learning Objective : 15-05 Understand the functions of logistics and purchasing (sourcing) within glo AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : The Importance of Production and Logistics Decisions Gradable : automatic

89)

Which country pioneered the concept of just-in-time inventory? A) England B) Germany C) Mexico D) Japan E) United States

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 15-06 Describe what is required to efficiently manage a global supply chain. Topic : The Importance of Production and Logistics Decisions Gradable : automatic

90) Luxury Lighting Group Inc. does not keep excess stock on hand. When orders are received, the company brings in parts from suppliers, creates products, and fulfils the order. This represents a(n) __________ system A) fulfillment warehouse B) periodic review C) buffer stock D) just-in-time inventory E) wholesale

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Question Details Accessibility : Keyboard Navigation Learning Objective : 15-06 Describe what is required to efficiently manage a global supply chain. AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : The Importance of Production and Logistics Decisions Gradable : automatic

91)

One characteristic of a just-in-time (JIT) inventory system is that

A) a company is more likely to have excess unsold inventory to write off against earnings. B) parts enter the manufacturing process immediately; they are not warehoused. C) it is difficult to spot and fix defective inputs. D) the working capital a company needs to finance inventory increases is high. E) a firm has an ample buffer stock of inventory.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-06 Describe what is required to efficiently manage a global supply chain. Topic : The Importance of Production and Logistics Decisions Gradable : automatic

92) Under a just-in-time (JIT) inventory system, it is likely that the __________ will increase. A) amount of working capital for inventory B) inventory turnover C) number of defective parts D) inventory holding costs E) storage costs

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93)

A major cost savings from just-in-time inventory systems comes from A) a shift in focus away from quality. B) increasing productivity of workers. C) speeding up inventory turnover. D) creating a buffer stock of inventory. E) writing off excess unsold inventory against earnings.

94)

How does a just-in-time inventory system help enhance product quality?

A) Ordering parts only when needed allows a company to customize products. B) Defective parts are noticed more quickly than in a traditional warehouse system. C) JIT creates a nearly error-free production process. D) It reduces the costs related to inventory holding which creates a larger budget for product enhancement E) It reduces the need to write off excess unsold inventory against earnings.

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95)

The drawback of a just-in-time inventory system is that it A) increases the total capital required by a firm. B) leaves a firm without a buffer stock of inventory. C) increases inventory holding costs, such as warehousing and storage costs. D) is less efficient than traditional system in spotting and fixing defective inputs. E) lowers a company's profitability as measured by return on capital invested.

96)

One way to reduce the risks for a business that operates on just-in-time principles is to A) depend on one supplier for an important input. B) outsource the production of inputs only to advanced countries. C) hold an excess buffer stock of inventory. D) source inputs from several suppliers located in different countries. E) avoid using electronic data interchange.

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97)

Companies rely on an EDI system to A) pinpoint the right customer base. B) minimize manufacturing mistakes. C) assess the skills of job applicants. D) exchange data between two or more companies. E) control the return of product.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Global Sourcing and Supply Chain Management Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-06 Describe what is required to efficiently manage a global supply chain. Gradable : automatic

98) Built-Tough Inc., a manufacturer of construction equipment components, wants to set up a system that will send invoices to its customers once orders for input supply are placed. What should the company use to perform this function? A) computer-aided design system B) lean production C) just-in-time inventory system D) electronic data interchange E) social networking

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Question Details Accessibility : Keyboard Navigation Topic : Global Sourcing and Supply Chain Management Learning Objective : 15-06 Describe what is required to efficiently manage a global supply chain. AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

99) The __________ operational objective refers to integrating a control system across global supply chain functions to eliminate global supply chain disruptions. A) shipment consolidation B) variance reduction C) quality D) life-cycle support E) responsiveness

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Global Sourcing and Supply Chain Management Learning Objective : 15-06 Describe what is required to efficiently manage a global supply chain. Gradable : automatic

100) Heidi works in the after-market service department of Yummy Yogurt Inc. She recently worked on a product recall for one of the company’s most popular brands. Which operational objective is Heidi responsible for within the global supply chain? A) responsiveness B) shipment consolidation C) life-cycle support D) variance reduction E) inventory reduction

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ESSAY. Write your answer in the space provided or on a separate sheet of paper. 101) What are two important strategic objectives of an international firm's production and logistics functions?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Bloom's : Understand Difficulty : 2 Medium Topic : The Global Strategic Planning Process Gradable : manual

102) Describe the members of the upstream and the downstream portions of the global supply chain.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Bloom's : Understand Difficulty : 2 Medium Topic : The Global Strategic Planning Process Gradable : manual

103)

Explain W. Edwards Deming’s philosophy of total quality management.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 15-01 Explain why global production and supply chain management decisions are of Bloom's : Understand Difficulty : 2 Medium Topic : The Global Strategic Planning Process Gradable : manual

104) What are the three broad factors that firms considering international production should contemplate?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : manual

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105) How do location externalities affect a country's attractiveness as a manufacturing base? Provide an example.

106) Define minimum efficient scale of output. How does this influence the location decisions of production activities?

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Learning Objective : 15-02 Explain how country differences, production technology, and production fac Difficulty : 3 Hard Topic : The Importance of Production and Logistics Decisions Gradable : manual

107) Describe flexible manufacturing and mass customization and explain how they affect the costs and efficiency of a company.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : manual

108) Discuss how value-to-weight ratios play a role in determining where companies produce a product.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 15-02 Explain how country differences, production technology, and production fac Topic : The Importance of Production and Logistics Decisions Gradable : manual

109) Discuss the two basic strategies for locating production facilities. When is it most appropriate to decentralize production?

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110) Compare and contrast the six different types of strategic roles associated with a foreign factory.

Question Details Accessibility : Keyboard Navigation Learning Objective : 15-03 Recognize how the role of foreign subsidiaries in production can be enhanc Bloom's : Apply Difficulty : 3 Hard Topic : The Importance of Production and Logistics Decisions AACSB : Knowledge Application Gradable : manual

111) Explain why cost and production capacity are the two critical factors companies should consider when determining a make-or-buy decision.

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112)

Describe the five strategic levels that can be undertaken by a global company.

113)

Discuss the three general forms of packaging and their purpose.

114) Discuss the six operational objectives that must be addressed by a company to achieve operational integration and collaboration within a global supply chain.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Topic : Supply Chain Management Learning Objective : 15-06 Describe what is required to efficiently manage a global supply chain. Difficulty : 3 Hard Gradable : manual

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Answer Key Test name: Hill_15 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) TRUE 6) FALSE In Europe, the European Union requires that the quality of a firm’s manufacturing processes and products be certified under a quality standard known asISO 9000 before the firm is allowed access to the EU marketplace. 7) TRUE 8) TRUE 9) TRUE 10) FALSE 11) FALSE 12) TRUE 13) FALSE 14) TRUE 15) TRUE

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The termflexible manufacturing technology—or lean production, as it is often called—covers a range of manufacturing technologies. Flexible manufacturing technologies allow the company to produce a wider variety of end products at a unit cost that at one time could be achieved only through the mass production of a standardized output. Research suggests the adoption of flexible manufacturing technologies may actually increase efficiency and lower unit costs relative to what can be achieved by the mass production of a standardized output while enabling the company to customize its product offering to a much greater extent than was once thought possible. 16) TRUE The termmass customization has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible—low cost and product customization. Flexible machine cells are a common flexible manufacturing technology. A flexible machine cell is a grouping of various types of machinery, a common materials handler, and a centralized cell controller (computer). Improved capacity utilization and reductions in work in progress (i.e., stockpiles of partly finished products) and in waste are major efficiency benefits of flexible machine cells. 17) FALSE 18) FALSE 19) TRUE 20) TRUE 21) TRUE 22) TRUE 23) FALSE 24) FALSE Version 1

Protect refers to the package’s ability to (1) contain the products properly.Inform refers to the package’s inclusion of (1) logical and sufficient instructions for the use of the products inside the package, including specific requirements to satisfy local regulations; (2) a statement of a compelling product guarantee; and (3) information about service for the product if and when it is needed. 25) FALSE 26) C Logistics refers to the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution. It is the part of the supply chain that plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing. 27) B Purchasing represents the part of the supply chain that involves worldwide buying of raw material, component parts, and products used in manufacturing of the company’s products and services. 28) C The production and supply chain management functions (purchasing, logistics) of an international firm have a number of important strategic objectives. One is to ensure that the total cost of moving from raw materials to finished goods is as low as possible for the value provided to the end-customer. 29) C

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The production and supply chain management functions (purchasing, logistics) of an international firm have a number of important strategic objectives. One is to lower costs. The strategic objective shared by production and supply chain management is to increase product (or service) quality by establishing process-based quality standards, and eliminating defective raw material, component parts, and products from the manufacturing process and the supply chain. In this context,quality meansreliability, implying that ultimately the finished product has no defects and performs well. 30) C The upstream supply chain includes all of the organizations (e.g. suppliers) and resources that are involved in the portion of the supply chain from raw materials to the production facility (this is sometimes also called the inbound supply chain). 31) C The downstream supply chain includes all of the organizations (e.g., wholesaler, retailer) that are involved in the portion of the supply chain from the production facility to the end-customer (this is also sometimes called the outbound supply chain). 32) B A firm that improves its quality control will also reduce its costs of value creation. The effect is to lower the costs of value creation by reducing both production and after-sales service costs. This creates an increased overall reliability in global production and supply chain management. 33) E A firm that improves its quality control will also reduce its costs of value creation. The effect is to lower the costs of value creation by reducing both production and after-sales service costs. Version 1

34) A The TQM philosophy embraces the philosophy that mistakes, defects, and poor-quality materials are not acceptable and should be eliminated. 35) A The principal tool that most managers now use to increase the reliability of their product offering is the Six Sigma quality improvement methodology. The Six Sigma methodology is a direct descendant of the total quality management (TQM) philosophy that was widely adopted first by Japanese companies and then American companies during the 1980s and early 1990s. 36) A Deming also recommended that management should create an environment in which employees will not fear reporting problems or recommending improvements. 37) A

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W. Edwards Deming identified a number of steps that should be part of any TQM program. He argued that management should embrace the philosophy that mistakes, defects, and poor-quality materials are not acceptable and should be eliminated. He suggested that the quality of supervision should be improved by allowing more time for supervisors to work with employees and by providing them with the tools they need to do the job. Deming recommended that management should create an environment in which employees will not fear reporting problems or recommending improvements. He believed that work standards should not only be defined as numbers or quotas, but also include some notion of quality to promote the production of defect-free output. He argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace. In addition, he believed that achieving better quality requires the commitment of everyone in the company. 38) B The total quality management philosophy was developed by a number of American consultants such as W. Edwards Deming, Joseph Juran, and A. V. Feigenbaum. Deming identified a number of steps that should be part of any TQM program. One of his recommendations was that management should create an environment in which employees will not fear reporting problems or recommending improvements. 39) C Six Sigma, the modern successor to TQM, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. Sigma comes from the Greek letter that statisticians use to represent a standard deviation from a mean; the higher the number of "sigmas," the smaller the number of errors. Version 1

40) C Six Sigma, the modern successor to total quality management, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. 41) D Six Sigma, the modern successor to total quality management, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. 42) D Six Sigma, the modern successor to total quality management, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. At Six Sigma, a production process would be 99.99966 percent accurate, creating just 3.4 defects per million units. While it is almost impossible for a company to achieve such perfection, Six Sigma quality is a goal that several strive toward. 43) E The growth of international standards has also focused greater attention on the importance of product quality. In Europe, the European Union requires that the quality of a firm's manufacturing processes and products be certified under a quality standard known as ISO 9000 before the firm is allowed access to the EU marketplace. 44) A

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The European Union requires that the quality of a firm's manufacturing processes and products be certified under a quality standard known as ISO 9000 before the firm is allowed access to the EU marketplace. Although the ISO 9000 certification process has proved to be somewhat bureaucratic and costly for many firms, it does focus management attention on the need to improve the quality of products and processes. 45) B Production and logistics functions must be able to accommodate demands for local responsiveness. Demands for local responsiveness create pressures to decentralize production activities to the major national or regional markets in which the firm does business or to implement flexible manufacturing processes that enable the firm to customize the product coming out of a factory according to the market in which it is to be sold. 46) B Other things being equal, a firm should locate its various manufacturing activities where the economic, political, and cultural conditions— including relative factor costs—are conducive to the performance of those activities. The benefits derived from such a strategy is usually referred to as location economies. One result of the strategy is the creation of a global web of value creation activities. 47) A In some industries, the presence of global concentrations of activities at certain locations is important. Externalities include the presence of an appropriately skilled labor pool and supporting industries. Such externalities can play an important role in deciding where to locate manufacturing activities. 48) C

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An important country factor to be considered in location decisions is expected future movements in its exchange rate. Adverse changes in exchange rates can quickly alter a country's attractiveness as a manufacturing base. Currency appreciation can transform a low-cost location into a high-cost location. 49) D The concept of economies of scale tells us that as plant output expands, unit costs decrease. The reasons include the greater utilization of capital equipment and the productivity gains that come with specialization of employees within the plant. However, beyond a certain level of output, few additional scale economies are available. 50) C The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. This is the scale of output a plant must operate to realize all major plant-level scale economies. 51) E As in the case of low fixed costs, the advantages of a low minimum efficient scale include allowing the firm to accommodate demands for local responsiveness or to hedge against currency risk by manufacturing the same product in several locations. 52) C

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Producing greater product variety from a factory implies shorter production runs, which in turn implies an inability to realize economies of scale. That is, wide product variety makes it difficult for a company to increase its production efficiency and thus reduce its unit costs. According to this logic, the way to increase efficiency and drive down unit costs is to limit product variety and produce a standardized product in large volumes. 53) B Producing greater product variety from a factory implies shorter production runs, which in turn implies an inability to realize economies of scale. That is, wide product variety makes it difficult for a company to increase its production efficiency and thus reduce its unit costs. According to this logic, the way to increase efficiency and drive down unit costs is to limit product variety and produce a standardized product in large volumes. 54) B The term flexible manufacturing technology—or lean production, as it is often called—covers a range of manufacturing technologies designed to (1) reduce setup times for complex equipment, (2) increase the utilization of individual machines through better scheduling, and (3) improve quality control at all stages of the manufacturing process. 55) B The term flexible manufacturing technology—or lean production, as it is often called—covers a range of manufacturing technologies designed to (1) reduce setup times for complex equipment, (2) increase the utilization of individual machines through better scheduling, and (3) improve quality control at all stages of the manufacturing process. 56) D

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The term masscustomization has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible—low cost and product customization. 57) E A disadvantage of mass production was that long production runs created massive inventories that had to be stored in large warehouses. This was expensive, both because of the cost of warehousing and because inventories tied up capital in unproductive uses. 58) D A flexible machine cell, a common flexible manufacturing technology, is a grouping of various types of machinery, a common materials handler, and a centralized cell controller (computer). Each cell normally contains four to six machines capable of performing a variety of operations. The typical cell is dedicated to the production of a family of parts or products. The settings on machines are computer controlled, which allows each cell to switch quickly between the production of different parts or products. 59) C Flexible machine cells refer to a flexible manufacturing technology in which a grouping of various machine types, a common materials handler, and a centralized cell controller produce a family of products. Improved capacity utilization and reductions in work in progress (i.e., stockpiles of partly finished products) and in waste are major efficiency benefits of flexible machine cells. Improved capacity utilization arises from the reduction in setup times and from the computer-controlled coordination of production flow between machines, which eliminates bottlenecks. Increased efficiency and lower costs result from higher utilization of machines. Version 1

60) C Flexible manufacturing technologies help a company achieve mass customization, which increases its customer responsiveness. 61) D When flexible manufacturing technologies are available, a firm can manufacture products customized to various national markets at a single factory sited at the optimal location. And it can do this without absorbing a significant cost penalty. Thus, firms no longer need to establish manufacturing facilities in each major national market to provide products that satisfy specific consumer tastes and preferences. 62) E When flexible manufacturing technologies are available, a firm can manufacture products customized to various national markets at a single factory sited at the optimal location. And it can do this without absorbing a significant cost penalty. Thus, firms no longer need to establish manufacturing facilities in each major national market to provide products that satisfy specific consumer tastes and preferences. 63) C The termmass customization has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible—low cost and product customization. Thus, mass customization refers to the production of a variety of end products at a unit cost that could once be achieved only through bulk production of a standardized output. 64) B Many electronic components and pharmaceuticals have high value-toweight ratios; they are expensive, and they do not weigh very much. 65) A Version 1

One of the product features affecting location decisions is the product's value-to-weight ratio because of its influence on transportation costs. Many electronic components and pharmaceuticals have high value-toweight ratios; they are expensive and they do not weigh very much. Thus, even if they are shipped halfway around the world, their transportation costs account for a very small percentage of total costs. 66) A Two product features affect location decisions. The first is the product's value-to-weight ratio because of its influence on transportation costs. The other product feature that can influence location decisions is whether the product serves universal needs, needs that are the same all over the world. Because there are few national differences in consumer taste and preference for such products, the need for local responsiveness is reduced. This increases the attractiveness of concentrating production at an optimal location. 67) B Refined sugar, certain bulk chemicals, paint, and petroleum products all have low value-to-weight ratios; they are relatively inexpensive products that weigh a lot. Accordingly, when they are shipped long distances, transportation costs account for a large percentage of total costs. 68) D Many electronic components and pharmaceuticals have high value-toweight ratios; they are expensive and they do not weigh very much. Thus, even if they are shipped halfway around the world, their transportation costs account for a very small percentage of total costs. 69) B

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Refined sugar, certain bulk chemicals, paint, and petroleum products all have low value-to-weight ratios; they are relatively inexpensive products that weigh a lot. Accordingly, when they are shipped long distances, transportation costs account for a large percentage of total costs. Thus, other things being equal, there is great pressure to make these products in multiple locations close to major markets to reduce transportation costs. 70) D Products that have low value-to-weight ratios are relatively inexpensive products that weigh a lot. Refined sugar, certain bulk chemicals, paint, and petroleum products all have low value-to-weight ratios; they are relatively inexpensive products that weigh a lot. Accordingly, when they are shipped long distances, transportation costs account for a large percentage of total costs. Thus, other things being equal, there is great pressure to make these products in multiple locations close to major markets to reduce transportation costs. 71) A A product feature that can influence location decisions is whether the product serves universal needs, needs that are the same all over the world. Examples include many industrial products (e.g., industrial electronics, steel, bulk chemicals). Because there are few national differences in consumer taste and preference for such products, the need for local responsiveness is reduced. This increases the attractiveness of concentrating production at an optimal location. 72) C

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A product feature that can influence location decisions is whether the product serves universal needs, needs that are the same all over the world. Examples include many industrial products (e.g., industrial electronics, steel, bulk chemicals). Because there are few national differences in consumer taste and preference for such products, the need for local responsiveness is reduced. This increases the attractiveness of concentrating production at an optimal location. 73) A Concentration of production makes most sense when the product serves universal needs. 74) C Concentration of production makes most sense when the product serves universal needs. 75) A Concentration of production makes most sense when the production technology has high fixed costs and high minimum efficient scale relative to global demand, or flexible manufacturing technology exists. 76) E Decentralization of manufacturing is appropriate when the production technology has low fixed costs, low minimum efficient scale, and flexible manufacturing technology is not available. 77) B Decentralization of production is appropriate when volatility in important exchange rates is expected. 78) E

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Although the availability of flexible manufacturing and cars' relatively high value-to-weight ratios suggest concentrated manufacturing, the combination of formal and informal trade barriers and the uncertainties of the world's current floating exchange rate regime have inhibited firms' ability to pursue this strategy. For these reasons, several automobile companies have established "top-to-bottom" manufacturing operations in three major regional markets: Asia, North America, and Western Europe. 79) E An offshore factory is one that is developed and set up mainly for producing component parts or finished goods at a lower cost than producing them at home or in any other market. At an offshore factory, investments in technology and managerial resources should ideally be kept to a minimum to achieve greater cost-efficiencies 80) A A server factory is linked into the global supply chain for a global firm to supply specific country or regional markets around the globe. This type of factory—often with the same standards as the top factories in the global firm’s system—is set up to overcome intangible and tangible barriers in the global marketplace. For example, a server factory may be intended to overcome tariff barriers, reduce taxes, and reinvest money made in the region. 81) C

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A lead factory is intended to create new processes, products, and technologies that can be used throughout the global firm in all parts of the world. This is where cutting-edge production should take place or at least be tested for implementation in other parts of the firm’s production network. Given the lead factory’s prominent role in setting a high bar for how the global firm wants to provide products to customers, we also expect that it will be located in an area where highly skilled employees can be found (or where they want to locate), 82) C There may be some "hidden costs" to basing production in a foreign location. Numerous anecdotes suggest that high employee turnover, shoddy workmanship, poor product quality, and low productivity are significant issues in some outsourcing locations. 83) E The elements that favor a make decision—beyond the core elements of cost and production capacity—include quality control, proprietary technology, having control, excess capacity, limited suppliers, assurance of continual supply, and industry drivers. 84) A Proprietary product technology is unique to a firm. If it enables the firm to produce a product containing superior features, proprietary technology can give the firm a competitive advantage. The firm would not want competitors to get this technology. 85) D Distribution centers (DCs) are used by manufacturers, importers, exporters, wholesalers, retailers, transportation companies, and customs agencies to store products and provide a location where customization can be facilitated. Version 1

86) E Regardless of where the product is in the global supply chain, packaging is intended to achieve a set of multilayered functions. These can be grouped into (1) perform, (2) protect, and (3) inform.Perform refers to (1) the ability of the product in the package to handle being transported between nodes in the global supply chain. 87) A Reverse logistics is the process of planning, implementing, and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods, and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. 88) C A multinational corporation transfers business or information technology processes to suppliers in a nearby country, often one that shares a border with the firm’s own country. While nearshoring is not a purchasing activity per se, it involves facilitating global external purchasing. 89) D Pioneered by Japanese firms during the country's remarkable economic transformation during the 1960s and 1970s, just-in-time inventory systems now play a major role in most manufacturing firms. The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. 90) D Just-in-time inventory refers to logistics systems designed to deliver parts to a production process as they are needed, not before. The major cost saving comes from speeding up inventory turnover. Version 1

91) B Just-in-time (JIT) systems can help firms improve product quality. Under a JIT inventory system, parts enter the manufacturing process immediately; they are not warehoused. This allows defective inputs to be spotted right away. The major cost savings comes from speeding up inventory turnover. This reduces inventory holding costs, such as warehousing and storage costs. It means the company can reduce the amount of working capital it needs to finance inventory, freeing capital for other uses and/or lowering the total capital requirements of the enterprise. 92) B The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. The major cost saving comes from speeding up inventory turnover. This reduces inventory holding costs, such as warehousing and storage costs. It means the company can reduce the amount of working capital it needs to finance inventory, freeing capital for other uses and/or lowering the total capital requirements of the enterprise. 93) C The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. The major cost saving comes from speeding up inventory turnover. This reduces inventory holding costs, such as warehousing and storage costs. It means the company can reduce the amount of working capital it needs to finance inventory, freeing capital for other uses and/or lowering the total capital requirements of the enterprise. 94) B Version 1

Under a more traditional system, warehousing parts for weeks before they are used allows many defective parts to be produced before a problem is recognized. 95) B The drawback of a just-in-time inventory system is that it leaves a firm without a buffer stock of inventory. Although buffer stocks are expensive to store, they can help a firm respond quickly to increases in demand and tide a firm over shortages brought about by disruption among suppliers. 96) D There are ways of reducing the risks associated with a global supply chain that operates on just-in-time principles. To reduce the risks associated with depending on one supplier for an important input, some firms source these inputs from several suppliers located in different countries. 97) D Electronic data interchange (EDI) refers to the electronic interchange of data between two or more companies. 98) D Firms now typically use some form of a supply chain information system to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. There are a variety of options for global supply chains. Electronic data interchange (EDI) refers to the electronic interchange of data between two or more companies. 99) B

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To achieve operational integration and collaboration within a global supply chain, six operational objectives should be addressed:Variance reduction refers to integrating a control system across global supply chain functions to eliminate global supply chain disruptions. 100) C To achieve operational integration and collaboration within a global supply chain, six operational objectives should be addressed:life-cycle support refers to integrating the activities of reverse logistics, recycling, after-market service, product recall, and product disposal across global supply chain functions. 101)The production and logistics functions of an international firm have a number of important strategic objectives. One is to ensure that the total cost of moving from raw materials to finished goods is as low as possible for the value provided to the end-customer. Dispersing production activities to various locations around the globe where each activity can be performed most efficiently can lower costs. Costs can also be cut by managing the global supply chain efficiently so as to better match supply and demand. Efficient supply chain management reduces the amount of inventory in the system and increases inventory turnover, which means the firm has to invest less working capital in inventory and is less likely to find excess inventory on hand that cannot be sold and has to be written off. A second strategic objective shared by production and logistics is to increase product (or service) quality by establishing process-based quality standards, and eliminating defective raw material, component parts, and products from both the supply chain and the manufacturing process.

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102) The upstream supply chain includes all of the organizations (e.g., suppliers) and resources that are involved in the portion of the supply chain from raw materials to the production facility (this is sometimes also called the inbound supply chain). The downstream supply chain includes all of the organizations (e.g., wholesaler, retailer) that are involved in the portion of the supply chain from the production facility to the end-customer (this is also sometimes called the outbound supply chain). Through the upstream and downstream chains, the objectives of reducing costs and increasing quality are not independent of each other. 103)The total quality management (TQM) philosophy was developed by a number of American consultants such as W. Edwards Deming, Joseph Juran, and A. V. Feigenbaum. Deming identified a number of steps that should be part of any TQM program. He argued that management should embrace the philosophy that mistakes, defects, and poor-quality materials are not acceptable and should be eliminated. He suggested that the quality of supervision should be improved by allowing more time for supervisors to work with employees and by providing them with the tools they need to do the job. Deming also recommended that management should create an environment in which employees will not fear reporting problems or recommending improvements. He believed that work standards should not only be defined as numbers or quotas but should also include some notion of quality to promote the production of defect-free output. He argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace. In addition, he believed that achieving better quality requires the commitment of everyone in the company.

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104) An essential decision facing an international firm is where to locate its production activities to best minimize costs and improve product quality. For the firm contemplating international production, a number of factors must be considered. These factors can be grouped under three broad headings: country factors, technological factors, and production factors. 105) Externalities include the presence of an appropriately skilled labor pool and supporting industries. Such externalities can play an important role in deciding where to locate production activities. For example, because of a cluster of semiconductor manufacturing plants in Taiwan, a pool of labor with experience in the semiconductor business has developed. In addition, the plants have attracted a number of supporting industries, such as the manufacturers of semiconductor capital equipment and silicon, which have established facilities in Taiwan to be near their customers. This implies that there are real benefits to locating in Taiwan, as opposed to another location that lacks such externalities. Other things being equal, the externalities make Taiwan an attractive location for semiconductor manufacturing facilities. Student examples will vary.

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106) The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. This is the scale of output a plant must operate to realize all major plant-level scale economies. The implications of this concept are as follows: The larger the minimum efficient scale of a plant relative to total global demand, the greater the argument for centralizing production in a single location or a limited number of locations. Alternatively, when the minimum efficient scale of production is low relative to global demand, it may be economical to manufacture a product at several locations. The low level of minimum efficient scale in relation to total global demand makes it economically feasible for a company in multiple locations. As in the case of low fixed costs, the advantages of a low minimum efficient scale include allowing the firm to accommodate demands for local responsiveness or to hedge against currency risk by manufacturing the same product in several locations.

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107) The termflexible manufacturing technology—orlean production, as it is often called—covers a range of manufacturing technologies designed to (1) reduce setup times for complex equipment, (2) increase the utilization of individual machines through better scheduling, and (3) improve quality control at all stages of the manufacturing process. Flexible manufacturing technologies allow the company to produce a wider variety of end products at a unit cost that at one time could be achieved only through the mass production of a standardized output. Research suggests the adoption of flexible manufacturing technologies may actually increase efficiency and lower unit costs relative to what can be achieved by the mass production of a standardized output while enabling the company to customize its product offering to a much greater extent than was once thought possible. The termmass customization has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible: low cost and product customization.

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108) Two product features affect location decisions. The first is the product’svalue-to-weight ratio because of its influence on transportation costs. Many electronic components and pharmaceuticals have high value-to-weight ratios; they are expensive, and they do not weigh very much. Thus, even if they are shipped halfway around the world, their transportation costs account for a very small percentage of total costs. Given this, other things being equal, there is great pressure to produce these products in the optimal location and to serve the world market from there. The opposite holds for products with low value-to-weight ratios. Refined sugar, certain bulk chemicals, paint, and petroleum products all have low value-to-weight ratios; they are relatively inexpensive products that weigh a lot. Accordingly, when they are shipped long distances, transportation costs account for a large percentage of total costs. Thus, other things being equal, there is great pressure to make these products in multiple locations close to major markets to reduce transportation costs.

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109)There are two basic strategies for locating production facilities: concentrating them in a centralized location and serving the world market from there, or decentralizing them in various regional or national locations that are close to major markets. The appropriate strategy is determined by various country-specific, technological, and product factors. Decentralization of manufacturing makes most sense when: (1) differences among countries in factor costs, political economy, and culture do not have a substantial impact on the costs of manufacturing in various countries, (2) trade barriers are high, (3) location externalities are not important, (4) volatility in important exchange rates is expected, (5) the production technology has low fixed costs and low minimum efficient scale, and flexible manufacturing technology is not available, (6) the product's value-to-weight ratio is low, and (7) the product does not serve universal needs.

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110) Foreign factories can have one of a number of strategic roles or designations, including (1) offshore factory, (2) source factory, (3) server factory, (4) contributor factory, (5) outpost factory, and (6) lead factory. Anoffshore factory is one that is developed and set up mainly for producing component parts or finished goods at a lower cost than producing them at home or in any other market. The primary purpose of asource factory is also to drive down costs in the global supply chain. The main difference between a source factory and an offshore factory is the strategic role of the factory, which is more significant for a source factory than for an offshore factory. Aserver factory is linked into the global supply chain for a global firm to supply specific country or regional markets around the globe. This type of factory—often with the same standards as the top factories in the global firm’s system—is set up to overcome intangible and tangible barriers in the global marketplace. Acontributor factory also serves a specific country or world region. The main difference between a contributor factory and a server factory is that a contributor factory has responsibilities for product and process engineering and development. This type of factory also has much more of a choice in terms of which suppliers to use for raw materials and component parts. Anoutpost factory can be viewed as an intelligencegathering unit. This means that an outpost factory is often placed near a competitor’s headquarters or main operations, near the most demanding customers, or near key suppliers of unique and critically important parts. Alead factory is intended to create new processes, products, and technologies that can be used throughout the global firm in all parts of the world. This is where cutting-edge production should take place or at least be tested for implementation in other parts of the firm’s production network. Given the lead factory’s prominent role in setting a high bar for how the global firm wants to provide products to customers, we also

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expect that it will be located in an area where highly skilled employees can be found (or where they want to locate). 111) In reality, the make-or-buy decision is often based largely on two critical factors: cost and production capacity. Cost issues include such things as acquiring raw materials, component parts, and any other inputs into the process, along with the costs of finishing the product. The production capacity is really presented as an opportunity cost. That is, does the firm have the capacity to produce the product at a cost that is at least no higher than the cost of buying it from an external supplier? And if the product is made in-house, what opportunity cost would be incurred as a result (e.g., what product or item was the firm unable to produce because of limited production capacity)? Unfortunately, many, and perhaps most, global companies think that cost and production capacity are the only factors playing into the make-or-buy decision. This is simply not true!

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112)Level I is simply companies engaging in domestic purchasing activities only. Often, these companies stay close to their home base in their domestic market when purchasing raw materials, component parts, and the like for their operations. Companies that are at level II engage in international purchasing activities only as needed. This means that their approach to international purchasing is often reactive and uncoordinated among the buying locations within the firm and/or across the various units that make up the firm, such as strategic business units and functional units. Companies at level III engage in international purchasing activities as part of the firm’s overall supply chain management strategy. At the level III stage, companies begin to recognize that a well-formulated and wellexecuted worldwide international purchasing strategy can be very effective in elevating the firm’s competitive edge in the marketplace. Levels IV and V both involve “global purchasing” to various degrees. Level IV refers to global purchasing activities that are integrated across worldwide locations. This involves integration and coordination of purchasing strategies across the firm’s buying locations worldwide. With level IV, we are now dealing with a sophisticated form of worldwide purchasing. Level V involves engaging in global purchasing activities that are integrated across worldwide locations and functional groups. Broadly, this means that the firm integrates and coordinates the purchasing of common items, purchasing processes, and supplier selection efforts globally, for example.

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113)Packaging comes in all shapes, sizes, forms, and uses. It can be divided into three different types: primary, secondary, and transit.Primary packaging holds the product itself. These are the packages brought home from the store, usually a retailer, by the endconsumer.Secondary packaging (sometimes called case-lot packaging) is designed to contain several primary packages. Bulk buying or warehouse store customers may take secondary packages home (e.g., from Sam’s Club), but this is not the typical mode for retailers. Retailers can also use secondary packaging as an aid when stocking shelves in the store.Transit packaging comes into use when a number of primary and secondary packages are assembled on a pallet or unit load for transportation. Unit-load packaging—through palletizing, shrinkwrapping, or containerization—is the outer packaging envelope that allows for easier handling or product transfer among international suppliers, manufacturers, distribution centers, retailers, and any other intermediaries in the global supply chain.

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114) To achieve operational integration and collaboration within a global supply chain, six operational objectives should be addressed: responsiveness, variance reduction, inventory reduction, shipment consolidation, quality, and life-cycle support. Responsiveness refers to a global firm’s ability to satisfy customers’ requirements across global supply chain functions in a timely manner. Variance reduction refers to integrating a control system across global supply chain functions to eliminate global supply chain disruptions. Inventory reduction refers to integrating an inventory system, controlling asset commitment, and turning velocity across global supply chain functions. Shipment consolidation refers to using various programs to combine small shipments and provide timely, consolidated movement. This includes multi-unit coordination across global supply chain functions. Quality refers to integrating a system so it achieves zero defects throughout global supply chains. Finally, life-cycle support refers to integrating the activities of reverse logistics, recycling, after-market service, product recall, and product disposal across global supply chain functions.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A company might vary its marketing mix based on differences in national culture. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : The Role of the Marketing Mix in International Marketing Gradable : automatic

2) Markets can be segmented by geography, demography, sociocultural factors, and psychological factors. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : Differences Between Domestic and International Marketing Gradable : automatic

3) An intermarket segment refers to the set of customers based in the home country of a corporation. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Bloom's : Understand Difficulty : 2 Medium Topic : Business Analytics Gradable : automatic

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Advanced statistical techniques are necessary to conduct predictive analytics. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : Business Analytics Gradable : automatic

5) Consumers in the most developed countries are often willing to sacrifice their preferred product attributes for lower-priced products. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Diversity Learning Objective : 16-02 Explain why it might make sense to vary the attributes of a product from c Topic : Factors to Consider When Developing International Product Strategies Gradable : automatic

6) Differences in government-mandated product standards can often rule out mass production and marketing of a standardized product. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-02 Explain why it might make sense to vary the attributes of a product from c Topic : Factors to Consider When Developing International Product Strategies Gradable : automatic

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A fragmented retail system is one in which a few retailers supply most of the market. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Retailers in Foreign Markets Gradable : automatic

8) Keesha sells brightly colored hair accessories directly to customers on Etsy. Her business has a short channel length. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Factors to Consider When Designing International Distribution Strategies Gradable : automatic

9) There is generally a critical link among channel length, the final selling price, and the firm's profit margin because each intermediary in a channel adds its own markup to the products. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Factors to Consider When Designing International Distribution Strategies Gradable : automatic

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10) One drawback of a longer distribution channel is that it increases selling costs when the retail sector is very fragmented. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Factors to Consider When Designing International Distribution Strategies Gradable : automatic

11) Cultural differences often make it easier for a firm to use the same marketing message and selling approach worldwide. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Economic and Business Implications of Cultural Change Gradable : automatic

12)

A push strategy emphasizes the use of mass media rather than personal selling. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies Gradable : automatic

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13) A business might find it more cost effective to use a pull strategy when entering a market with a long distribution channel. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies Gradable : automatic

14) A disadvantage of standardized advertising is that it increases the costs of value creation by spreading the fixed costs of developing the advertisements over many countries. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies Gradable : automatic

15) Price discrimination occurs when one store sells a product at full price, but another chooses to put the product on sale. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-05 Explain why and how a firm’s pricing strategy might vary among countries. Topic : Elements That Influence International Pricing Strategies Gradable : automatic

16) Predatory pricing occurs when companies use price as a competitive weapon to drive out weaker competition. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-05 Explain why and how a firm’s pricing strategy might vary among countries. Topic : Elements That Influence International Pricing Strategies Gradable : automatic

17) Multipoint pricing refers to the various pricing strategies a company uses for the same product based on the geographic location of customers. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-05 Explain why and how a firm’s pricing strategy might vary among countries. Topic : Elements That Influence International Pricing Strategies Gradable : automatic

18) In terms of pricing strategies, dumping occurs whenever an international firm sells a product for a price that is less than the price charged by domestic producers. ⊚ true ⊚ false Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-05 Explain why and how a firm’s pricing strategy might vary among countries. Topic : Elements That Influence International Pricing Strategies Gradable : automatic

19) Differences in product and technical standards between nations would be a reason a business might vary aspects of its marketing mix. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : The Role of the Marketing Mix in International Marketing Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-06 Understand how to configure the marketing mix globally. Gradable : automatic

20) Dispersing research and development activities to many locations around the world allows a firm to stay close to the center of leading-edge activity to gather scientific and competitive information and to draw on local scientific resources. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-07 Describe how globalization is affecting product development. Topic : How Globalization Affects New-Product Development Gradable : automatic

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MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 21) Kendrik, the marketing manager for Baxter Leather Goods, believes that for the company to succeed in international markets, it has to address the choices surrounding product attributes, distribution strategy, communication strategy, and pricing strategy in its targeted markets. What is Kendrik specifically referring to? A) market imperfections B) marketing mix C) marketing intermediaries D) marketing objectives E) marketing plan

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : The Role of the Marketing Mix in International Marketing AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

22)

Based on his article in the Harvard Business Review, Theodore Levitt would agree that

A) accustomed differences in national or regional preferences are significant in world markets. B) the global corporation operates consistently at high relative cost. C) technology has led to the emergence of global markets for standardized consumer products. D) the global corporation sells different things in different ways. E) ancient differences in national tastes or modes of doing business are reinforced.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Bloom's : Understand Difficulty : 2 Medium Topic : Challenges and Opportunities Created by Globalization Gradable : automatic

23) Theodore Levitt's arguments concerning the globalization of world markets can be supported by which of these facts? A) Technology is facilitating a convergence of tastes and preferences among consumers in advanced countries of the world. B) Academics feel that Levitt understates his case concerning global markets and the fall of multinational corporations. C) Globalization, in the sense used by Levitt, is the rule in consumer goods markets and industrial markets. D) Levitt's arguments hold true with respect to consumer goods markets but not for basic industrial products. E) As observed by Levitt, multinational corporations do not tailor their products to suit different countries.

24) So-Brite Dental Care, a maker of toothpaste and mouthwash, has identified three distinct consumer groups to market their products to: teens, young adults, and senior citizens. What process would the company use to identify these groups?

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A) research and development B) predictive analytics C) purchasing parity D) market segmentation E) customer service

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : The Role of the Marketing Mix in International Marketing Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

25) Many elderly travelers and those travelers with certain physical disabilities are unable to climb stairs to motel rooms that are not on the first floor. The Walk Right Inn has catered to this specific group of customers via its motels, all of which have one floor of rooms with no stairs to climb. What did Walk Right Inn use to identify these distinct groups of consumers whose needs, wants, and purchasing behavior differ from others in important ways? A) market penetration B) market development C) market segmentation D) product development E) diversification

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : The Role of the Marketing Mix in International Marketing Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

26)

The goal of market segmentation is to

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A) optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix. B) increase participation in shared global conversations by drawing upon shared symbols that include global brands. C) reduce cultural and economic differences which act as a barrier to the emergence of global trends. D) standardize products, manufacturing, and the institutes of trade and commerce. E) increase the costs of value creation and add value by better serving customer needs.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : The Role of the Marketing Mix in International Marketing Bloom's : Understand Difficulty : 2 Medium Gradable : automatic

27) Eyewear 20/20 markets eyeglasses and sunglasses to young adults between 18 and 25. In approaching its international markets, Eyewear 20/20 believes that its target segment spans multiple countries, transcending national borders. The company’s target segment is called a(n) __________ segment. A) intermarket B) uniform C) cosmopolitan D) divergence E) global

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28) Maura created a simple bar graph to show the most popular items customers asked for when they walked into the store. Which application of business analytics does the bar graph represent? A) predictive B) descriptive C) definitive D) prescriptive E) directive

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : Business Analytics AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

29) After receiving all of the data on customer purchases and supplier inventories, Allyson’s job is to build a statistical model to help identify trends in sales and product demand. Which level of business analytics does this require? A) predictive analytics B) directive analytics C) definitive analytics D) prescriptive analytics E) descriptive analytics

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30) During the 2020 coronavirus pandemic, numerous research labs conducted clinical trials in an effort to develop an effective vaccine. These trials represent a(n) __________ method for collecting data. A) qualitative B) prescriptive C) descriptive D) predictive E) quantitative

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : Business Analytics Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

31) Kaarin included statistical information she found on the Food and Drug Administration website in her report. These statistics are a type of A) primary data. B) qualitative information. C) secondary data. D) descriptive analysis. E) prescriptive analysis.

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : Business Analytics Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

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32) Jaden’s department at Up-Cycle Inc. is responsible for conducting online surveys to learn more about what their customers want. Which step in the market research process does Jaden work on? A) reporting the research findings B) determining the data sources C) assessing the benefits of research D) interpreting the data E) collecting the data

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : Business Analytics Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

33) While cultural differences should always be considered, which of these industries should be especially aware of traditions when trying to enter a foreign market? A) healthcare B) agriculture C) furniture D) food E) paper

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-02 Explain why it might make sense to vary the attributes of a product from c Topic : Challenges and Opportunities Created by Globalization Gradable : automatic

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34) What trend contradicts Theodore Levitt's arguments for the globalization of world markets? A) Consumers in most developed countries do not sacrifice preferred attributes for lower prices. B) Tastes and preferences are becoming more cosmopolitan due to cultural convergence. C) Similar product and technical standards across countries help a firm sell the same product worldwide. D) The emergence of the global youth segment is evidence of market segments that transcend national borders. E) The structure of market segments is extremely similar in various countries.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-02 Explain why it might make sense to vary the attributes of a product from c AACSB : Communication Topic : Challenges and Opportunities Created by Globalization Gradable : automatic

35) Heidi is frustrated that her DVD player won’t play a DVD she purchased while on vacation in Great Britain. When she called the manufacturer to complain, she was told that European DVDs are formatted differently and won't play on all machines. This is evidence of how __________ can place a constraint on global markets. A) differences in technical standards B) purchasing parity C) cosmopolitan tastes and preferences D) market segments that transcend national borders E) a convergence of cultures

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Question Details Accessibility : Keyboard Navigation Learning Objective : 16-02 Explain why it might make sense to vary the attributes of a product from c AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Challenges and Opportunities Created by Globalization Gradable : automatic

36) Klemson Footwear, based in Montreal, is determining how to deliver its product to consumers in France. What strategy is the company working on? A) marketing B) distribution C) analytics D) communication E) pricing

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Factors to Consider When Designing International Distribution Strategies Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

37) When analyzing the South American market, Gibson Foods Inc. noticed that a few retailers supplied most of the market with dairy-free products. What kind of a retail system does this market have? A) fragmented B) dispersed C) isolated D) concentrated E) exclusive

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38) Texas Denim Supply Inc. noticed that while India had a population of more than 1.2 billion people, the retail market was such that more than 95 percent of retail was through standalone stores that were not part of a chain. In other words, if Texas Denim Supply were to enter India, they would have to sell through thousands of independent retail stores. What kind of a retail system does India have for the products that Texas Denim Supply is trying to sell? A) fragmented B) dispersed C) isolated D) concentrated E) exclusive

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Factors to Consider When Designing International Distribution Strategies AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

39) A nation with thousands of retail stores and only one national chain store has a __________ retail system. A) concentrated B) fragmented C) focused D) consolidated E) exclusive

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40) The United States has a very concentrated retail market with a few large national chains dominating the market. What factor has contributed to greater retail concentration in a developed country like the United States? A) local neighborhood stores B) increased car ownership C) retail system that encourages long channel length D) increase in single-income households E) increase in population density

41)

What factor contributes to greater retail concentration in developed countries? A) number of households owning televisions B) number of families with two or more children C) increase in the currency value of the country D) number of households with refrigerators and freezers E) decrease in per capita income

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Factors to Consider When Designing International Distribution Strategies Gradable : automatic

42) The number of intermediaries between the product (or manufacturer) and the consumer is referred to as A) channel length. B) channel quality. C) channel exclusivity. D) channel fragmentation. E) channel concentration.

43)

What is the most important determinant of channel length? A) degree to which the retail system is fragmented B) increase in car ownership and two-income households C) level of consolidation in the global retail industry D) amount of difference between product or technical standards E) level of economic development of a country

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44) Barbara, the international sales manager for Simpson Flooring, is trying to determine the channel length for Brazil, a market the company hopes to enter. What is the most important consideration she should take into account? A) degree to which the retail system is fragmented B) increase in car ownership and two-income households C) level of consolidation in the global retail industry D) amount of difference between product or technical standards E) level of economic development of a country

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Factors to Consider When Designing International Distribution Strategies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

45) Which retail system tends to promote the growth of wholesalers to serve retailers, which lengthens distribution channels? A) centralized B) focused C) concentrated D) fragmented E) exclusive

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46)

What results when the retail sector is very concentrated? A) It is more expensive for a firm to make contact with each individual retailer. B) It makes sense for a firm to deal directly with retailers, cutting out wholesalers. C) A relatively large sales force is required to deal with the retail sector. D) The channels of distribution tend to be long. E) The growth of wholesalers is promoted.

47) When determining her company’s distribution strategy in the United Kingdom, Sondra of Plymouth Products found that the country's retail sector was very concentrated. How should her company respond to this? A) They should focus on contacting wholesalers. B) They should deal directly with retailers, cutting out wholesalers. C) They should hire a relatively large sales force to deal with the retail sector. D) They should lengthen the channels of distribution. E) They should promote the growth of wholesalers.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Factors to Consider When Designing International Distribution Strategies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

48) As the sales manager for Millhouse Exports, Sanjay is deciding on the firm's distribution strategy in several markets. He wants to find an area with a shorter channel length. Which factor will best help him determine this? A) the presence of discount stores like Walmart B) the firm's insistence on dealing with wholesalers instead of manufacturers C) increased fragmentation of the retail system D) the ability to focus on a pull strategy E) smaller sales orders generated from sales calls

49) Running Creek Olive Oils, based in Georgia, is trying to enter the market in Italy. It quickly learned that the Italian olive oil distribution channel was difficult to access as an outsider. Based on this, the market must have a(n) __________ distribution channel. A) exclusive B) intensive C) formal D) concentrated E) fragmented

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50) Thermal Fast manufactures portable heating and cooling systems and markets them in underdeveloped countries that often lack easy access to these systems. As the owner, Soyoung Ji knows that to successfully enter a foreign market, the retailers will have to be educated on how these products work. What factor is she considering? A) channel exclusivity B) channel quality C) channel length D) channel dominance E) channel concentration

51)

What is a characteristic of channel quality?

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A) The quality of retailers is variable in developed nations. B) The quality of retailers is more variable in emerging markets and less developed nations. C) Channel quality refers to a measure of the number of intermediaries between the manufacturer and the consumer. D) An international business cannot establish its own distribution channel when the existing channel quality is poor. E) The lack of a high-quality channel does not impede market entry.

52) The Indian retail market is very fragmented with many small independent stores. The distribution structure in India typically involves two levels of distributors (large regional wholesalers and smaller city-wide wholesalers). All of these lead to a long distribution channel. Radisson Products is concerned about India's long distribution channel for its products. What is a drawback of longer distribution channels that could affect Radisson Product's decision? A) higher profit margins B) inability to enter exclusive distribution channels C) lower selling costs in a concentrated retail sector D) lower aggregate markups E) higher consumer prices

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53)

What is a drawback of longer distribution channels? A) diminished product production B) inability to enter exclusive distribution channels C) lower selling costs in a concentrated retail sector D) lower prices charged to consumers E) higher aggregate markups

54)

One advantage of longer distribution channels is A) decreased profit margins. B) lower mark-ups. C) lower product prices. D) reduced selling costs in concentrated retail sectors. E) greater market access.

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55) When Mallory received an e-mail advertising the fall collection from The Top Style Store, she deleted it without even looking at it because she had heard from her friends that all of the clothing the store sold was made from flimsy fabric. Her reaction to the e-mail demonstrates how __________ can damage an international business. A) channel length B) market segmentation C) import effects D) source effects E) channel quality

Question Details Accessibility : Keyboard Navigation AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : automatic

56) Dixon Athletics’ marketing message in the United States is one of apparel for the weekend athlete who works out at home rather than at the gym. While this marketing message has worked very well for the company, it is concerned about using the same marketing message in its new market in China. What factor limits Dixon Athletics’ ability to use the same marketing message in both the United States and China? A) channel exclusivity B) channel quality C) cultural differences D) concentrated retail systems E) fragmented retail systems

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Question Details Accessibility : Keyboard Navigation AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

57) While watching television, Kyle saw a commercial for a product that was "made in Taiwan." He immediately dismissed the product being advertised because the last item he bought that was made there fell apart in just two weeks. What is affecting this advertising communication? A) source effects B) noise levels C) predictive analytics D) pull strategy E) push strategy

58)

Source effects are damaging for an international business when

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A) promotional messages are used to stress the positive performance attributes of its product. B) fewer firms compete for the attention of prospective customers in developing countries. C) the firm's marketing strategy emphasizes personal selling rather than mass media advertising. D) potential consumers in a target country have a bias against foreign firms. E) international businesses deemphasize their foreign origins.

59) While wines from the United States have won prizes in international blind taste tests, the perception of American wines is generally low in continental Europe, particularly France. __________ refers to the extent to which the place of manufacturing influences product evaluations. A) Noise levels B) Country of origin effects C) Cultural barriers D) Push strategies E) Pull strategies

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60) Casey will only buy cars from Japanese automakers because she thinks cars made in the United States are of inferior quality. She has this belief even though she has never studied the ratings of cars made in the United States. What type of communication barrier does this represent? A) cultural barrier B) country of origin effect C) predictive analytics D) prescriptive analytics E) noise levels

Question Details Accessibility : Keyboard Navigation AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

61) In the context of barriers to international communication, __________ refers to the amount of other messages competing for a potential consumer's attention.

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A) logistics B) source effects C) noise D) standardized advertising E) country of origin effects

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies Gradable : automatic

62) When Thurston Meats decided to enter the highly developed German market, it found that it competed with hundreds of brands. In terms of communication strategy, Thurston Meats should remember that in a highly developed market, A) noise is extremely high. B) source effects are always positive. C) country of origin effects are not applicable. D) cultural barriers do not exist. E) pull strategies are more important than push strategies.

Question Details Accessibility : Keyboard Navigation AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

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63) that

When considering barriers to international communication, companies should be aware

A) noise tends to increase the probability of effective communication. B) source effects can be beneficial for an international business when potential consumers in a target country have a bias against foreign firms. C) many international businesses try to promote positive source effects by deemphasizing their foreign origins. D) fewer firms vie for the attention of prospective customers in developing countries, thus the noise level is lower. E) research suggests consumers use country of origin when evaluating a product, when they have detailed knowledge of the product.

Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies Gradable : automatic

64) Which communication strategy relies primarily on personal selling rather than mass media advertising? A) prescriptive analytics B) pull strategy C) push strategy D) predictive analytics E) standardized advertising

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65) A __________ strategy relies primarily on mass media advertising as opposed to personal selling. A) telemarketing B) pull C) push D) customized E) point-of-purchase

66) Bright-Eye Cola introduced its newest product through a series of television and radio commercials that reached millions of potential customers. What kind of strategy did the company use to promote the new product? A) push B) lean C) lag D) pull E) exclusive

Question Details Accessibility : Keyboard Navigation AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

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67) If a firm favors a push strategy, using direct selling to educate potential consumers, which of these products would it most likely sell? A) professional services B) food grains C) consumer products D) industrial products E) standardized products

68)

__________ allows a firm to educate potential consumers about the features of a product. A) Direct selling B) Mass media advertising C) Pull strategy D) Standardized advertising E) Lag strategy

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69)

What is a drawback of a push strategy?

A) It can be expensive when the distribution channel is long. B) It decreases interaction with consumers. C) It does not allow consumers to be educated on the benefits of a complex product. D) It is useful only in advanced nations where consumers are sophisticated and highly educated. E) It can only be used to sell industrial products.

70) Companies that use a __________ marketing strategy rely on access to advertising media. A) personal selling B) direct selling C) push D) pull E) prescriptive

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71)

A company would be likely to use a push strategy when A) distribution channels are short. B) sufficient print and electronic media are available. C) consumers have a low level of literacy. D) the products being sold are consumer goods. E) professional services are being offered.

72)

Pull strategies tend to be emphasized A) for complex new products. B) for consumer goods. C) for industrial goods. D) when distribution channels are short. E) when few print or electronic media are available.

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73)

One argument in favor of standardized advertising is that A) consumer tastes and preferences are universal. B) a message that works in one nation will invariably work in every other country. C) advertising regulations always support standardized advertising. D) it spreads the cost of developing advertising over many countries. E) the costs of value creation may be increased by standardized advertising.

74)

What is an argument against standardized advertising?

A) One large effort to develop a campaign fails to produce better results than 40 or 50 smaller efforts. B) It fails to make use of local talent available in other cultures. C) Advertising regulations may block implementation of standardized advertising. D) Royalties make it the most expensive form of advertising. E) It increases the costs of value creation.

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75) __________ exists whenever consumers in different countries are charged different prices for the same product. A) Penetration pricing B) Premium pricing C) Predatory pricing D) Price discrimination E) Price skimming

76) Marissa is on vacation in Mexico and buys a bottle of vanilla paste for about half the price she would pay for the same bottle at home. The vanilla paste isn’t on sale in Mexico but is priced lower because that’s the price the market will bear. What is this an example of? A) price discrimination B) price skimming C) predatory pricing D) premium pricing E) price fixing

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-05 Explain why and how a firm’s pricing strategy might vary among countries. Topic : Elements That Influence International Pricing Strategies AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : automatic

77)

What must occur for a firm to ensure profitable price discrimination?

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A) The firm must sell a standardized product. B) The firm must be able to keep its national markets separate. C) The firm must encourage other firms and competitors to engage in arbitration. D) Products sold by the firm must have same price elasticities of demand in different countries. E) Products must be sold in countries where a small change in prices produces a large change in demand.

78) Simone owns a purse and wallet store on the border of France. Due to price discrimination, she can buy Birkin bags in Italy at a lower cost than purchasing them from her local French supplier, so every six months she drives to Italy and buys these bags to resell at her store. What is this an example of? A) speculation B) arbitrage C) dumping D) predatory pricing E) modeling

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79)

Arbitrage occurs when a firm A) offers a product at low prices through discount coupons and promotions. B) sells a product at higher prices to make a profit from relatively fewer sales. C) imports products from a manufacturer and distributes them directly through retail

outlets. D) purchases products in a country where prices are lower and resells them in a country where prices are higher. E) prices its products at the least cost, risking losses, in order to grab market share.

80) as

A measure of the responsiveness of demand for a product to a change in price is known

A) the demand to price ratio. B) purchasing power parity. C) predatory pricing. D) demand function of pricing. E) price elasticity of demand.

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81) A business is experiencing __________ demand when a small change in price produces a large change in demand for a product. A) elastic B) inelastic C) relative D) rigid E) dynamic

82) Demand is labeled as __________ when a large change in price produces only a small change in demand. A) flexible B) consistent C) inelastic D) elastic E) dynamic

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83) Carlos lives in San Francisco where there are hundreds of different clothing stores to shop at, which allows her to always find the best price on her favorite pair of jeans. In this situation, the presence of many competitors results in A) the use of predictive analytics. B) a concentrated retail system. C) a high elasticity of demand. D) the use of prescriptive analytics. E) inelastic demand.

84)

What is a characteristic associated with the price elasticity of demand?

A) The price elasticity of demand is unrelated to the competitive conditions in a country. B) Demand is said to be inelastic when a small change in price produces a large change in demand. C) Demand is said to be elastic when a large change in price produces a small change in demand. D) Price elasticity tends to be greater in countries with low income levels. E) The elasticity of demand is inversely proportional to the number of competitors offering a particular product.

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85) __________ refers to the use of price as a competitive weapon to drive weaker competitors out of a national market. A) Multipoint pricing B) Predatory pricing C) Leader pricing D) Price discrimination E) Price skimming

86) Britt Chemicals Corp. learned that its biggest competitor dropped prices dramatically in the European market. In response, Britt Chemicals decided to do the same in Asia. This resulted in the competitor minimizing its aggressive stance and returning to earlier price points. This is an example of __________ pricing. A) dumping B) predatory C) leader D) multipoint E) prescriptive

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87)

Multipoint pricing occurs when a company

A) aggressively prices in one market to elicit a competitive response from a rival in another market. B) prices its products at a loss in order to drive out competitors from the market. C) buys products at a cheaper rate in one country to sell at a higher price in another country. D) allows markets to determine the pricing of a product. E) prices two similar products at low and high prices in order to boost sales of the lower priced products.

88) If a firm prices its product low worldwide in an attempt to build global sales volume as rapidly as possible, even if this means taking large losses initially, what kind of strategy is it pursuing? A) experience curve pricing B) multipoint pricing C) economy pricing D) predatory pricing E) premium pricing

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89) Chubby Cheeks Baby Food Corp. wants to build its global sales volume quickly. It enters all markets at the lowest price possible it can charge, which undercuts the prices of all its competition. The company knows this might result in initial losses, but in a few years, it should be making substantial profits with a cost advantage over everyone else. This is an example of A) experience curve pricing. B) multipoint pricing. C) market-based pricing. D) dynamic pricing. E) price skimming.

90) In the context of strategic pricing, __________ takes place whenever a firm sells a product for a price that is less than the cost of producing it. A) inflation B) dumping C) arbitrage D) speculation E) outsourcing

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91) Which industry is often thought of as one in which global standardization of the marketing mix is the norm because they sell the same basic product or service worldwide? A) electronics B) fashion C) pharmaceutical D) movie industry E) heavy machinery

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : The Role of the Marketing Mix in International Marketing Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-06 Understand how to configure the marketing mix globally. Gradable : automatic

92)

It can be said that a truly “globalized” product A) has been produced by the financial industry. B) is generally not attainable. C) is the cellular phone. D) only exists in consumer goods. E) was achieved when trade barriers fell.

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93)

What has caused the “creative destruction” that many companies experience today? A) predatory pricing B) tariffs and taxes C) economies of scale D) government intervention E) technological change

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 16-07 Describe how globalization is affecting product development. Topic : How Globalization Affects New-Product Development Gradable : automatic

94)

What has created a dramatic shortening of product life cycles today? A) acceleration of the pace of technological change B) lack of domestic competition C) affluence of customers D) increase in the number of educated consumers E) removal of trade barriers

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 16-07 Describe how globalization is affecting product development. Topic : How Globalization Affects New-Product Development Gradable : automatic

95) Other things being equal, the rate of new-product development seems to be greater in countries where A) more money is spent on marketing instead of applied research. B) consumers demand cheaper products since they are not affluent. C) competition between firms is intense. D) pioneering costs outweigh the disadvantages of being a second mover. E) a large change in prices of a product only produces a small change in demand.

96)

A country that has __________ creates a potential market for new products. A) rising inflation B) affluent consumers C) lack of competition among firms D) firms suffering from first-mover disadvantages E) declining demand

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97) One consequence of tight cross-functional integration between research and development (R&D), production, and marketing is A) maximizing the time to market a product. B) letting R&D dictate terms to marketing and production. C) keeping development costs in check. D) ensuring that product development projects are driven by organizational needs. E) increasing selling costs and maximizing profits.

98) Immediately following World War II, what country ranked the highest in spending on R&D, had affluent customers and intense competition, and, as a result, was the center of new product development? A) Japan B) United States C) China D) Germany E) Canada

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99) What is an important attribute for a product development team to function effectively and meet all of its development milestones? A) It should be led by a "high-power" project manager who has high status within the organization. B) The team members should always be physically in diverse locations in order to cover multiple bases. C) It should have preset processes for communication and conflict resolution that are developed by top management. D) It should have at least three members from each key function included. E) Its team members should be a part of more than two cross-functional teams.

100)

The members of a cross-functional team should have A) low standing within their respective functions. B) the ability to put functional and national advocacy first. C) the ability to contribute functional expertise. D) the ability to solely focus on the ongoing work of their respective functions. E) the ability to work on several projects simultaneously.

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ESSAY. Write your answer in the space provided or on a separate sheet of paper. 101) Compare and contrast the three forms of business analytics. Provide an example of each form.

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : Business Analytics Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : manual

102)

Briefly discuss the steps in international marketing research.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 16-01 Understand the importance of business analytics and international market r Topic : The Role of the Marketing Mix in International Marketing Bloom's : Understand Difficulty : 2 Medium Gradable : manual

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103) Identify the product attributes of a pizza or another product of your choice. Explain how product attributes play a role in selling a product.

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-02 Explain why it might make sense to vary the attributes of a product from c Topic : Factors to Consider When Developing International Product Strategies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : manual

104)

Describe how cultural differences affect product attributes.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Diversity Learning Objective : 16-02 Explain why it might make sense to vary the attributes of a product from c Topic : Factors to Consider When Developing International Product Strategies Gradable : manual

105) Discuss the three factors that lead to a tendency for greater retail concentration in developed countries.

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium AACSB : Diversity Learning Objective : 16-03 Recognize why and how a firm’s distribution strategy might vary among coun Topic : Factors to Consider When Designing International Distribution Strategies Gradable : manual

106) Describe the differences in distribution systems in various countries in terms of channel exclusivity.

107)

Describe the role of channel quality when creating a distribution strategy.

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108)

Discuss the role of cultural barriers and a firm's international communication.

Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy AACSB : Diversity AACSB : Communication Learning Objective : 16-04 Identify why and how advertising and promotional strategies might vary amo Topic : Factors That Influence International Advertising and Promotion Strategies Gradable : manual

109)

Discuss how country of origin effects can sometimes have a positive appeal.

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110)

Compare and contrast a push versus a pull communication strategy.

111) Explain the factors that indicate when a company should promote a push strategy and when a company should promote a pull strategy.

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112) Discuss one of the elements that must be in place for a firm to achieve profitable price discrimination. Provide an example.

113) Discuss how price elasticity is reflected in the sale of computers in a nation where a computer is a luxury versus one where it is a necessity.

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Question Details Accessibility : Keyboard Navigation Learning Objective : 16-05 Explain why and how a firm’s pricing strategy might vary among countries. Topic : Elements That Influence International Pricing Strategies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application Gradable : manual

114)

Discuss why a firm would use experience curve pricing.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Learning Objective : 16-05 Explain why and how a firm’s pricing strategy might vary among countries. Topic : Elements That Influence International Pricing Strategies Difficulty : 3 Hard Gradable : manual

115) Describe the influence of integrating research and development, marketing, and production on new product development.

Question Details Accessibility : Keyboard Navigation Learning Objective : 16-07 Describe how globalization is affecting product development. Topic : How Globalization Affects New-Product Development AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Gradable : manual

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Answer Key Test name: Hill_16 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) TRUE Differing government-mandated product standards can rule out mass production and marketing of a standardized product. Differences in technical standards also constrain the globalization of markets. Some of these differences result from idiosyncratic decisions made long ago, rather than from government actions, but their long-term effects are profound. 7) FALSE In a concentrated retail system, a few retailers supply most of the market. Afragmented retail system is one in which there are many retailers, none of which has a major share of the market. 8) TRUE 9) TRUE 10) FALSE 11) FALSE 12) FALSE 13) TRUE 14) FALSE 15) FALSE 16) TRUE

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Predatory pricing is the use of price as a competitive weapon to drive weaker competitors out of a national market. 17) FALSE 18) FALSE 19) TRUE 20) TRUE 21) B The marketing mix is the set of choices the firm offers to its targeted markets. The four elements that constitute a firm's marketing mix are: product attributes, distribution strategy, communication strategy, and pricing strategy. 22) C In a now-classicHarvard Business Review article, the late Theodore Levitt wrote lyrically about the globalization of world markets. According to Levitt, "A powerful force drives the world toward a converging commonalty, and that force is technology. It has proletarianized communication, transport, and travel. The result is a new commercial reality—the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude". 23) A In a now-classicHarvard Business Review article, the late Theodore Levitt wrote lyrically about the globalization of world markets. He is probably correct to assert that technologies are facilitating a convergence of certain tastes and preferences among consumers in the more advanced countries of the world, and this has become even more prevalent since he wrote. 24) D

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Market segmentation refers to identifying distinct groups of consumers whose needs, wants, and purchasing behavior differ from others in important ways. Markets can be segmented in numerous ways: by geography, demography, sociocultural factors, and psychological factors. 25) C Market segmentation refers to identifying distinct groups of consumers whose needs, wants, and purchasing behavior differ from others in important ways. Markets can be segmented in numerous ways: by geography, demography (e.g., gender, age, income, race, education level), sociocultural factors (e.g., social class, values, religion, lifestyle choices), and psychological factors (e.g., personality). 26) A The goal of market segmentation is to optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix, thereby maximizing sales to that segment. 27) A A segment that spans multiple countries, transcending national borders, is often called an intermarket segment. 28) B Descriptive analytics refers to the use of relatively simple statistical techniques to describe what is contained in a dataset. For example, the descriptive statistics can be an age bar chart that is used to depict Starbucks customers. 29) A

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Predictive analytics can be defined as the use of advanced statistical techniques (and software) to identify and build predictive models that can help to identify trends and relationships not readily observed in descriptive analyses 30) E The two mechanisms to collect data are quantitative and qualitative data collection. Quantitative methods include experiments, clinical trials, observing and recording events, and administering surveys with closedend questions. 31) C Secondary data refers to data that have been collected previously by organizations, people, or agencies for purposes other than specifically addressing the research problem and objectives at hand. 32) E Collecting the data simply refers to gathering data via primary or secondary methods that address the research problem and objectives that the global company has established. The two mechanisms to collect data are quantitative and qualitative data collection. A popular way of collecting quantitative data today is to use online surveys and consumer mail panels. 33) D The most important aspect of cultural differences is probably the impact of tradition. Tradition is particularly important in foodstuffs and beverages. 34) A

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Contrary to Theodore Levitt's suggestions, consumers in the most developed countries are often not willing to sacrifice their preferred attributes for lower prices. Consumers in the most advanced countries often shun globally standardized products that have been developed with the lowest common denominator in mind. 35) A Differing government-mandated product standards can rule out mass production and marketing of a standardized product. Differences in technical standards also constrain the globalization of markets. 36) B A critical element of a firm's marketing mix is its distribution strategy: the means it chooses for delivering the product to the consumer. The way the product is delivered is determined by the firm's entry strategy. 37) D In some countries, the retail system is very concentrated, but it is fragmented in others. In a concentrated retail system, a few retailers supply most of the market. 38) A In some countries, the retail system is very concentrated, but it is fragmented in others. A fragmented retail system is one in which there are many retailers, none of which has a major share in the market. 39) B In some countries, the retail system is very concentrated, but it is fragmented in others. In a concentrated retail system, a few retailers supply most of the market. A fragmented retail system is one in which there are many retailers, none of which has a major share of the market. 40) B

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There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, number of households with refrigerators and freezers, and number of two-income households. 41) D There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, number of households with refrigerators and freezers, and number of two-income households. 42) A Channel length refers to the number of intermediaries between the producer (or manufacturer) and the consumer. If the producer sells directly to the consumer, the channel is very short. If the producer sells through an import agent, a wholesaler, and a retailer, a long channel exists. 43) A The most important determinant of channel length is the degree to which the retail system is fragmented. Fragmented retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens channels. 44) A The most important determinant of channel length is the degree to which the retail system is fragmented. Fragmented retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens channels. 45) D

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The most important determinant of distribution channel length is the degree to which the retail system is fragmented. Fragmented retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens channels. 46) B When the retail sector is very concentrated, it makes sense for the firm to deal directly with retailers, cutting out wholesalers. A relatively small sales force is required to deal with a concentrated retail sector, and the orders generated from each sales call can be large. 47) B When the retail sector is very concentrated, it makes sense for the firm to deal directly with retailers, cutting out wholesalers. A relatively small sales force is required to deal with a concentrated retail sector, and the orders generated from each sales call can be large. 48) A A factor that is shortening channel length in some countries is the entry of large discount superstores, such as Carrefour, Walmart, and Tesco. The business model of these retailers is, in part, based on the idea that in an attempt to lower prices, they cut out wholesalers and instead deal directly with manufacturers. 49) A An exclusive distribution channel is one that is difficult for outsiders to access. For example, it is often difficult for a new firm to get access to shelf space in supermarkets. This occurs because retailers tend to prefer to carry the products of established manufacturers of foodstuffs with national reputations rather than gamble on the products of unknown firms. 50) B Version 1

Channel quality refers to the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses. Although the quality of retailers is good in most developed nations, in emerging markets and less developed nations from Russia to Indonesia, channel quality is variable at best. 51) B Channel quality refers to the expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international businesses. Although the quality of retailers is good in most developed nations, in emerging markets and less developed nations from Russia to Indonesia, channel quality is variable at best. 52) E Because each intermediary in a channel adds its own markup to the products, there is generally a critical link among channel length, the final selling price, and the firm's profit margin. The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product. 53) E Because each intermediary in a channel adds its own markup to the products, there is generally a critical link among channel length, the final selling price, and the firm's profit margin. The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product. 54) E

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The benefits of using a longer distribution channel outweigh the drawbacks. One benefit of a longer channel is that it cuts selling costs when the retail sector is very fragmented. Another benefit of using a longer channel is market access—the ability to enter an exclusive channel. 55) D Source effects occur when the receiver of the message (the potential consumer in this case) evaluates the message on the basis of status or image of the sender. Source effects can be damaging for an international business when potential consumers in a target country have a bias against foreign firms. 56) C Cultural differences limit a firm's ability to use the same marketing message and selling approach worldwide. What works well in one country may be offensive in another. 57) A Source effects occur when the receiver of the message (the potential consumer in this case) evaluates the message on the basis of status or image of the sender. Source effects can be damaging for an international business when potential consumers in a target country have a bias against foreign firms. 58) D Source effects occur when the receiver of the message evaluates the message on the basis of status or image of the sender. Source effects can be damaging for an international business when potential consumers in a target country have a bias against foreign firms. 59) B

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A subset of source effects is referred to as country of origin effects, or the extent to which the place of manufacturing influences product evaluations. Research suggests that the consumer may use country of origin as a cue when evaluating a product, particularly if he or she lacks more detailed knowledge of the product. 60) B A subset of source effects is referred to as country of origin effects, or the extent to which the place of manufacturing influences product evaluations. Research suggests that the consumer may use country of origin as a cue when evaluating a product, particularly if he/she lacks more detailed knowledge of the product. 61) C Noise tends to reduce the probability of effective communication. Noise refers to the amount of other messages competing for a potential consumer's attention, and this too varies across countries. 62) A Noise refers to the amount of other messages competing for a potential consumer's attention. In highly developed countries such as the United States and Germany, noise is extremely high. Fewer firms vie for the attention of prospective customers in developing countries, thus the noise level is lower. 63) D Fewer firms vie for the attention of prospective customers in developing countries, thus the noise level is lower. 64) C A push strategy emphasizes personal selling rather than mass media advertising in the promotional mix.

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65) B The main decision with regard to communications strategy is the choice between a push strategy and a pull strategy. A push strategy emphasizes personal selling rather than mass media advertising in the promotional mix. A pull strategy depends more on mass media advertising to communicate the marketing message to potential consumers. 66) D Firms in consumer goods industries that are trying to sell to a large segment of the market generally favor a pull strategy. Mass communication has cost advantages for such firms, thus they rarely use direct selling. 67) D Firms that sell industrial products or other complex products favor a push strategy. Direct selling allows the firm to educate potential consumers about the features of the product. 68) A Firms that sell industrial products or other complex products favor a push strategy. Direct selling allows the firm to educate potential consumers about the features of the product. 69) A The longer the distribution channel, the more intermediaries there are that must be persuaded to carry the product for it to reach the consumer. This can lead to inertia in the channel, which can make entry difficult. Using direct selling to push a product through many layers of a distribution channel can be expensive. 70) D

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A pull strategy relies on access to advertising media. In the United States, a large number of media are available, including print media (newspapers and magazines), broadcasting media (television and radio), and the Internet. The rise of cable television in the United States has facilitated extremely focused advertising. 71) A Push strategies tend to be emphasized for industrial products or complex new products, when distribution channels are short, and when few print or electronic media are available. 72) B Pull strategies tend to be emphasized for consumer goods, when distribution channels are long, and when sufficient print and electronic media are available to carry the marketing message. 73) D The support for global advertising is threefold. First, it has significant economic advantages. Standardized advertising lowers the costs of value creation by spreading the fixed costs of developing the advertisements over many countries. 74) C There are two main arguments against globally standardized advertising. First, cultural diversity makes it extremely difficult to develop a single advertising theme that is effective worldwide. Second, advertising regulations may block implementation of standardized advertising. 75) D

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Price discrimination exists whenever consumers in different countries are charged different prices for the same product, or for slightly different variations of the product. Price discrimination involves charging whatever the market will bear; in a competitive market, prices may have to be lower than in a market where the firm has a monopoly. 76) A Price discrimination exists whenever consumers in different countries are charged different prices for the same product, or for slightly different variations of the product. It involves charging whatever the market will bear; in a competitive market, prices may have to be lower than in a market where the firm has a monopoly. Price discrimination can help a company maximize its profits. It makes economic sense to charge different prices in different countries. 77) B Two conditions are necessary for profitable price discrimination. First, the firm must be able to keep its national markets separate. The second necessary condition for profitable price discrimination is different price elasticities of demand in different countries. 78) B If a firm is not able to keep its national markets separate, individuals or businesses may undercut its attempt at price discrimination by engaging in arbitrage. Arbitrage occurs when an individual or business capitalizes on a price differential for a firm's product between two countries by purchasing the product in the country where prices are lower and reselling it in the country where prices are higher. 79) D

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Arbitrage occurs when an individual or business capitalizes on a price differential for a firm's product between two countries by purchasing the product in the country where prices are lower and reselling it in the country where prices are higher. 80) E The price elasticity of demand is a measure of the responsiveness of demand for a product to change in price. Demand is said to be elastic when a small change in price produces a large change in demand; it is said to be inelastic when a large change in price produces only a small change in demand. 81) A The price elasticity of demand is a measure of the responsiveness of demand for a product to change in price. Demand is said to be elastic when a small change in price produces a large change in demand; it is said to be inelastic when a large change in price produces only a small change in demand. 82) C The price elasticity of demand is a measure of the responsiveness of demand for a product to change in price. Demand is said to be elastic when a small change in price produces a large change in demand; it is said to be inelastic when a large change in price produces only a small change in demand. 83) C In general, the more competitors there are, the greater consumers’ bargaining power will be and the more likely consumers will be to buy from the firm that charges the lowest price. Thus, many competitors cause high elasticity of demand. 84) D Version 1

The elasticity of demand for a product in a given country is determined by a number of factors, of which income level and competitive conditions are the two most important. Price elasticity tends to be greater in countries with low income levels. Consumers with limited incomes tend to be very price conscious; they have less to spend, so they look much more closely at price. 85) B Predatory pricing is the use of price as a competitive weapon to drive weaker competitors out of a national market. Once the competitors have left the market, the firm can raise prices and enjoy high profits. 86) D Multipoint pricing refers to the fact that a firm's pricing strategy in one market may have an impact on its rivals' pricing strategy in another market. Aggressive pricing in one market may elicit a competitive response from a rival in another market. 87) A Multipoint pricing refers to the fact that a firm's pricing strategy in one market may have an impact on its rivals' pricing strategy in another market. Aggressive pricing in one market may elicit a competitive response from a rival in another market. 88) A Many firms pursuing an experience curve pricing strategy on an international scale will price low worldwide in attempting to build global sales volume as rapidly as possible, even if this means taking large losses initially. Such a firm believes that in several years, when it has moved down the experience curve, it will be making substantial profits and have a cost advantage over its less-aggressive competitors. 89) A Version 1

Many firms pursuing anexperience curve pricing strategy on an international scale will price low worldwide in attempting to build global sales volume as rapidly as possible, even if this means taking large losses initially. Such a firm believes that in several years, when it has moved down the experience curve, it will be making substantial profits and have a cost advantage over its less aggressive competitors. 90) B A firm's freedom to set its own prices is constrained by antidumping regulations and competition policy. Both predatory pricing and experience curve pricing can run afoul of antidumping regulations. Dumping occurs whenever a firm sells a product for a price that is less than the cost of producing it. 91) D The movie industry and the financial industry are often thought of as industries in which global standardization of the marketing mix is the norm. However, while a financial services company may sell the same basic charge card service worldwide, utilize the same basic fee structure for that product, and adopt the same basic global advertising message, differences in national regulations still mean that it has to vary aspects of its communications strategy from country to country. 92) B A truly “globalized” product—a product that is 100 percent standardized across worldwide markets—is generally an illusion, but companies can come close by leveraging certain marketing mix attributes and customizing others. 93) E

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The “creative destruction” unleashed by technological change makes it critical that a firm stays on the leading edge of technology, lest it lose out to a competitor’s innovations. 94) A In today's world, competition is as much about technological innovation as anything else. The pace of technological change has accelerated since the Industrial Revolution in the eighteenth century, and it continues to do so today. The result has been a dramatic shortening of product life cycles. 95) C Ideas for new products are stimulated by the interactions of scientific research, demand conditions, and competitive conditions. Other things being equal, the rate of new-product development seems to be greater in countries where more money is spent on basic and applied research and development, underlying demand is strong, consumers are affluent, and competition is intense. 96) B Basic and applied research and development discovers new technologies and then commercializes them. Strong demand and affluent consumers create a potential market for new products. Intense competition among firms stimulates innovation as the firms try to beat their competitors and reap potentially enormous first-mover advantages that result from successful innovation. 97) C

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Tight cross-functional integration between R&D, production, and marketing can help a company to ensure that product development projects are driven by customer needs, new products are designed for ease of manufacture, development costs are kept in check, and time to market is minimized. 98) B For most of the post–World War II period, the country that ranked highest on these criteria was the United States. 99) A The team should be led by a “high-power” project manager who has high status within the organization and who has the power and authority required to get the financial and human resources the team needs to succeed. The leader should be dedicated primarily, if not entirely, to the project. The leader should be someone who believes in the project (a champion) and who is skilled at integrating the perspectives of different functions and at helping personnel from different functions and countries work together for a common goal. The leader should also be able to act as an advocate of the team to senior management. 100) C The members of a cross-functional team should have a number of attributes, including an ability to contribute functional expertise, high standing within their function, a willingness to share responsibility for team results, and an ability to put functional and national advocacy aside. It is generally preferable if core team members are 100 percent dedicated to the project for its duration. This ensures their focus on the project, not on the ongoing work of their function

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101)Business analytics can be focused on one of three core applications: descriptive, predictive, and prescriptive. Descriptive analytics refers to the use of relatively simple statistical techniques to describe what is contained in a dataset. For example, the descriptive statistics can be an age bar chart that is used to depict Starbucks customers in Uppsala, Sweden. Predictive analytics can be defined as the use of advanced statistical techniques (and software) to identify and build predictive models that can help to identify trends and relationships not readily observed in descriptive analyses. Prescriptive analytics can be defined as the use of management science methodologies (i.e., applied mathematical techniques) to guide a company in its endeavors to best use allocable resources. Student examples will vary.

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102)International market research is defined as the systematic collection, recording, analysis, and interpretation of data to provide knowledge that is useful for decision making in a global company. Compared with market research that is domestic only, international market research involves additional issues such as (1) translation of questionnaires and reports into appropriate foreign languages and (2) accounting for cultural and environmental differences in data collection. ● Defining the research objectives includes both (1) defining the research problem and (2) setting objectives for the international market research. ● Determining the data sources that will address specific research problems and ultimately achieve the objectives is often not an easy task, especially if the international market research spans more than one country market. ● Assessing the costs and benefits of the research often relates to the cost of collecting primary data that can address the research problem and objectives directly versus using available secondary data. ● Collecting the data simply refers to gathering data via primary or secondary methods that address the research problem and objectives that the global company has established. ● Analyzing and interpreting the research begins when the data have been collected. Assuming the survey is reliable and valid, whether the data come from primary or secondary data collection methods, analyzing and interpreting the data is an important step in the international market research process. ● Reporting the research findings is a way to communicate the overall results of the international market research project. Ultimately, the focus will be on how best to reach customers by addressing their needs, wants, and purchasing behavior.

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103)A product can be viewed as a bundle of attributes. The product attributes of a pizza would include the taste, the crispness or softness of the crust, the selection of toppings and the size. Products sell best when their attributes match consumer needs. If consumer needs are the same the world over, the company could simply sell the same pizza everywhere. However, since consumer needs and wants vary from country to country, depending on culture and the level of economic development, a firm’s ability to sell the same product is constrained. Student examples will vary. 104)Countries differ along a whole range of dimensions, including social structure, language, religion, and education. These differences have important implications for marketing strategy. The most important aspect of cultural differences is probably the impact of tradition. Tradition is particularly important in foodstuffs and beverages. For historical and idiosyncratic reasons, a range of other cultural differences exist among countries. However, there is some evidence of the trends Theodore Levitt talked about. Tastes and preferences are becoming more cosmopolitan. Coffee is gaining ground against tea in Japan and Great Britain, while American-style frozen dinners have become popular in Europe (with some fine-tuning to local tastes). Although some cultural convergence has occurred, particularly among the advanced industrial nations of North America and Western Europe, Levitt's global culture characterized by standardized tastes and preferences is still a long way off.

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105)There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, the number of households with refrigerators and freezers, and the number of two-income households. All these factors have changed shopping habits and facilitated the growth of large retail establishments sited away from traditional shopping areas. The last decade has seen consolidation in the global retail industry, with companies such as Walmart and Carrefour attempting to become global retailers by acquiring retailers in different countries. This has increased retail concentration.

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106)An exclusive distribution channel is one that is difficult for outsiders to access. For example, it is often difficult for a new firm to get access to shelf space in supermarkets. This occurs because retailers tend to prefer to carry the products of established manufacturers of foodstuffs with national reputations rather than gamble on the products of unknown firms. The exclusivity of a distribution system varies among countries. Japan's system is often held up as an example of a very exclusive system. In Japan, relationships among manufacturers, wholesalers, and retailers often go back decades. Many of these relationships are based on the understanding that distributors will not carry the products of competing firms. In return, the distributors are guaranteed an attractive markup by the manufacturer. As many U.S. and European manufacturers have learned, the close ties that result from this arrangement can make access to the Japanese market difficult. However, it is possible to break into the Japanese market with a new consumer product. Procter & Gamble did during the 1990s with its Joy brand of dish soap. P&G was able to overcome a tradition of exclusivity for two reasons. First, after two decades of lackluster economic performance, Japan is changing. In their search for profits, retailers are far more willing than they have been historically to violate the old norms of exclusivity. Second, P&G has been in Japan long enough and has a broad enough portfolio of consumer products to give it considerable leverage with distributors, enabling it to push new products out through the distribution channel.

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107)Channel quality refers to the expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international businesses. Although the quality of retailers is good in most developed nations, in emerging markets and less developed nations from Russia to Indonesia, channel quality is variable at best. The lack of a high-quality channel may impede market entry, particularly in the case of new or sophisticated products that require significant pointof-sale assistance and after-sales services and support. When channel quality is poor, an international business may have to devote considerable attention to upgrading the channel, for example, by providing extensive education and support to existing retailers, and in extreme cases by establishing its own channel. Thus, after pioneering its Apple retail store concept in the United States, Apple opened retail stores in several nations—including the United Kingdom, France, Germany, Japan, and China—to provide point-of-sales education, service, and support for its popular iPhone, iPad, and MacBook products. Apple believes that this strategy will help it to gain market share in these nations. 108)Cultural barriers can make it difficult to communicate messages across cultures. Because of cultural differences, a message that means one thing in one country may mean something quite different in another. The best way for a firm to overcome cultural barriers is to develop crosscultural literacy. In addition, it should use local input, such as a local advertising agency, in developing its marketing message. If the firm uses direct selling rather than advertising to communicate its message, it should develop a local sales force whenever possible. Cultural differences limit a firm's ability to use the same marketing message and selling approach worldwide. What works well in one country may be offensive in another.

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109) A subset of source effects is referred to ascountry of origin effects, or the extent to which the place of manufacturing influences product evaluations. Research suggests that the consumer may use country of origin as a cue when evaluating a product, particularly if he or she lacks more detailed knowledge of the product. However, source effects and country of origin effects are not always negative. French wine, Italian clothes, and German luxury cars benefit from nearly universal positive source effects. In such cases, it may pay a firm to emphasize its foreign origins. 110)The main decision with regard to communications strategy is the choice between a push strategy and a pull strategy. A push strategy emphasizes personal selling rather than mass media advertising in the promotional mix. Although effective as a promotional tool, personal selling requires intensive use of a sales force and is relatively costly. A pull strategy depends more on mass media advertising to communicate the marketing message to potential consumers. Although some firms employ only a pull strategy and others only a push strategy, still other firms combine direct selling with mass advertising to maximize communication effectiveness. Factors that determine the relative attractiveness of push and pull strategies include product type relative to consumer sophistication, channel length, and media availability.

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111)The optimal mix between push and pull strategies depends on product type and consumer sophistication, channel length, and media sophistication. Push strategies tend to be emphasized:· ● For industrial products or complex new products. ● When distribution channels are short. ● When few print or social media are available. Pull strategies tend to be emphasized: ● For consumer goods. ● When distribution channels are long. ● When sufficient print and social media are available to carry the marketing message. 112)The firm must be able to keep its national markets separate. If it cannot do this, individuals or businesses may undercut their attempt at price discrimination by engaging in arbitrage. Arbitrage occurs when an individual or business capitalizes on a price differential for a firm’s product between two countries by purchasing the product in the country where prices are lower and reselling it in the country where prices are higher. For example, many automobile firms have long practiced price discrimination in Europe. A Ford Escort once cost $2,000 more in Germany than it did in Belgium. This policy broke down when car dealers bought Escorts in Belgium and drove them to Germany, where they sold them at a profit for slightly less than Ford was selling Escorts in Germany. To protect the market share of its German auto dealers, Ford had to bring its German prices into line with those being charged in Belgium. Ford could not keep these markets separate, unlike in Britain where the need for right-hand-drive cars keeps the market separate from the rest of Europe.

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113)The elasticity of demand for a product in a given country is determined by a number of factors, of which income level and competitive conditions are the two most important. Price elasticity tends to be greater in countries with low income levels. Consumers with limited incomes tend to be very price conscious; they have less to spend, so they look much more closely at price. Thus, price elasticity for products such as computers is greater in countries such as India, where a computer is still a luxury item for a large portion of the population, compared to the United States, where it is now considered a necessity. The same is true of the software that resides on those computers; thus, to sell more software in India, Microsoft has had to introduce low-priced versions of its products into that market, such as Windows Starter Edition. 114)Many firms pursuing an experience curve pricing strategy on an international scale will price low worldwide in attempting to build global sales volume as rapidly as possible, even if this means taking large losses initially. Such a firm believes that, in several years when it has moved down the experience curve, it will be making substantial profits and have a cost advantage over its less aggressive competitors.

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115)Although a firm that is successful at developing new products may earn enormous returns, new product development has a high failure rate. The reasons for such high failure rates are various and include development of a technology for which demand is limited, failure to adequately commercialize promising technology, and inability to manufacture a new product cost effectively. Firms can reduce the probability of making such mistakes by insisting on tight crossfunctional coordination and integration among three core functions involved in the development of new products: research and development (R&D), marketing, and production. Tight cross-functional integration between R&D, production, and marketing can help a company to ensure that 1. Product development projects are driven by customer needs. 2. New products are designed for ease of manufacture. 3. Development costs are kept in check. 4. Time to market is minimized. Close integration between R&D and marketing is required to ensure that product development projects are driven by the needs of customers. A company's customers can be a primary source of new product ideas. Identification of customer needs, particularly unmet needs, can set the context within which successful product innovation occurs. As the point of contact with customers, the marketing function of a company can provide valuable information in this regard. Integration of R&D and marketing is crucial if a new product is to be properly commercialized. Without integration of R&D and marketing, a company runs the risk of developing products for which there is little or no demand.

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Integration between R&D and production can help a company design products with manufacturing requirements in mind. Designing for manufacturing can lower costs and increase product quality. Integrating R&D and production can also help lower development costs and speed products to market. If a new product is not designed with manufacturing capabilities in mind, it may prove too difficult to build. Then the product will have to be redesigned, and both overall development costs and the time it takes to bring the product to market may increase significantly. Making design changes during product planning could increase overall development costs by 50 percent and add 25 percent to the time it takes to bring the product to market. Many quantum product innovations require new processes to manufacture them, which makes it all the more important to achieve close integration between R&D and production. Minimizing time to market and development costs may require the simultaneous development of new products and new processes.

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TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Employee compensation and labor relations are functions associated with human resource management. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-01 Summarize the strategic role of human resource management in international Topic : The Strategic Role of International Human Resource Management

2) An expatriate manager is a citizen of one country who is working abroad in one of the firm’s subsidiaries. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-01 Summarize the strategic role of human resource management in international Topic : Challenges and Opportunities for Expatriate Workers

Organizational architecture refers to an organization's norms and value systems. ⊚ true ⊚ false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies

4) Ethnocentric staffing policies are in place when all key management positions are filled by parent-country nationals.

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⊚ ⊚

true false

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies Bloom's : Understand Difficulty : 2 Medium

5) A firm would pursue an ethnocentric staffing policy when it believes there are an abundance of qualified individuals from the host country to fill senior management positions. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies Bloom's : Understand Difficulty : 2 Medium

6) An international firm demonstrates cultural myopia when it adopts cross-cultural literacy policies and understands cultural differences in a host country. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies Bloom's : Understand Difficulty : 2 Medium

7) A polycentric approach to staffing might be less expensive to implement than an ethnocentric approach. ⊚ true ⊚ false

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8) For international firms, an ethnocentric staffing approach is compatible with a localization strategy. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies Bloom's : Understand Difficulty : 2 Medium

9) Citizens of a foreign country working in the home country of their multinational employer are known as inpatriates. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Challenges and Opportunities for Expatriate Workers Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings.

10) According to a study by R. L. Tung, the most indicated reason for expatriate failure among U.S. multinationals was a lack of technical competence. ⊚ true ⊚ false

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Challenges and Opportunities for Expatriate Workers Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings.

11) A person’s willingness to communicate is an important dimension in others-orientation, which was identified by Mendenhall and Oddou as a factor that predicts success in a foreign posting. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Challenges and Opportunities for Expatriate Workers Bloom's : Understand Difficulty : 2 Medium Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings.

12) It is important for the spouse of an expatriate manager, and perhaps the whole family, to be included in cultural training programs. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Challenges and Opportunities for Expatriate Workers Learning Objective : 17-04 Recognize how management development and training programs can increase th

13) Repatriation is the first step in integrating new international managers into the host country. ⊚ true ⊚ false

Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 17-04 Recognize how management development and training programs can increase th Topic : Training and Management Development

14) Bringing managers together in one location for extended periods and rotating them through different jobs in several countries help a firm build an informal management network. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-04 Recognize how management development and training programs can increase th Topic : Training and Management Development

15) Unintentional bias makes it easy to evaluate the performance of expatriate managers objectively. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : Challenges and Opportunities for Expatriate Workers Learning Objective : 17-05 Explain how and why performance appraisal systems might vary across nation

16) The balance sheet approach to expatriate pay is used for expatriates in lower economic postings to show how their reduced income level is in line with the economy where they are living. ⊚ true ⊚ false

Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 17-06 Understand how and why compensation systems might vary across nations. Topic : Compensation and Performance Appraisal Systems

17) An expatriate would receive a hardship allowance in order to ensure he or she will enjoy the same standard of living in the foreign posting as at home. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 17-06 Understand how and why compensation systems might vary across nations. Topic : Compensation and Performance Appraisal Systems

18) Unless a host country has a reciprocal tax treaty with the expatriate's home country, an expatriate must pay income tax to both the home- and host-country governments. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-06 Understand how and why compensation systems might vary across nations. Topic : Compensation and Performance Appraisal Systems

19) A concern of organized labor is that an international business will farm out highly skilled tasks to foreign plants. ⊚ true ⊚ false

Version 1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 17-07 Understand how organized labor can influence strategic choices in internat Topic : International Labor Relations

20) International trade secretariats have been highly successful in linking national unions in the automobile and steel industries. ⊚ true ⊚ false Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-07 Understand how organized labor can influence strategic choices in internat Topic : International Labor Relations

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 21) Which of these people is considered an expatriate manager? A) Kendra is a citizen of Israel who works in the U.S. in one of her firm's subsidiaries. B) Johanna is a parent-country national who works in the parent country along with her family. C) Stefan is a host-country national in Italy who works in Italy. D) Any person who lives in a foreign country. E) Mitchell is willing to work in different departments of a foreign firm.

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-01 Summarize the strategic role of human resource management in international Topic : Challenges and Opportunities for Expatriate Workers AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard

Version 1

22) Kendrik, a U.S. citizen, is the operations manager at the Middle East office of Creston Builders Inc., an American firm. In this situation, Kendrik is a(n) __________ manager. A) repatriate B) host-country C) inpatriate D) expatriate E) virtual

23) Sun-Jun Sata, a Japanese citizen who works for Al-Asia Corp. in Japan, has been asked to head the company's sales office in the United States. Upon taking the assignment, Sun-Jun will be a(n) __________ manager. A) repatriate B) host-country C) inpatriate D) expatriate E) virtual

Version 1

24) Which aspect of organizational architecture is considered the linchpin that brings together all of the other components? A) culture B) people C) processes D) structure E) product

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Learning Objective : 17-01 Summarize the strategic role of human resource management in international Bloom's : Understand Difficulty : 2 Medium Topic : Overview of Organizational Structure and Design

25) Liam Fletcher of Next Step Financial Group works in the human resource department and is responsible for developing criteria for matching prospective employees to available jobs. What is Liam responsible for? A) compensation policy B) staffing policy C) performance appraisal policy D) training policy E) management development policy

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard

Version 1

26) At a job fair, a recruiter explained to Marcia that his company not only looks for employees who have college degrees and work experience, but also those who have the same beliefs and value systems as the company. What aspect of the company is the recruiter referring to? A) corporate social responsibility B) cultural toughness C) cultural sensitivity D) corporate culture E) perceptual ability

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard Topic : Elements of Culture

27) Which staffing policy is concerned with filling all key management positions by parentcountry nationals? A) ethnocentric B) global C) polycentric D) geocentric E) transnational

Version 1

28) London Town Teas, Inc. is a British multinational company with operations in 22 countries around the world. It is the company’s policy to staff all the key positions in foreign operations with managers from Great Britain. What type of staffing policy does the company use? A) ethnocentric B) global C) polycentric D) geocentric E) transnational

29) In an Italian leather goods company, all the top management positions in international operations are held by Italian nationals. What is the staffing policy followed by this company? A) eurocentric B) ethnocentric C) polycentric D) geocentric E) transnational

Version 1

30) So Sweet Soda, a Swedish beverage company, prides itself on its corporate culture that it has developed over a twenty-year period and believes it is a key to its competitive advantage. What staffing policy will the company likely follow if it expands to Germany? A) eurocentric B) ethnocentric C) polycentric D) geocentric E) transnational

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application

31) A U.S.–based company set up operations in Indonesia and determined that there wasn’t a qualified applicant pool in Jakarta to fill its senior management positions. What staffing policy will the company most likely follow? A) eurocentric B) ethnocentric C) polycentric D) geocentric E) transnational

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application

32)

What is a characteristic of an ethnocentric staffing policy?

Version 1

A) It requires host-country nationals to be recruited to manage subsidiaries. B) It is used when a firm places a low value on its corporate culture. C) It increases advancement opportunities for host-country nationals. D) It seeks the best people for key jobs throughout the organization, regardless of nationality. E) It places parent-country nationals in key management positions.

33) Iroquois Brands, a Singapore-based gemstone company, continuously expands into Africa to source and process commodities. The company finds that many of these countries lack advanced higher education institutions, and thus decides to pursue an ethnocentric senior staffing policy in Africa. This is most likely because the management of Iroquois Brands A) believes in providing growth opportunities to host-country nationals. B) wants to avoid cultural myopia. C) believes host counties lack qualified individuals for senior management positions. D) wants to keep all core competencies within the home country. E) wants to build strong informal management networks in all its subsidiaries.

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application

Version 1

34) Happy Pet Foods, a German manufacturer, did not succeed in its international ventures because it used its domestic marketing mix "as-is" in foreign markets. This failure to understand host-country cultural differences that require different approaches to marketing and management is referred to as A) cultural parity. B) cultural myopia. C) power distance. D) cultural toughness. E) cultural polarization.

35) The expatriate managers of Vivant, an Italian leader in women’s apparel, followed the same domestic marketing and management practices in foreign markets as their colleagues did in France. As a result, Vivant’s international expansion failed because the company suffers from A) a masculine culture. B) cultural myopia. C) power distance. D) cultural toughness. E) low ambiguity.

Version 1

36) Garret Plastics, a United States-based company, is clear-cut in its human resources policy with regard to international expansion. While U.S. nationals staff key positions at its Atlanta, Georgia, headquarters, it recruits locals to manage subsidiaries in each country into which Garret expands. Garret Plastics’ staffing policy is A) geocentric. B) polycentric. C) ethnocentric. D) global. E) transnational.

37)

What is an advantage of a polycentric staffing approach?

A) It is less expensive to implement as compared to other staffing approaches. B) It gives host-country nationals unlimited opportunities to gain experience outside their own country. C) It increases career mobility. D) It increases interaction between the headquarters of a firm and its foreign subsidiaries. E) It bridges the gap between host-country managers and parent-country managers.

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38) Charleston Ceramics, a U.S. dinnerware products company, follows a polycentric staffing approach, and key positions at the company's U.S. headquarters are staffed by U.S. nationals while foreign subsidiaries are managed by locals. While the company’s international business has grown exponentially in the past five years, greater competition in the United States has caused this office to see a decline in sales and many top U.S. managers are leaving the company. What drawback to a polycentric approach might explain this? A) It is expensive to implement. B) It leads managers to make mistakes due to cultural misunderstandings. C) It limits advancement opportunities for managers. D) It invariably makes a firm suffer from cultural myopia. E) It bridges the gap between the headquarters of a firm and its foreign subsidiaries.

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application

39) A(n) __________ approach to staffing limits career mobility and isolates headquarters from foreign subsidiaries. A) polycentric B) transnational C) geocentric D) ethnocentric E) global

Version 1

40) Preston Audio, a German audio equipment manufacturer, has a policy of appointing the best person for the job in its various locations regardless of the candidate's nationality. Which staffing policy best describes Preston Audio’s approach? A) local B) ethnocentric C) geocentric D) polycentric E) transnational

41)

How is a geocentric staffing policy beneficial to a firm? A) It requires the firm to provide little or no documentation to hire a foreign national. B) It is inexpensive to implement. C) It helps the firm follow a localization strategy. D) It allows all key management positions to be filled by parent-country nationals. E) It enables the firm to make the best use of its human resources.

42) There are vast differences in local market needs in the consumer energy drink business around the world. Tall Trees Media, a U.S. multinational advertising agency, specializes in the energy drink industry and uses a geocentric staffing approach. What advantage would the company gain by using this approach? Version 1

A) It tends to reduce cultural myopia and enhance local responsiveness. B) It is inexpensive to implement. C) It reduces the costs of value creation. D) It allows all key management positions of a firm and its subsidiaries to be filled by parent-country nationals. E) It requires minimal documentation for hiring foreign nationals.

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-02 Identify the pros and cons of different approaches to staffing policy in i Topic : International Staffing Policies Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application

43) Countries such as the United States and China require extensive documentation if firms wish to hire a foreign national instead of a local national. This is an important consideration for Ripe Grape Wines, an Australian wine maker, as it decides on its staffing policy for international expansion. What staffing approach would be most affected by this type of limitation? A) polycentric B) geocentric C) transnational D) ethnocentric E) local

44)

What is a disadvantage of adopting a geocentric staffing approach?

Version 1

A) Cultural myopia negatively influences effective management control. B) Training and relocation costs increase when transferring managers from country to country. C) Host-country nationals cannot progress beyond senior positions in their own subsidiary. D) A gap forms between host-country managers and parent-country managers. E) The lack of management transfers leads to a lack of integration between corporate headquarters and foreign subsidiaries.

45) A(n) __________ staffing approach is compatible with an international strategy but can produce resentment in the host country. A) ethnocentric B) geocentric C) polycentric D) transnational E) ethical

46) A(n) __________ is compatible with a geocentric staffing policy, but immigration policies might limit the implementation of this strategy.

Version 1

A) global standardization strategy B) localization strategy C) international strategy D) TQM strategy E) JIT strategy

47)

What staffing policy relies extensively on the use of expatriate managers? A) global B) polycentric C) transnational D) ethnocentric E) home-country

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : International Staffing Policies Bloom's : Understand Difficulty : 2 Medium Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings.

48) __________ refers to a subset of expatriates who are citizens of a foreign country working in the home country of their multinational employer.

Version 1

A) Virtual expatriates B) Inpatriates C) Third-country nationals D) Host-country nationals E) Parent-country nationals

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Topic : International Staffing Policies Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings.

49) Alejandro, a citizen of Mexico, is working as a manager in the Mexico City branch of an American firm. Due to his efficiency, he was assigned a temporary posting at the headquarters of the firm in Cleveland, Ohio. In this situation, Alejandro is known as a(n) A) repatriate. B) inpatriate. C) third-country national. D) expatriate failure. E) parent-country national.

Question Details Accessibility : Keyboard Navigation Topic : International Staffing Policies Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings. AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard

50) Which staffing policy requires all the expatriates to be home-country nationals who are transferred abroad?

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A) geocentric B) ethnocentric C) polycentric D) international E) domestic

51)

Expatriate failure refers to A) the premature return of an expatriate manager to his or her home country. B) the demise of a foreign direct investment opportunity. C) the return of exported goods due to damage from transport. D) the emotional transition all expatriates go through. E) a lack of technical competence among foreign nationals.

52) According to the results of a seminal study by R. L. Tung, what was the major reason for expatriate failure among European expatriates?

Version 1

A) personal or emotional problems B) inability to cope with overseas responsibilities C) poor pay D) inability of spouse to adjust to a new environment E) lack of technical competence

53) According to the results of a seminal study by R. L. Tung, the top reason why Japanese expatriate managers fail is A) the inability of their spouses to adjust. B) the lack of technical competence. C) their personal or emotional problems. D) the inability to cope with larger overseas responsibilities. E) their inability to deal with difficulties in the new environment.

54) In her fifteen-year career at Freeman Electronics, Bethany’s work did not require any travel at all. Actually, Bethany has never traveled outside of the United States. However, she has excelled at her job and is good at communicating with everyone in the firm. An important position has opened in the company’s Dubai operations, and the company is considering Bethany to fill it. According to Mendenhall and Oddou, which attribute would seem unlikely to predict success in this situation? Version 1

A) Bethany’s ability to project self-orientation B) equating Bethany’s domestic performance with overseas potential C) an others-orientation demonstrated by Bethany D) the ability to empathize shown by Bethany E) Bethany’s level of cultural toughness

Question Details Accessibility : Keyboard Navigation Topic : International Staffing Policies Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings. Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application

55) According to Mendenhall and Oddou, what dimension for predicting success in a foreign posting strengthens an expatriate's self-esteem, self-confidence, and mental well-being? A) cultural toughness B) others-orientation C) perceptual ability D) self-orientation E) empathy

56) Natalie is considered an excellent candidate for the foreign job posting because she is self-confident and demonstrates strong self-esteem. Mendenhall and Oddou would label these characteristics as

Version 1

A) perceptual ability. B) self-orientation. C) others-orientation. D) cultural toughness. E) empathy.

Question Details Accessibility : Keyboard Navigation Topic : Challenges and Opportunities for Expatriate Workers Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings. AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard

57) According to Mendenhall and Oddou's dimensions that predict success in a foreign posting, an individual exhibiting an others-orientation would A) be able to only use the home-country language. B) display low self-esteem. C) be more focused on self. D) be unable to adjust to a foreign posting. E) have the ability to interact with host-country nationals.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Topic : Challenges and Opportunities for Expatriate Workers Bloom's : Understand Difficulty : 2 Medium Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings.

58) According to Mendenhall and Oddou's dimensions that predict success in a foreign posting, what is a result of the attribute of others-orientation?

Version 1

A) The expatriate has high self-esteem. B) The expatriate empathizes with the host-country nationals. C) The expatriate makes an effort to use the local language. D) The expatriate adjusts to the inhospitable climate of the host country. E) The expatriate is comfortable working in a male-dominated environment.

59) According to Mendenhall and Oddou, __________ provides an expatriate the ability to understand why people of other countries behave the way they do. A) cultural toughness B) perceptual ability C) self-orientation D) others-orientation E) willingness to communicate

60) Jarek was promoted to the international post because he had the ability to “put himself in another person’s shoes” and understand why people in other countries behave the way they do. Which of Mendenhall and Oddou’s dimensions does Jarek display?

Version 1

A) self-orientation B) cultural myopia C) perceptual ability D) ethnocentrism E) cultural toughness

61) When Adhira, an expatriate manager for Weston Mfg., went to work in the company's Thailand operations, she was often frustrated when her staff showed up thirty minutes late for meetings and did not have an explanation for their tardiness. She didn’t understand why her staff in Thailand didn’t behave like her staff had in the home office. According to Mendenhall and Oddou, an expatriate manager like Adhira who tends to treat Thai nationals as if they were home-country nationals lacks the dimension of A) cultural toughness. B) self-orientation. C) power distance. D) perceptual ability. E) willingness to communicate.

62) According to Mendenhall and Oddou, what dimension refers to the relationship between the country of assignment and how well an expatriate adjusts to a particular posting? Version 1

A) self-orientation B) perceptual ability C) cultural toughness D) others-orientation E) willingness to communicate

63) Anna, an American manager who began working in the Middle East at her company office six months ago, is successfully adjusting to the new country where the culture is extremely male-dominated. According to Mendenhall and Oddou, what dimension that predicts success in foreign postings does Anna demonstrate? A) perceptual ability B) others-orientation C) cultural toughness D) self-orientation E) empathy

64) Janice doesn’t know if she can adjust to the poor health care, lower housing standards, and inhospitable climate in the foreign country where she has recently been assigned. Which of Mendenhall and Oddou's four dimensions that predict success in a foreign posting does Janice need to acquire? Version 1

A) perceptual ability B) cultural toughness C) self-orientation D) others-orientation E) self-confidence

Question Details Accessibility : Keyboard Navigation Topic : Challenges and Opportunities for Expatriate Workers Learning Objective : 17-03 Explain why managers may fail to thrive in foreign postings. Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application

65) In a study by International Orientation Resources, it was shown that 90 percent of the time employees were selected on the basis of their A) level of education. B) technical expertise. C) cultural diversity. D) flexibility E) cultural toughness.

66)

Companies use __________ to build a manager's skills over his or her career with a firm.

Version 1

A) ethnocentrism B) cultural toughness C) total quality management D) management development E) organizational norms

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-04 Recognize how management development and training programs can increase th Topic : Training and Management Development

67) When Tyrell accepted the job in England, he and his family received information on the best roads to take to get their children to school, where to shop for groceries, and referrals for medical and dental care. What kind of training did they receive? A) cognitive B) practical C) language D) cultural E) ethical

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-04 Recognize how management development and training programs can increase th Topic : Training and Management Development AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard

68)

Repatriation refers to

Version 1

A) sending expatriate managers to a new host country. B) training expatriate managers to adjust to the new environment of the host country. C) reentry of expatriate managers into their home-country organization. D) helping expatriate managers build rapport with local employees. E) increasing expatriate managers' effectiveness in dealing with host-country nationals.

69) As the human resources manager, John knows it is important for the company to develop a program for expatriates who return to work at the home office. What type of program is John referring to? A) standardization B) inpatriation C) repatriation D) localization E) appreciation

70) During performance appraisals at Nolan Corp., both the host-nation managers and the home-office managers evaluate the performance of expatriate managers. A company might do this to avoid the problem of

Version 1

A) cultural conflict. B) unintentional bias. C) operational errors. D) overcompensation. E) culture shock.

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-05 Explain how and why performance appraisal systems might vary across nation Topic : Compensation and Performance Appraisal Systems AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard

71) Corinne is a manager at the Iowa home office of Better Grains Group. She is gathering information about the company’s international subunits and has profitability figures and market share analysis, which she plans to use in her performance appraisal when she meets with the expatriate manager next week in Brazil. What type of information is Corinne using for her appraisal? A) qualitative data B) soft data C) biased data D) hard data E) secondary data

72) According to the survey by Towers Watson, which country provides the highest pay to CEOs?

Version 1

A) Switzerland B) United States C) Japan D) Australia E) Argentina

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-06 Understand how and why compensation systems might vary across nations. Topic : Compensation and Performance Appraisal Systems

73)

The most common approach to expatriate pay is called the __________ approach. A) balance sheet B) premium incentive C) salary D) credit statement E) commission

74) A(n) __________ staffing policy is pursued by firms where the lack of managers' mobility among national operations implies that the pay for expatriates should be kept countryspecific.

Version 1

A) regional B) ethnocentric C) geocentric D) polycentric E) domestic

75) A(n) __________ staffing policy is concerned with the need for a cadre of international managers that may include many different nationalities and raises the question “should all members receive the same pay and incentives?” A) polycentric B) geocentric C) ethnocentric D) domestic E) regional

Version 1

76) Kyle works for a large U.S. corporation that has operations in more than 30 countries. Currently, there is conflict among the international managers, as they feel that they are not being compensated fairly and claim that U.S. managers like Kyle are paid more because they come from countries with a higher cost of living. The firm is deciding whether or not to equalize the pay for all managers regardless of country of origin. What type of staffing policy does this company have in place? A) polycentric B) geocentric C) ethnocentric D) domestic E) regional

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-06 Understand how and why compensation systems might vary across nations. Topic : Compensation and Performance Appraisal Systems AACSB : Reflective Thinking Bloom's : Apply Difficulty : 3 Hard

77) The __________ approach to expatriate pay equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. A) merit B) receivables C) balance sheet D) purchasing parity E) commission

Version 1

78)

In the context of expatriate compensation, what is the role of a balance sheet approach?

A) It equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. B) It helps expatriate managers and their families to adjust to the day-to-day life of the host country. C) It rewards expatriates on the basis of merit and performance. D) It helps promote goodwill among all managers regardless of posting. E) It is offered as an inducement to accept foreign postings and live away from family.

79)

What staffing policy limits a firm's ability to reduce its use of expatriates? A) geocentric B) polycentric C) transnational D) regiocentric E) neocentric

80) __________ refers to the extra pay an expatriate receives for working outside his or her country of origin. Version 1

A) Parity adjustment B) Cost of living allowance C) Foreign service premium D) Expat allowance E) Dividend

81) As an enticement to accept a new job position within her company, Kendra is offered a $10,000 “bonus” if she transfers from the San Diego office to the Tokyo office. This “bonus” is called a(n) A) allowance. B) balance sheet approach. C) commission. D) parity adjustment. E) foreign service premium.

82)

In terms of expatriate pay, what is a characteristic of a foreign service premium?

Version 1

A) It ensures that expatriates' children receive adequate schooling. B) It helps to evaluate expatriates' performance without any unintentional bias. C) It ensures that expatriates are prepared for reentry into their home-country organization. D) It is paid as a percentage of base salary, with 16 percent being the average premium. E) It allows a firm to pay expatriates' income tax in the host country.

83) William has accepted a position at his company’s office in South Africa. This will be a challenge to him as he currently works out of the U.S. office and will not have basic amenities like retail stores and comparable health care in his new location. His company plans to offer him a(n) __________ allowance to compensate for these deficiencies. A) education B) housing C) hardship D) cost of living E) reciprocal

Question Details Accessibility : Keyboard Navigation Learning Objective : 17-06 Understand how and why compensation systems might vary across nations. Topic : Compensation and Performance Appraisal Systems Bloom's : Apply Difficulty : 3 Hard AACSB : Knowledge Application

84)

When a reciprocal tax treaty is in place, how does an expatriate benefit?

Version 1

A) They may not have to pay income tax to both host and home governments. B) They do not have to pay any income tax. C) They have to pay income tax at a lower rate to the host-country government. D) They have to pay income tax at a higher rate to the home-country government. E) They pay 50 percent more tax to the host-country government.

85) In terms of expatriate pay, what does a firm typically do when a reciprocal tax treaty is not in force? A) The firm requires the expatriate to pay one-third of the income tax to the host-country government. B) The firm requires the expatriate to pay 50 percent of the income tax to the hostcountry government. C) The firm pays the expatriate's income tax to the host-country government. D) The firm requires the expatriate to pay the income tax to both the host-country and home-country governments. E) The firm pays the expatriate's income tax to the home-country government.

86) Within an international business, __________ is typically responsible for international labor relations.

Version 1

A) public relations B) human resource management C) finance and accounting D) legal E) logistics

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-07 Understand how organized labor can influence strategic choices in internat Topic : International Labor Relations

87)

In the context of international labor relations, what is true of organized labor?

A) It supports the pursuit of a transnational standardization strategy. B) It supports the pursuit of a global standardization strategy. C) It increases unintentional bias in evaluating performance of expatriate managers. D) It limits a firm's ability to integrate and consolidate its global operations. E) It reduces a firm's ability to understand host-country cultural differences that require different approaches to marketing.

88)

Unions garner their bargaining power mostly through

Version 1

A) the ability to increase tax rates. B) tying wages to product quality. C) the power to import labor from abroad. D) the threat to disrupt production. E) the retention of low-skilled tasks in home country.

89)

One concern of organized labor is that an international business

A) usually increases the bargaining power of organized labor. B) keeps highly-skilled tasks in its home country and farms out only low-skilled tasks to foreign plants. C) faces difficulty in switching production from one location to another. D) does not import employment practices and contractual agreements from its home country. E) signs a reciprocal tax treaty with the host country.

90) In the context of international labor relations, one of the reasons for a decline in union influence is the

Version 1

A) introduction of a reciprocal tax treaty. B) retention of low-skilled tasks in an international firm's home country. C) importing of employment practices and contractual agreements that are alien to the host country. D) increased bargaining power of organized labor. E) increased ability to threaten to disrupt production, either by a strike or some other form of work protest.

91) One way organized labor responds to the increased bargaining power of multinational corporations is by trying to A) impose regulations on multinationals through organizations such as GATT. B) achieve international regulations on multinationals through the United Nations. C) establish regional boards. D) lobby multinational corporations to restrict their global reach to three or fewer foreign countries. E) develop a local trade forum.

92) Which group was established by organized labor in the 1960s to provide worldwide links for national unions in particular industries?

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A) HR watchdog groups B) international trade secretariats C) unorganized labor organizations D) international orientation resources E) reciprocal tax treaties

93) In the 1960s, organized labor believed that by coordinating union action across countries through an international trade secretariat, it could counter the power of a multinational corporation by A) threatening to disrupt production on an international scale. B) introducing a reciprocal tax treaty. C) trying to farm out highly skilled tasks back to the home country of the firm. D) increasing its bargaining power. E) lobbying for importing employment practices from the home country of the firm.

94)

One impediment to cooperation between national unions is the

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A) retention of highly skilled tasks in the host country. B) reciprocal tax treaty. C) wide variation in the structure and ideology of unions. D) common perception unions have about multinational companies. E) decreasing bargaining power of multinational companies.

95) International businesses differ in terms of their approaches to international labor relations, mainly in the degree to which A) labor relations activities are centralized or decentralized. B) labor relations are formal or informal. C) labor relations are given a high priority or a low priority. D) labor relations are internally or externally managed. E) firms follow a polycentric or geocentric staffing policy.

96) Japanese automakers have realized that __________ can be a source of competitive advantage, and, as a result, Japanese firms bargain directly with local labor unions to incorporate this into the work practice before agreeing to operations.

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A) low-cost products B) how work is organized C) customization D) technology transfer E) how employees are paid

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 97) Describe human resource management.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : 1 Easy Learning Objective : 17-01 Summarize the strategic role of human resource management in international Topic : The Strategic Role of International Human Resource Management

98) Compare and contrast the ethnocentric, polycentric, and geocentric approaches to staffing for international businesses. Discuss the role of cultural myopia within the ethnocentric staffing policy.

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99) Explain the difference between an expatriate and an inpatriate manager. Provide a hypothetical example of each.

100) What is expatriate failure? According to Tung's survey, what are the different reasons for expatriate failure in U.S. multinationals?

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101)

Discuss the dimension identified by Mendenhall and Oddou known as perceptual ability.

102) Discuss the cultural, language, and practical training that is used to help reduce expatriate failure.

103)

What is repatriation? Why is it important?

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104) Describe how management development programs can increase the value of human capital in an international business firm.

105) Discuss how distance and lack of experience can create problems in a home country manager’s appraisal of an expatriate manager.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : 2 Medium Learning Objective : 17-05 Explain how and why performance appraisal systems might vary across nation Topic : Compensation and Performance Appraisal Systems

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106) Briefly describe how national differences in compensation can affect an international business.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Understand Learning Objective : 17-06 Understand how and why compensation systems might vary across nations. Topic : Compensation and Performance Appraisal Systems Difficulty : 3 Hard

107)

Discuss the four types of allowances provided in an expatriate compensation package.

108) Discuss some of the reasons why a diverse workforce will improve performance of a company.

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109) How has organized labor responded to the increased bargaining power of multinational corporations?

110)

Describe the different approaches that international businesses take to labor relations.

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Answer Key Test name: Hill_17 1) TRUE 2) TRUE 3) FALSE 4) TRUE Research has identified three types of staffing policies in international businesses: the ethnocentric approach, the polycentric approach, and the geocentric approach. Anethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. 5) FALSE 6) FALSE 7) TRUE 8) FALSE 9) TRUE 10) FALSE 11) TRUE Others-orientation. The attributes of this dimension enhance the expatriate’s ability to interact effectively with host-country nationals. The more effectively the expatriate interacts with host-country nationals, the more likely he or she is to succeed. Two factors seem to be particularly important here: relationship development and willingness to communicate. 12) TRUE 13) FALSE 14) TRUE 15) FALSE Version 1

16) FALSE 17) FALSE 18) TRUE 19) FALSE 20) FALSE 21) A An expatriate manager is a citizen of one country who is working abroad in one of the firm's subsidiaries. Human resource management must deal with a host of issues related to expatriate managers. 22) D An expatriate manager is a citizen of one country who is working abroad in one of the firm's subsidiaries. Human resource management must deal with a host of issues related to expatriate managers. 23) D An expatriate manager is a citizen of one country who is working abroad in one of the firm's subsidiaries. Human resource management must deal with a host of issues related to expatriate managers. 24) B Of the five components of organizational architecture: structure, incentives and controls, culture, processes, and people, it is people that are considered the linchpin that brings all of the other components together. 25) B Staffing policy is concerned with the selection of employees for particular jobs. This involves selecting individuals who have the skills required to do particular jobs. 26) D

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Corporate culture is the organization's norms and value systems. A strong corporate culture can help a firm implement its strategy. 27) A An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time. Firms such as Procter & Gamble, Philips, and Panasonic originally followed it. 28) A An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time. 29) B An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time. 30) B Firms pursue an ethnocentric policy for many reasons. One of them is when the firm sees an ethnocentric staffing policy as the best way to maintain a unified corporate culture. Such reasoning tends to predominate when a firm places a high value on its corporate culture. 31) B Firms pursue an ethnocentric staffing policy for various reasons. One of them is when the firm believes the host country lacks qualified individuals to fill senior management positions. 32) E

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An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time. 33) C Firms pursue an ethnocentric staffing policy for three reasons. First, the firm may believe the host country lacks qualified individuals to fill senior management positions. Second, the firm may see an ethnocentric staffing policy as the best way to maintain a unified corporate culture. Third, it wants to transfer core competencies to a foreign operation. 34) B An ethnocentric policy can lead to cultural myopia, the firm's failure to understand host-country cultural differences that require different approaches to marketing and management. The adaptation of expatriate managers can take a long time, during which they may make major mistakes. 35) B An ethnocentric policy can lead to cultural myopia, the firm's failure to understand host-country cultural differences that require different approaches to marketing and management. The adaptation of expatriate managers can take a long time, during which they may make major mistakes. 36) B A polycentric staffing policy requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. In many respects, a polycentric approach is a response to the shortcomings of an ethnocentric approach. 37) A

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One advantage of adopting a polycentric staffing policy is that a polycentric approach may be less expensive to implement, reducing the costs of value creation. 38) C A polycentric approach has its drawbacks. Managers have limited opportunities to gain experience outside their own country and thus cannot progress beyond senior positions in their own subsidiary. 39) A The major drawback with a polycentric staffing approach is the gap that can form between host-country managers and parent-country managers. In addition, host-country nationals have limited opportunities to gain experience outside their own country and thus cannot progress beyond senior positions in their own subsidiary. Language barriers, national loyalties, and a range of cultural differences may isolate the corporate headquarters staff from the various foreign subsidiaries. 40) C A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. In sum, other things being equal, a geocentric staffing policy seems the most attractive. 41) E A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. It enables the firm to make the best use of its human resources. 42) A

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A geocentric staffing policy enables the firm to build a cadre of international executives who feel at home working in a number of cultures. The multinational composition of the management team that results from geocentric staffing tends to reduce cultural myopia and to enhance local responsiveness. 43) B A number of problems limit a firm's ability to pursue a geocentric policy. Most countries, including the United States, require firms to provide extensive documentation if they wish to hire a foreign national instead of a local national. This documentation can be time-consuming, expensive, and at times futile. 44) B A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. It can be expensive to implement. Training and relocation costs increase when transferring managers from country to country. 45) A Broadly speaking, an ethnocentric approach is compatible with an international strategy, a polycentric approach is compatible with a localization strategy, and a geocentric approach is compatible with both global standardization and transnational strategies. 46) A Broadly speaking, an ethnocentric approach is compatible with an international strategy, a polycentric approach is compatible with a localization strategy, and a geocentric approach is compatible with both global standardization and transnational strategies. 47) D

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Two of the three staffing policies—the ethnocentric and the geocentric—rely on extensive use of expatriate managers. Expatriates are citizens of one country who are working in another country. 48) B Expatriates are citizens of one country who are working in another country. The term "inpatriates" is used to identify a subset of expatriates who are citizens of a foreign country working in the home country of their multinational employer. 49) B The term "inpatriates" is used to identify a subset of expatriates who are citizens of a foreign country working in the home country of their multinational employer. 50) B Two of the three staffing policies—the ethnocentric and the geocentric—rely on extensive use of expatriate managers. With an ethnocentric staffing policy, the expatriates are all home-country nationals who are transferred abroad. 51) A A prominent issue in the international staffing literature is expatriate failure—the premature return of an expatriate manager to his or her home country. 52) D In a seminal study, R. L. Tung surveyed a number of U.S., European, and Japanese multinationals. She asked her sample of multinational managers to indicate reasons for expatriate failure. Managers of European firms gave only one reason consistently to explain expatriate failure: the inability of the manager's spouse to adjust to a new environment. Version 1

53) D In a seminal study, R. L. Tung surveyed a number of U.S., European, and Japanese multinationals. She asked her sample of multinational managers to indicate reasons for expatriate failure. For Japanese firms, the reasons for failure were: (1) inability to cope with larger overseas responsibilities (2) difficulties with new environment (3) personal or emotional problems (4) lack of technical competence (5) inability of spouse to adjust. 54) B One way to reduce expatriate failure rates is by improving selection procedures to screen out inappropriate candidates. In a review of the research on this issue, Mendenhall and Oddou state that a major problem in many firms is that HRM managers tend to equate domestic performance with overseas performance potential. They identified four dimensions which are better predictors: self-orientation, othersorientation, perceptual ability and cultural toughness. 55) D From their review of the research, Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: selforientation, others-orientation, perceptual ability, and cultural toughness. The attributes of self-orientation strengthen the expatriate's self-esteem, self-confidence, and mental well-being. 56) B Self-orientation. The attributes of this dimension strengthen the expatriate’s self-esteem, self-confidence, and mental well-being. Expatriates with high self-esteem, self-confidence, and mental wellbeing were more likely to succeed in foreign postings. 57) E

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Others-orientation. The attributes of this dimension enhance the expatriate’s ability to interact effectively with host-country nationals. The more effectively the expatriate interacts with host-country nationals, the more likely he or she is to succeed. Two factors seem to be particularly important here: relationship development and willingness to communicate. 58) C Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. The attributes of othersorientation enhance the expatriate's ability to interact effectively with host-country nationals. Willingness to communicate refers to the expatriate's willingness to use the host-country language. 59) B Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Perceptual ability is the ability to understand why people of other countries behave the way they do, that is, the ability to empathize. 60) C Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Perceptual ability refers to the ability to understand why people of other countries behave the way they do, that is, the ability to empathize. 61) D

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Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Perceptual ability seems critical for managing host-country nationals. Expatriate managers who lack this ability tend to treat foreign nationals as if they were homecountry nationals. 62) C Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Cultural toughness refers to the relationship between the country of assignment and how well an expatriate adjusts to a particular posting. 63) C Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Cultural toughness refers to the relationship between the country of assignment and how well an expatriate adjusts to a particular posting. Many cultures are extremely male-dominated and may be particularly difficult postings for female Western managers. 64) B According to Mendenhall and Oddou, cultural toughness refers to the relationship between the country of assignment and how well an expatriate adjusts to a particular posting. Poor health care and housing standards, inhospitable climate, lack of Western entertainment, and language difficulties make expatriates low in cultural toughness. 65) B

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Research by International Orientation Resources suggests that when selecting employees for foreign assignments, only 10 percent of the 50 Fortune 500 firms surveyed tested for important psychological traits such as cultural sensitivity, interpersonal skills, adaptability, and flexibility. Instead, 90 percent of the time employees were selected on the basis of their technical expertise, not their cross-cultural fluency. 66) D Selection is just the first step in matching a manager with a job. The next step is training the manager to do the specific job. Management development is intended to develop the manager's skills over his or her career with the firm. 67) B Practical training is aimed at helping the expatriate manager and family ease themselves into day-to-day life in the host country. The sooner a routine is established, the better are the prospects that the expatriate and his or her family will adapt successfully. One critical need is for a support network of friends for the expatriate. 68) C A largely overlooked but critically important issue in the training and development of expatriate managers is to prepare them for reentry into their home-country organization. Repatriation should be seen as the final link in an integrated, circular process that connects good selection and cross-cultural training of expatriate managers with completion of their term abroad and reintegration into their national organization. 69) C

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Repatriation should be seen as the final link in an integrated, circular process that connects good selection and cross-cultural training of expatriate managers with completion of their term abroad and reintegration into their national organization. However, instead of coming home to share their knowledge and encourage other highperforming managers to take the same international career track, expatriates too often face a different scenario. 70) B Unintentional bias makes it difficult to evaluate the performance of expatriate managers objectively. In many cases, two groups evaluate the performance of expatriate managers—host-nation managers and homeoffice managers—and both are subject to bias. The host-nation managers may be biased by their own cultural frame of reference and expectations. 71) D Home-office managers are often not aware of what is going on in a foreign operation. Accordingly, they tend to rely on hard data in evaluating an expatriate’s performance, such as the subunit’s productivity, profitability, or market share. 72) B Differences exist in the compensation of executives at the same level in various countries. The results of a survey undertaken by Towers Watson, for example, suggest that U.S. CEOs earn, on average, roughly double the pay of non-U.S. CEOs. 73) A The most common approach to expatriate pay is the balance sheet approach. 74) D

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National differences in compensation raise a perplexing question for an international business: Should the firm pay executives in different countries according to the prevailing standards in each country, or should it equalize pay on a global basis? For polycentric firms, the lack of managers' mobility among national operations implies that pay can and should be kept country-specific. 75) B The problem of compensation is very real in firms with geocentric staffing policies. A geocentric staffing policy is consistent with a transnational strategy. One aspect of this policy is the need for a cadre of international managers that may include many different nationalities. 76) B The problem of compensation is very real in firms with geocentric staffing policies. A geocentric staffing policy is consistent with a transnational strategy. One aspect of this policy is the need for a cadre of international managers that may include many different nationalities. If the firm does not equalize pay, it could cause considerable resentment among foreign nationals who are members of the international cadre and work with U.S. nationals. 77) C The most common approach to expatriate pay is the balance sheet approach. This approach equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. In addition, the approach provides financial incentives to offset qualitative differences between assignment locations. 78) A

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The most common approach to expatriate pay is the balance sheet approach. It equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. 79) A Because of the high cost of expatriates, many firms have reduced their use of expatriates in recent years. However, a firm's ability to reduce its use of expatriates may be limited, particularly if it is pursuing an ethnocentric or geocentric staffing policy. 80) C A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin. It is offered as an inducement to accept foreign postings. It compensates the expatriate for having to live in an unfamiliar country isolated from family and friends, having to deal with a new culture and language, and having to adapt to new work habits and practices. 81) E A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin. It is offered as an inducement to accept foreign postings. 82) D A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin. Many firms pay foreign service premiums as a percentage of base salary, ranging from 10 to 30 percent after tax, with 16 percent being the average premium. 83) C

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Four types of allowances are often included in an expatriate's compensation package: hardship, housing, cost of living, and education. A hardship allowance is paid when the expatriate is being sent to a difficult location, usually defined as one where such basic amenities as health care, schools, and retail stores are grossly deficient by the standards of the expatriate's home country. 84) A Unless a host country has a reciprocal tax treaty with the expatriate's home country, the expatriate may have to pay income tax to both the home- and host-country governments. When a reciprocal tax treaty is not in force, the firm typically pays the expatriate's income tax in the host country. 85) C Unless a host country has a reciprocal tax treaty with the expatriate's home country, the expatriate may have to pay income tax to both the home- and host-country governments. When a reciprocal tax treaty is not in force, the firm typically pays the expatriate's income tax in the host country. 86) B The human resource management function of an international business is typically responsible for international labor relations. From a strategic perspective, the key issue in international labor relations is the degree to which organized labor can limit the choices of an international business. 87) D A firm's ability to integrate and consolidate its global operations to realize experience curve and location economies can be limited by organized labor, constraining the pursuit of a transnational or global standardization strategy. Version 1

88) D Labor unions generally try to get better pay, greater job security, and better working conditions for their members through collective bargaining with management. Unions’ bargaining power is derived largely from their ability to threaten to disrupt production, either by a strike or some other form of work protest. 89) B Labor unions generally try to get better pay, greater job security, and better working conditions for their members through collective bargaining with management. A concern of organized labor is that an international business will keep highly skilled tasks in its home country and farm out only low-skilled tasks to foreign plants. 90) C Labor unions generally try to get better pay, greater job security, and better working conditions for their members through collective bargaining with management. A union concern arises when an international business attempts to import employment practices and contractual agreements from its home country. When these practices are alien to the host country, organized labor fears the change will reduce its influence and power. As a result, union influence declines. 91) B Organized labor has responded to the increased bargaining power of multinational corporations by taking three actions: (1) trying to establish international labor organizations, (2) lobbying for national legislation to restrict multinationals, and (3) trying to achieve international regulations on multinationals through such organizations as the United Nations. 92) B

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In the 1960s, organized labor began to establish international trade secretariats (ITSs) to provide worldwide links for national unions in particular industries. The long-term goal was to be able to bargain transnationally with multinational firms. 93) A Organized labor believed that by coordinating union action across countries through an ITS, it could counter the power of a multinational corporation by threatening to disrupt production on an international scale. 94) C An impediment to cooperation has been the wide variation in union structure. Trade unions developed independently in each country. As a result, the structure and ideology of unions tend to vary significantly from country to country, as does the nature of collective bargaining. 95) A International businesses differ markedly in their approaches to international labor relations. The main difference is the degree to which labor relations activities are centralized or decentralized. Historically, most international businesses have decentralized international labor relations activities to their foreign subsidiaries because labor laws, union power, and the nature of collective bargaining varied so much from country to country. 96) B

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The realization is growing that the way work is organized within a plant can be a major source of competitive advantage. Much of the competitive advantage of Japanese automakers, for example, has been attributed to the use of self-managing teams, job rotation, cross-training, and the like in their Japanese plants. To achieve this, the headquarters of many Japanese firms bargains directly with local unions to get union agreement to changes in work rules before committing to an investment. 97) Human resource management (HRM) refers to the activities an organization carries out to use its human resources effectively. These activities include determining the firm's human resource strategy, staffing, performance evaluation, management development, compensation, and labor relations. None of these activities is performed in a vacuum; all are related to the strategy of the firm. HRM has an important strategic component. Through its influence on the character, development, quality, and productivity of the firm's human resources, the HRM function can help the firm achieve its primary strategic goals of reducing the costs of value creation and adding value by better serving customers.

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98)An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. Firms pursue an ethnocentric staffing policy for three reasons. First, the firm may believe the host country lacks qualified individuals to fill senior management positions. Second, the firm may see an ethnocentric staffing policy as the best way to maintain a unified corporate culture. Third, if the firm is trying to create value by transferring core competencies to a foreign operation, it may believe that the best way to do this is to transfer parentcountry nationals who have knowledge of that competency to the foreign operation. An ethnocentric policy can lead to cultural myopia—the firm’s failure to understand host-country cultural differences that require different approaches to marketing and management. The adaptation of expatriate managers can take a long time, during which they may make major mistakes. For example, expatriate managers may fail to appreciate how product attributes, distribution strategy, communications strategy, and pricing strategy should be adapted to host-country conditions. The result may be costly blunders. A polycentric staffing policy requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. One advantage of adopting a polycentric approach is that the firm is less likely to suffer from cultural myopia. Another advantage of the polycentric approach is that it is less expensive to implement. A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. There are several advantages to this approach. First, it enables the firm to make the best use of its human resources. Second, a geocentric policy enables the firm to build a cadre of international executives who feel at home working in a number of cultures. The multinational composition of the management team that results from geocentric staffing tends to reduce cultural Version 1

myopia and to enhance local responsiveness. 99) An expatriate manager is a citizen of one country who is working abroad in one of his or her firm's subsidiaries. The terminpatriates is sometimes used to identify a subset of expatriates who are citizens of a foreign country working in the home country of their multinational employer. Student examples will vary. 100)Expatriate failure refers to the premature return of an expatriate manager to his or her home country. It represents a failure of the firm's selection policies to identify individuals who will not thrive abroad. In a seminal study, R. L. Tung surveyed a number of U.S., European, and Japanese multinationals. For U.S. multinationals, the main reasons for expatriate failure are (in order of importance): (1) Inability of spouse to adjust. (2) Manager's inability to adjust. (3) Other family problems. (4) Manager's personal or emotional maturity. (5) Inability to cope with larger overseas responsibilities.

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101) This is the ability to understand why people of other countries behave the way they do—that is, the ability to empathize. This dimension seems critical for managing host-country nationals. Expatriate managers who lack this ability tend to treat foreign nationals as if they were home-country nationals. As a result, they may experience significant management problems and considerable frustration. As one expatriate executive from Hewlett-Packard observed, as reported by in the Mendenhall and Oddou study: “It took me six months to accept the fact that my staff meetings would start 30 minutes late, and that it would bother no one but me.” According to Mendenhall and Oddou, welladjusted expatriates tend to be nonjudgmental and nonevaluative in interpreting the behavior of host-country nationals and willing to be flexible in their management style, adjusting it as cultural conditions warrant.

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102) Cultural training seeks to foster an appreciation for the host country’s culture. The belief is that understanding a host country’s culture will help the manager empathize with the culture, which will enhance his or her effectiveness in dealing with host-country nationals. It has been suggested that expatriates should receive training in the host country’s culture, history, politics, economy, religion, and social and business practices. English is the language of world business; it is quite possible to conduct business all over the world using only English. Notwithstanding the prevalence of English, however, an exclusive reliance on English diminishes an expatriate manager’s ability to interact with host-country nationals. As noted earlier, a willingness to communicate in the language of the host country, even if the expatriate is far from fluent, can help build rapport with local employees and improve the manager’s effectiveness. Despite this, one study of 74 executives of U.S. multinationals found that only 23 believed knowledge of foreign languages was necessary for conducting business abroad. Practical training is aimed at helping the expatriate manager and family ease themselves into day-to-day life in the host country. The sooner a routine is established, the better are the prospects that the expatriate and his or her family will adapt successfully. One critical need is for a support network of friends for the expatriate.

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103)A largely overlooked but critically important issue in the training and development of expatriate managers is to prepare them for reentry into their home-country organization. Repatriation should be seen as the final link in an integrated, circular process that connects good selection and cross-cultural training of expatriate managers with completion of their term abroad and reintegration into their national organization. However, instead of having employees come home to share their knowledge and encourage other high-performing managers to take the same international career track, expatriates often face a different scenario. Often when expatriates return home, they face an organization that does not know what they have done for the past few years, does not know how to use their new knowledge, and does not particularly care. Sometimes, reentering employees have to scrounge for jobs, or firms will create standby positions that do not use the expatriate's skills and capabilities and fail to make the most of the business investment the firm has made in that individual. The key to solving this problem is good human resource planning. Just as the human resource management function needs to develop good selection and training programs for its expatriates, it also needs to develop good programs for reintegrating expatriates back into work life within their home-country organization, for preparing them for changes in their physical and professional landscape, and for utilizing the knowledge they acquired while abroad.

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104)Selection is just the first step in matching a manager with a job. The next step is training the manager to do the specific job. However, management development is a much broader concept. It is intended to develop the manager's skills over his or her career with the firm. Thus, as part of a management development program, a manager might be sent on several foreign postings over a number of years to build his or her cross-cultural sensitivity and experience. At the same time, along with other managers in the firm, the person might attend management education programs at regular intervals. The thinking behind job transfers is that broad international experience will enhance the management and leadership skills of executives. Research suggests this may be the case. Historically, most international businesses have been more concerned with training than with management development. Plus, they tended to focus their training efforts on preparing home-country nationals for foreign postings. Recently, however, the shift toward greater global competition and the rise of transnational firms have changed this. It is increasingly common for firms to provide general management development programs in addition to training for particular posts. In many international businesses, the explicit purpose of these management development programs is strategic. Management development is seen as a tool to help the firm achieve its strategic goals, not only by giving managers the required skill set, but also by helping reinforce the desired culture of the firm and by facilitating the creation of an informal network for sharing knowledge within the multinational enterprise.

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105) Home-country managers’ appraisals may be biased by distance and by their own lack of experience working abroad. Home-office managers are often not aware of what is going on in a foreign operation. Accordingly, they tend to rely on hard data in evaluating an expatriate’s performance, such as the subunit’s productivity, profitability, or market share. Such criteria may reflect factors outside the expatriate manager’s control (e.g., adverse changes in exchange rates, economic downturns). Also, hard data do not take into account many less visible soft variables that are also important, such as an expatriate’s ability to develop crosscultural awareness and to work productively with local managers. Due to such biases, many expatriate managers believe that headquarters management evaluates them unfairly and does not fully appreciate the value of their skills and experience. This could be one reason many expatriates believe a foreign posting does not benefit their careers. In one study of personnel managers in U.S. multinationals, 56 percent of the managers surveyed stated that a foreign assignment is either detrimental or immaterial to one’s career.

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106)Substantial differences exist in the compensation of executives at the same level in various countries. These differences raise the question: Should the firm pay executives in different countries according to the prevailing standards in each country, or should it equalize pay on a global basis? The problem does not arise in firms pursuing ethnocentric or polycentric staffing policies. In ethnocentric firms, the issue can be reduced to that of how much home-country expatriates should be paid. As for polycentric firms, the lack of managers' mobility among national operations implies that pay can and should be kept country-specific. However, this problem is very real in firms with geocentric staffing policies. A geocentric staffing policy is consistent with a transnational strategy. One aspect of this policy is the need for a cadre of international managers that may include many different nationalities. If the firm does not equalize pay, it could cause considerable resentment among foreign nationals who are members of the international cadre and work with U.S. nationals. If a firm is serious about building an international cadre, it may have to pay its international executives the same basic salary irrespective of their country of origin or assignment. Currently, however, this practice is not widespread. Many firms have moved toward a compensation structure that is based on consistent global standards, with employees being evaluated by the same grading system and having access to the same bonus pay and benefits structure irrespective of where they work.

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107) Four types of allowances are often included in an expatriate’s compensation package: hardship, housing, cost of living, and education. A hardship allowance is paid when the expatriate is being sent to a difficult location, usually defined as one where such basic amenities as health care, schools, and retail stores are grossly deficient by the standards of the expatriate’s home country. A housing allowance is normally given to ensure that the expatriate can afford the same quality of housing in the foreign country as at home. In locations where housing is expensive (e.g., London, Tokyo), this allowance can be substantial— as much as 10 to 30 percent of the expatriate’s total compensation package. A cost-of-living allowance ensures that the expatriate will enjoy the same standard of living in the foreign posting as at home. An education allowance ensures that an expatriate’s children receive adequate schooling (by home-country standards). Host-country public schools are sometimes not suitable for an expatriate’s children, in which case they must attend a private school.

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108)There are a number of reasons for thinking that a diverse workforce will improve performance. First, diverse talents bring insights into the needs of a diverse customer base that (for example) a homogenous management group composed exclusively of white males cannot. Due to their different perspective and life experiences, women and minorities may see things that white males don’t. People with different lifestyles and different backgrounds challenge each other more, which can lead to creative insights. This can result in improved problem solving, better product design and delivery, more effective marketing, and better sales promotions. Second, an enterprise with a homogenous employee base is underutilizing the talent to be found among women and minorities. Its human capital will not be a strong as it could be, and performance will suffer as a result. Third, when the customer set is diverse (as is often the case for many global businesses), those customers may appreciate interacting with an enterprise whose employees look like them, and therefore, have a better understanding of their needs, tastes, and preference. Fourth, a diverse workforce may improve the brand image of an enterprise, setting up a virtuous circle where it does better among its customer set and is more able to attract top talent from among women and minorities. Finally, there is evidence that diversity increases employee satisfaction, which results in higher productivity, so long as the workforce is diverse enough. For minority workers, the boost in satisfaction kicks in when representation exceeds 15 percent of the workforce. In contrast, when diversity recruitment is a token effort, psychological outcomes are poorer.

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109)Organized labor has responded to the increased bargaining power of multinational corporations by taking three actions: (1) trying to establish international labor organizations, (2) lobbying for national legislation to restrict multinationals, and (3) trying to achieve international regulations on multinationals through such organizations as the United Nations. These efforts have not been very successful. In the 1960s, organized labor began to establish international trade secretariats (ITSs) to provide worldwide links for national unions in particular industries. The long-term goal was to be able to bargain transnationally with multinational firms. Organized labor believed that by coordinating union action across countries through an ITS, it could counter the power of a multinational corporation by threatening to disrupt production on an international scale. However, the ITSs have had virtually no real success. Although national unions may want to cooperate, they also compete with each other to attract investment from international businesses, and hence jobs for their members. A further impediment to cooperation has been the wide variation in union structure. Trade unions developed independently in each country. As a result, the structure and ideology of unions tend to vary significantly from country to country, as does the nature of collective bargaining.

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110)International businesses differ markedly in their approaches to international labor relations. The main difference is the degree to which labor relations activities are centralized or decentralized. Historically, most international businesses have decentralized international labor relations activities to their foreign subsidiaries because labor laws, union power, and the nature of collective bargaining varied so much from country to country. It made sense to decentralize the labor relations function to local managers. The belief was that there was no way central management could effectively handle the complexity of simultaneously managing labor relations in a number of different environments. Although this logic still holds, the trend is toward greater centralized control. This trend reflects international firms' attempts to rationalize their global operations. The general rise in competitive pressure in industry after industry has made it more important for firms to control their costs. Because labor costs account for such a large percentage of total costs, some firms are now using the threat to move production to another country in their negotiations with unions to change work rules and limit wage increases. Because such a move would involve major new investments and plant closures, this bargaining tactic requires the input of headquarters management. Thus, the level of centralized input into labor relations is increasing. In addition, the realization is growing that the way work is organized within a plant can be a major source of competitive advantage.

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