TEST BANK For International Business: Competing in the Global Marketplace, 14th Edition By Charles H by welldoneassistant

CHAPTER 1 1)

Discuss the characteristics of globalization. Use an example in your discussion.

2) Explain what is meant by the globalization of markets. Provide an example. What are the most global markets?

Discuss the concept of the globalization of production.

What is the World Trade Organization? What is its role in the world economy?

Version 1

5) What is the International Monetary Fund? What is the World Bank? What is their relationship, if any, with each other?

What is the Uruguay Round? List the measures implemented in the Uruguay Round.

Explain the trends in world trade and foreign direct investment since 1960.

Explain how the COVID-19 global pandemic has impacted globalization.

Discuss the impact of technological change and automation on global markets.

Version 1

10) Discuss the demographics of world trade since the 1960s. How has the role of the United States changed? How is world trade expected to change in the future?

11) Why does China represent both opportunities and threats for established international businesses?

12) Consider whether the shift toward a more integrated and interdependent global economy is a good thing. Discuss the shift from the eyes of the consumer, the worker, the company, and the environmentalist.

Version 1

13) Discuss what occurred in Seattle in 1999 at the meeting of the WTO and why the events were important to the future of global trade.

14) Falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies. Discuss this statement. Do you agree? Why or why not?

15) Why is managing an international business different from managing a purely domestic business?

16) What are some of the issues a manager of an international business must confront that a manager of a domestic business never confronts?

Version 1

17) __________ refers to the shift toward a more integrated and interdependent world economy. A) Outsourcing B) International marketing C) Privatization D) Globalization

18) In 2008 and 2009, the __________ became the forum through which major nations attempted to launch a coordinated policy response to the global financial crisis, which started in America. A) United Nations B) Group of Seven (G7) C) Group of Twenty (G20) D) World Trade Organization

19)

Which factor has contributed to the globalization of markets? A) a decrease in foreign direct investment B) global convergence of consumer tastes and preferences C) an increase in cross-border barriers to trade D) the trend to separate a homogeneous market into separate national markets

20)

Globalization has resulted in A) less interdependence between national economies. B) an increase in the use of outsourcing. C) a collective material culture becoming more diverse. D) increasing barriers to cross-border trade.

Version 1

21)

Which factor hinders globalization of consumer goods market? A) national and cultural differences in tastes and preferences B) increasing incomes in emerging markets C) homogenization of material culture D) increased outsourcing of goods and services

22)

Globalization of markets results in markets becoming A) less interdependent. B) less diverse. C) more protected. D) less competitive.

23) A U.S. investment firm set up a customer service call center in India to take advantage of lower labor costs. This is called A) homogenizing markets. B) vertical integration. C) outsourcing. D) horizontal integration.

24)

Early outsourcing efforts were primarily confined to A) health care. B) service activities. C) technological research. D) manufacturing activities.

Version 1

25) What impedes firms from achieving the optimal dispersion of their productive activities to locations around the globe? A) transportation costs B) government deregulations C) reduction of barriers to trade between countries D) reduction of barriers to foreign direct investment

26)

The General Agreement on Tariffs and Trade (GATT) was responsible for A) protecting government-owned enterprises. B) promoting free trade and reducing trade barriers. C) limiting nuclear testing. D) promoting environment friendly technology.

27) The __________ is primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by member states. A) International Development Association B) World Bank C) International Court of justice D) World Trade Organization

28)

The World Trade Organization promotes A) the lowering of barriers to cross-border trade and investment. B) the development of poor nations through low-interest loans. C) state ownership of major enterprises. D) the regulation of national economies.

Version 1

29)

Which statement is true about the International Monetary Fund (IMF)?

A) It is primarily responsible for policing the world trading system. B) It is seen as the lender of last resort to nation-states whose economies are in turmoil. C) It is responsible for establishing multinational treaties to govern the global business system. D) It was established to formulate a coordinated policy response to financial crises in developing nations.

30) The __________ was established on October 24, 1945, by 51 countries committed to preserving peace through international cooperation and collective security. A) World Trade Organization B) United Nations C) G20 D) World Bank

31)

The G20 was originally established to A) preserve peace through international cooperation and collective security. B) maintain order in the international monetary system. C) formulate a coordinated policy response to financial crises in developing nations. D) manage, regulate, and police the global marketplace.

32)

Which item is a factor of production? A) tariffs B) transportation costs C) capital D) government

Version 1

33) Which institution focuses on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments? A) the WTO B) the GATT C) the World Bank D) the IMF

34)

Which institution was established to maintain order in the international monetary system? A) the WTO B) the G20 C) the World Bank D) the IMF

35)

Which statement is true of the International Monetary Fund (IMF)?

A) It is often seen as the lender of first choice to nation-states whose economies are in turmoil. B) Its loans come with no strings attached. C) It is the less controversial of the two sister institutions, the IMF and the World Bank. D) It has emerged as a significant player in the global economy.

36) The volume of world merchandise trade and production is growing faster than world GDP. This implies that

Version 1

A) more firms are dispersing their production processes to global locations. B) the economies of the world’s nation-states are becoming more independent from each other. C) the global economy is headed for a large downward correction. D) the world is becoming poorer.

37) __________ occurs when a firm exports goods or services to consumers in another country. A) International trade B) Foreign direct investment C) Inward investment D) Outsourcing

38)

The negotiations in the Uruguay Round of GATT led to A) an easing of lending restrictions for cash-strapped nation-states. B) enhanced protection for patents, trademarks, and copyrights. C) increased trade barriers. D) reduced coverage of services and manufactured goods.

39) __________ predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months. A) Keynes’s Law B) Say’s Law C) Moore’s Law D) Sullivan Principle

Version 1

40)

Containerization has revolutionized the transportation business by A) reducing the time needed to get from one location to another. B) simplifying the transportation process and lowering the cost of shipping goods. C) providing a means for buyers and sellers to find each other easily in a global economy. D) offering enterprises to coordinate and control a globally dispersed production system.

41)

The volume of world trade in merchandised goods has been A) growing at the same rate as world GDP. B) growing faster than world GDP. C) growing slower than world GDP. D) declining faster than world GDP.

42) Smith Global Industries has decided to invest resources in business activities outside its home country. This is called A) foreign direct investment (FDI). B) direct international investment (DII). C) international trade (IT). D) foreign direct production (FDP).

43)

In 2009, the financial crisis in the United States was triggered by A) the global hike in the price of crude oil. B) the slowdown in U.S. imports, due to political pressure. C) liberal lending policies by U.S. banks to homeowners. D) the artificial fixing of the currency rate by China.

Version 1

44) The relative decline of the United States in the share of world output and world exports reflects A) an increase in the barriers to foreign trade in the United States. B) the deepening of the global financial crisis. C) the reduced industrialization in developing nations. D) the growth in the economic development of emerging markets and other industrialized countries.

45)

Why did many Japanese firms invest in North America and Europe in the 1970s?

A) to avoid a highly competitive domestic market B) to exploit high domestic tariff barriers C) to provide a hedge against unfavorable currency movements and imposition of trade barriers D) to take advantage of the removal of all trade barriers

46) Throughout the 1990s, the amount of foreign direct investment directed at both developed and developing nations increased dramatically. This trend reflects A) a slowdown in global economic activity. B) the increasing share of the United States in the total FDI stock. C) the decline in cross-border flows of foreign direct investment. D) the increasing internationalization of business corporations.

47) Which country has been the largest recipient of foreign direct investment and, in 2020, received about $250 billion in inflows? A) Brazil B) Russia C) India D) China

Version 1

48)

Procter & Gamble is a multinational enterprise (MNE), which is a firm that A) exports its products to multiple countries. B) owns business operations in more than one country. C) does most of its business on the Internet. D) lists its securities on a public exchange.

49) Since the 1960s, what has been a notable trend in the demographics of the multinational enterprise? A) the decline of multinational companies in the manufacturing sector B) the growth of government-owned multinational enterprises C) the decline of non-U.S. multinationals D) the growth of mini-multinationals

50)

In the last two decades, Latin American countries such as Brazil, Mexico, and Chile have A) embraced communist principles. B) promoted government ownership of enterprises. C) experienced increasing debt and inflation. D) welcomed foreign investment.

51)

What is a risk associated with globalization? A) restrictions on competition B) global financial contagion C) excessive market regulation D) differentiation of markets

Version 1

52)

The rise in the number of mini-multinationals means that

A) small businesses are becoming increasingly involved in international trade and investment. B) it is increasingly difficult to enter the large multinational market. C) countries are working together to minimize MNE influence. D) there is greater state involvement in industry.

53)

The downside of increased globalization is A) global financial contagions are less likely. B) a severe crisis in one region can affect the entire globe. C) one nation may become too powerful. D) the potential for increased exploitation of undeveloped nations by developed nations.

54)

During the past two decades, change in Latin America has been characterized by A) an increase in debt. B) hyperinflation. C) the sale of state-owned enterprises to private investors. D) protests against foreign investment.

55)

If China continues to move toward greater free market reforms it A) may move from being an industrial superpower to a struggling economy. B) will likely see a decrease in GDP per capita. C) may move from a third-world business giant to an industrial superpower. D) will likely give global market share to Western and Japanese enterprises.

Version 1

56) To be classified as an MNE, a company must have productive activities in at least ____________ countries. A) two B) three C) ten D) twenty

57) Supporters of globalization maintain that the apparent decline in real wage rates of unskilled workers A) is due to technological changes and automation that create greater demand for skilled workers. B) is due to the migration of low-wage manufacturing jobs offshore. C) can be checked by increasing government ownership of enterprises. D) can be checked by limiting free trade and foreign investment.

58) Several studies published by the Organisation for Economic Co-operation and Development (OECD) noted that A) the real household income of unskilled workers in the United States increased more in comparison to that of skilled workers. B) in almost all countries real income levels declined over the 20-year period studied. C) the falling unemployment rates brought gains to low-wage workers and fairly broadbased wage growth. D) the gap between the poorest and richest segments of society in some OECD countries had widened.

59) A number of econometric studies have found consistent evidence of a hump-shaped relationship between income levels and pollution levels. According to this, as an economy grows and income levels rise Version 1

A) initially pollution levels remain low. B) after a while, pollution levels decrease. C) pollution levels also rise in proportion to the economic growth. D) there is increasing industrialization, which leads to greater pollution.

60)

The trade agreement known as NAFTA was passed only after A) China agreed to establish a higher minimum wage. B) the United States agreed to limit the number of jobs that could be outsourced. C) Mexico committed to tougher enforcement of environmental protection regulations. D) Canada committed to establish new limits on FDI.

61)

Globalization is criticized because it increases the power of A) governments to own enterprises. B) unskilled labor to form labor unions. C) supranational organizations over nation-states. D) nation-states to regulate markets and reduce competition.

62) The World Trade Organization has estimated that the developed nations of the world can raise global economic welfare by $128 billion by A) removing subsidies given to their agricultural producers. B) increasing tariff barriers to trade in agriculture. C) increasing outsourcing of manufacturing processes. D) reducing defense expenditure.

63) Which factor is viewed by large segments of the population in many countries as a detrimental effect of globalization? Version 1

A) job growth in industries under attack from foreign competitors B) upward pressure on the wage rates of unskilled workers C) environmental degradation D) cultural isolationism of global media and MNEs

64) While the hump-shaped relationship between income levels and pollution levels seems to hold across a wide range of pollutants, _________ represent an important exception. A) sulfur dioxide emissions B) lead concentrations C) carbon dioxide emissions D) water quality standards

65)

Based on several studies, the data suggest that real wages

A) for unskilled workers have decreased while real wages for skilled workers have increased. B) for both skilled and unskilled labor have decreased. C) for both skilled and unskilled labor have increased. D) for unskilled workers have increased while real wages for skilled worker have decreased.

66) Why has little progress has been made toward the ambitious goals set at the 1992 Earth Summit in Rio de Janeiro? A) China has shown a strong appetite to adopt tighter pollution controls. B) Political cooperation in the U.S. Congress promotes domestic action. C) There is a culture of denial in the United States. D) Trade liberalization efforts have not been rolled back.

Version 1

67)

The two largest emitters of carbon dioxide are A) China and the United States. B) China and the United Kingdom. C) Canada and the United States. D) Mexico and the United States.

68)

How would economists characterize the relationship between globalization and poverty?

A) Globalization has improved the lot of the world’s poorer nations which has led to an overall decrease in poverty. B) Globalization has caused the gap between rich and poor nations to shrink and poverty levels to decline. C) Globalization has caused an increase in poverty as well as an increase in the gap between rich and poor nations. D) The movement of labor to developed nations because of globalization has contributed significantly to the increase in poverty.

69)

Which statement is true of “highly indebted poorer countries” (HIPCs)?

A) About 100 nations fall in this category. B) The average debt burden has never been more than 75 percent of the value of the HIPC's economy. C) Servicing heavy debt leaves HIPCs with little left to invest in public infrastructure. D) The annual cost of serving debt consumes about 30 percent of HIPC export earnings.

70)

Supporters of debt relief for HIPCs

Version 1

A) argue that free trade alone is sufficient to bring HIPCs out of poverty. B) argue that new democratic governments should be forced to honor debts incurred by previous corrupt predecessors. C) are energized by high-profile endorsements from Bono, the Dalai Lama, and Jeffrey Sachs. D) are working against the policies of the IMF and World Bank.

71)

An international business, unlike a multinational enterprise, A) needs to have manufacturing units in at least two foreign nations. B) needs to manufacture products or provide services that target a global market. C) need not customize its products to the requirements of national markets. D) need not invest directly in operations in other countries.

72)

Exotic Collectibles is an international business. As such, it A) needs to have manufacturing units in at least two foreign nations. B) needs to manufacture products or provide services that target a global market. C) need not customize its products to the requirements of national markets. D) invests in international trade or investment.

73)

Which statement is true regarding an international business?

A) An international business needs to invest directly in operations in other countries. B) An international business needs to have homogenous practices across countries. C) An international business can be managed in the same way that a domestic business is managed. D) An international business must find ways to work within the limits imposed by government intervention.

Version 1

74)

How does managing an international business differ from managing a domestic business? A) International managers are more experienced. B) Countries differ in their cultures and systems. C) Countries want to do business with their neighbors. D) Countries want to keep their transactions simple.

75)

Which statement is characteristic of an international businesses? A) All MNEs are international businesses. B) Only firms that export products are international businesses. C) Only firms that invest abroad are international businesses. D) All international businesses are MNEs.

76) Managing an international business is different from managing a purely domestic business because A) countries prefer to keep business transactions between domestic partners. B) the range of problems confronted is wider and more complex. C) international businesses have an added layer of U.N. regulations. D) international transactions involve exchanging currencies through each country’s treasury.

77) Since Mercury Machine is a medium-size business, it would not benefit from globalization. ⊚ true ⊚ false

Version 1

78) By sourcing goods and services from around the globe, companies may lower their overall cost structure or improve the quality or functionality of their product offering. ⊚ true ⊚ false

79) Manufacturers of industrial goods and materials are more likely to participate in global markets than producers of consumer products. ⊚ true ⊚ false

80)

Outsourcing is a process that is limited to manufacturing enterprises. ⊚ true ⊚ false

81) The World Bank has focused on policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties. ⊚ true ⊚ false

82) Nations faced with a financial crisis can turn to the World Bank, known as the lender of last resort, to bail it out. ⊚ true ⊚ false

83) One of the UN's central mandates is to make sure nation-states adhere to the rules laid down in trade treaties signed by member states. ⊚ true ⊚ false

Version 1

84) As part of the negotiations in the General Agreement on Tariffs and Trade, the Uruguay Round, finalized in December 1993, enhanced protection for patents, trademarks, and copyrights. ⊚ true ⊚ false

85) "Beggar thy neighbor" retaliatory trade policies involved countries progressively increasing trade barriers against each other, which contributed to the Great Depression of the 1930s. ⊚ true ⊚ false

86) Thera-sure Inc., a U.S.-based manufacturer of temperature regulators, sets up a production unit in Korea to take advantage of the lower labor costs there. This is an example of foreign direct investment. ⊚ true ⊚ false

87) The value of foreign direct investment has steadily declined over the past few decades due in part to increased barriers placed on companies wanting to invest overseas. ⊚ true ⊚ false

88) World events such as the COVID-19 global pandemic have forced companies to open operations in many parts of the world rather than invest in local production to try to offset disruptions in global supply chains. ⊚ true ⊚ false

Version 1

89) One result of the globalization of markets and the resulting growth of world trade, foreign direct investment, and imports is the increasing competition in domestic markets from foreign competitors. ⊚ true ⊚ false

90) The cost of microprocessors continues to fall, while their power increases. This statement supports the predictions made by Moore's Law. ⊚ true ⊚ false

91) Foreign direct investment by non-U.S. firms increased because they wanted to disperse production activities to optimal locations and to build a direct presence in major foreign markets. ⊚ true ⊚ false

92) A current trend in international business is the decline of medium-sized and small multinationals, known as mini-multinationals. ⊚ true ⊚ false

93) Because Russia has shown signs of shifting back toward greater state involvement in economic activity and authoritarian government, doing business in Russia is considered riskier. ⊚ true ⊚ false

Version 1

94) According to globalization critics, 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. ⊚ true ⊚ false

95) Evidence suggests that technological change has had a bigger impact than globalization on the declining share of national income enjoyed by labor. ⊚ true ⊚ false

96) According to supporters of free trade, as countries become more integrated into global economy and trade, they are more likely to enforce stricter environmental and labor regulations. ⊚ true ⊚ false

97) According to critics of globalization, today’s interdependent global economy places more economic power in the hands of national governments. ⊚ true ⊚ false

98) According to supporters of debt relief, new democratic governments in poor nations should not be forced to honor debts incurred by corrupt and dictatorial predecessors. ⊚ true ⊚ false

99)

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

Version 1

100)

Managing an international business is quite similar to managing a domestic business. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 01_14th Edition 17) D 18) C 19) B 20) B 21) A 22) B 23) C 24) D 25) A 26) B 27) D 28) A 29) B 30) B 31) C 32) C 33) C 34) D 35) D 36) A 37) A 38) B 39) C 40) B 41) B 42) A Version 1

43) C 44) D 45) C 46) D 47) D 48) B 49) D 50) D 51) B 52) A 53) B 54) C 55) C 56) A 57) A 58) D 59) B 60) C 61) C 62) A 63) C 64) C 65) A 66) C 67) A 68) A 69) C 70) C 71) D 72) D Version 1

73) D 74) B 75) A 76) B 77) FALSE 78) TRUE 79) TRUE 80) FALSE 81) FALSE 82) FALSE 83) FALSE 84) TRUE 85) TRUE 86) TRUE 87) FALSE 88) FALSE 89) TRUE 90) TRUE 91) TRUE 92) FALSE 93) TRUE 94) TRUE 95) TRUE 96) TRUE 97) FALSE 98) TRUE 99) FALSE 100) FALSE

Version 1

CHAPTER 2 1) Why did Karl Marx criticize capitalism? Describe how he planned to correct those shortcomings.

2) Discuss collectivism. What ideals does the philosophy support? Where did the philosophy start? How does collectivism exist in the modern world?

What are state-owned companies? Why do they usually perform poorly?

4) Discuss individualism. Explain the key positions of the philosophy, it roots, and its role in the modern economy.

Version 1

5) Compare and contrast a pure democracy and a representative democracy. Which type of democracy is more common today? Why?

Compare and contrast the four forms of totalitarianism.

7) Identify the three types of economic systems. How do these three types of economic systems differ from each other? How are they the same?

8) Discuss why there is inefficiency in a monopoly situation. What is the role of the government in such a situation?

Version 1

Discuss the effects of private ownership of production in a market economy.

10)

What is a country’s legal system? Why is it important to international businesses?

11) Explain the differences between common law and civil law systems by the approach of each to contract law.

12)

Discuss the ways in which public action to violate property rights can occur.

Version 1

13)

What factors contribute to the attractiveness of a country as a market or investment site?

14) Discuss the key factors that companies must be aware of before deciding to do business in other countries.

15) __________ occurs when a political party that represents the interests of a particular tribe (and not always the majority tribe) monopolizes power. A) Tribal monopoly B) Communist totalitarianism C) Tribal totalitarianism D) Privatization

16) Who was the author of The Wealth of Nations in which he stated that "an individual who intends his own gain is led by an invisible hand to promote an end that was no part of his intention..."? A) David Hume B) Adam Smith C) Karl Marx D) John Stuart Mill

Version 1

17) The term __________ stresses that the political, economic, and legal systems of a country are interdependent. A) political economy B) common law C) socialism D) collectivism

18) Modern socialists trace their intellectual roots to __________, although socialist thought clearly predates this individual. A) David Hume B) Karl Marx C) Adam Smith D) John Stuart Mill

19) Manchu believed that socialism could be achieved only through violent revolution and totalitarian dictatorship. Manchu was likely a A) libertarian. B) communist. C) collectivist. D) social democrat.

20) Plato __________; he believed that society should be stratified into classes, with those best suited to rule administering society for the benefit of all.

Version 1

A) equated individualism with equality B) equated collectivism with equality C) promoted representative democracy D) did not equate collectivism with equality

21) When __________ is emphasized, an individual’s right to do something may be restricted on the grounds that it runs counter to “the good of society." A) individualism B) totalitarianism C) collectivism D) theocracy

22) What term is used to describe a state in which authoritarian elements have captured some or much of the machinery of state and use this in an attempt to deny basic political and civil liberties? A) authoritarian dictatorship B) right-wing democracies C) representative totalitarianism D) pseudo-democracies

23)

__________ argued that individual diversity and private ownership are desirable. A) Karl Marx B) Plato C) John Stuart Smith D) Aristotle

Version 1

24) In a(n) __________ society, the welfare of society is best served by letting people pursue their own economic self-interest. A) individualist B) collectivist C) communist D) totalitarian

25)

Systems that emphasize collectivism tend toward A) totalitarianism. B) capitalism. C) democracy. D) privatization.

26) The term political economy stresses that the political, economic, and legal systems of a country A) have no bearing on the economic well-being of a country. B) compete with one another to determine the trajectory of the country’s well-being. C) function independently of each other for the well-being of the country. D) are interdependent; they interact and influence each other.

27) A political system that prioritizes the needs of the society over individual freedoms is called A) totalitarianism. B) collectivism. C) capitalism. D) egalitarianism.

Version 1

28)

Modern socialism has been popularized largely through the work of A) Adam Smith. B) Karl Marx. C) David Hume. D) Thomas Hobbes.

29) In several Western democracies, the poor performance of state-owned enterprises, because of protection from competition and guaranteed government financial support, led to A) privatization. B) nationalization. C) liberalization. D) socialization of production.

30)

Which philosophy can be traced back to the ancient Greek philosopher Aristotle? A) socialism B) individualism C) collectivism D) anarchism

31) The tenet of __________ is that the welfare of society is best served by letting people pursue their own economic self-interest. A) socialism B) communism C) anarchism D) individualism

Version 1

32)

Which statement best characterizes the concept of individualism?

A) Individualism promotes state ownership of the basic means of production, distribution, and exchange. B) Individualism promotes globalization. C) Individualism creates an antibusiness environment. D) Individualism and democracy go hand in hand.

33) What safeguard do representative democracies use to ensure their elected officials are held responsible for their actions? A) unlimited terms for elected representatives B) a court system that is integrated with the political system C) an individual’s right to freedom of expression, opinion, and organization D) a political police force and armed service

34)

Which feature is characteristic of a representative democracy? A) exercise of absolute control by one person or political party B) governance by people or elected representatives C) prohibition of entry to opposing political parties D) complete restriction of individual political freedom

35)

Those who are proponents of totalitarianism believe that

Version 1

A) government is by the people, exercised either directly or through elected representatives. B) citizens should have total control and be directly involved in decision making. C) one person or political party should exercise absolute control over all spheres of human life. D) the welfare of society is best served by letting people pursue their own economic selfinterests.

36) People’s right to protest on issues of accountability in public expenditure would be possible in a __________ political setup. A) dictatorial B) democratic C) totalitarian D) fascist

37) __________ refers to a state where political power is monopolized by a party, group, or individual that governs according to religious principles. A) Representative democracy B) Theocratic totalitarianism C) Tribal anarchism D) Monotheistic communism

38) Which system of government generally permits some individual economic freedom but restricts individual political freedom, frequently on the grounds that it would lead to the rise of communism?

Version 1

A) tribal totalitarianism B) right-wing totalitarianism C) democratic totalitarianism D) theocratic totalitarianism

39)

In a pure market economy, A) all productive activities are owned by the state. B) production is determined by the interaction of market forces of supply and demand. C) collectivist goals are given priority over individual goals. D) the prices at which goods are sold are determined by the government.

40)

The abolition of __________ in a command economy distorts incentive and competition. A) private ownership B) public ownership C) government-owned businesses D) co-operatives

41) The local grocery in a small southern city is the only option for the residents, so it has a monopoly on the grocery business there. When the population of the city grows and demand for groceries increases, what is the grocery store most likely to do? A) Restrict output to drive prices down. B) Increase output to drive prices down. C) Restrict output and let prices rise. D) Increase output and keep prices constant.

Version 1

42) In a __________, if demand for a product exceeds supply, prices will rise, signaling to producers to produce more. A) mixed economy B) market economy C) collectivist economy D) command economy

43) 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. This example is representative of a ______ economy. A) command B) mixed C) capitalistic D) market

44) An economy in which the interaction of supply and demand determines the quantity in which goods and services are produced is called a A) planned economy. B) command economy. C) closed economy. D) market economy.

45)

For what reason might command economies tend to stagnate?

Version 1

A) Costs are tightly controlled and business are forced to be efficient rather than dynamic and innovative. B) The abolition of private ownership means there is no incentive for individuals and no competition. C) All economic resources are mobilized for the public good. D) Individuals in command economy countries lack the skills to be innovative.

46)

Antitrust laws in the United States are designed to A) restrict agricultural subsidies. B) increase trade barriers. C) outlaw monopolies. D) restrict privatization.

47) In a(n) __________ 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. A) market B) command C) open D) laissez-faire

48) 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) market B) private C) command D) mixed

Version 1

49) In which economy would the government be most likely to take into state ownership troubled firms whose continued operation is thought to be vital to national interests? A) market economies B) laissez-faire economies C) liberal economies D) mixed economies

50)

Which statement about the legal systems of countries is true? A) They can affect the attractiveness of a country as an investment site or market. B) They are not influenced by the prevailing political system of the country. C) They are almost the same for all countries. D) They are of little importance to international business.

51)

One key component of a country’s legal system is

A) establishing a mixed economy. B) taking a hands-off approach to business practices. C) defining the rights and obligations of those involved in business transactions. D) leaving the monitoring of the way business transactions are executed to the United Nations.

52) Under the __________ system, cases are judged with reference to three characteristics: tradition, precedent, and custom. A) theocratic law B) civil law C) contract law D) common law

Version 1

53)

A civil law system tends to be less adversarial than a common law system because the A) judges’ decisions are based on detailed legal codes. B) judges have the freedom to interpret laws based on the situation. C) judges’ decisions are based on religious teachings. D) judges are guided by interpretations made in prior legal cases.

54)

How does a common law system differ from a civil law system?

A) A common law system is based on religious teachings, while a civil law system is based on cultural traditions. B) A common law system is very rigid, while a civil law system tends to be more flexible. C) In a common law system a judge relies on legal codes to make rulings, while in a civil law system a judge relies on his intuition and moral reasoning to make judgments. D) In a common law system a judge has the power to interpret the law, while in a civil law system a judge has the power only to apply the law.

55)

A __________ law system is based on a very detailed set of laws organized into codes. A) traditional B) theocratic C) civil D) common

56)

A theocratic law system is one in which the law is based on

Version 1

A) religious teachings. B) tradition, precedent, and custom. C) a detailed set of laws organized into codes. D) cultural and social norms.

57)

What is the most widely practiced theocratic legal system in the world today? A) Hindu law B) Sikh law C) Islamic law D) Jewish law

58) __________ rights refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource. A) Trade B) Property C) Positive D) Common

59) In Russia, in the chaotic period following the collapse of communism, an outdated legal system, coupled with a weak police force and judicial system, allowed the Russian Mafia to demand “protection money” from business owners. Any business owner who rebelled had to face violent retribution. This violation of property rights exemplifies A) private action. B) copyright violation. C) infrastructural failure. D) public liability.

Version 1

60) Violation of property rights done through legal mechanisms such as levying excessive taxation and requiring expensive licenses or permits from property holders is called A) private action. B) collective action. C) public action. D) copyright violation.

61)

Which area of international trade is regulated by the Foreign Corrupt Practices Act? A) making and performance of commercial contracts in international trade B) preventing bribery and unethical acts in the conduct of international business C) establishing a set of safety standards to which a new product must adhere D) controlling the mafia activity that hinders trade in Russia, Japan, and the United States

62)

Which is an example of intellectual property? A) a music score B) a laser-tag game C) a software business D) a theater

63) A __________ grants the inventor of a new product or process exclusive rights for a defined period of time to the manufacture, use, or sale of that invention for 20 years. A) copyright B) trademark C) contract D) patent

Version 1

64) Designs and names by which merchants or manufacturers designate and differentiate their products are known as A) trademarks. B) copyrights. C) patents. D) licenses.

65) The research and development division of a company has recently designed a new coffee vending machine that is likely to sell very well in the market. It is compact, user-friendly, and provides unprecedented efficiency in terms of cost per cup. Consequently, the company fears that its competitors would soon mimic the design of its product. To protect its product, the company is now seeking a A) copyright. B) patent. C) trademark. D) certification.

66) What protection provides exclusive legal rights to authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit? A) patent B) copyright C) trademark D) license

67)

The TRIPS agreement was designed to

Version 1

A) exclude China from all intellectual property agreements. B) oversee a much stricter enforcement of intellectual property regulations. C) hold a firm and its officers responsible when a product causes injury, death, or damage. D) support traded software and recorded property among developed markets.

68) Which statement about the Trade-Related Aspects of Intellectual Property Rights (or TRIPS) agreement is true? A) It was designed to oversee the loosening of intellectual property regulations, beginning in 1995. B) It obliged WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years. C) It directed rich countries to comply with its rules of intellectual property protection within five years. D) It provided the very poorest countries amnesty from complying with its rules of intellectual property protection.

69)

Safety standards to which a product must adhere are set by A) safety certifications. B) contract laws. C) product safety laws. D) product liability laws.

70)

Private action refers to

Version 1

A) public officials extorting income, resources, or the property itself from property holders. B) bribing government officials in foreign countries in an attempt to win lucrative contracts. C) theft, piracy, blackmail, and the like by private individuals or groups. D) violations of intellectual property rights.

71) The __________ establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers that have their places of business in different nations. A) Trade-Related Aspects of Intellectual Property Rights (TRIPS) B) Paris Convention for the Protection of Industrial Property C) United Nations Convention on Contracts for the International Sale of Goods (CISG) D) World Trade Organization (WTO)

72) A newly established U.S-based firm trying to secure business in a foreign country bribes a foreign government official in order to obtain business over which that foreign official has authority. Which statement regarding the Foreign Corrupt Practices Act (FCPA) applies to this scenario? A) This practice is allowed by the FCPA because the bribe was to a government official rather than a business owner or representative. B) This would be an illegal practice in all respects according to the FCPA. C) Because this is a U.S.-based business operating overseas, this practice is acceptable to the FCPA. D) The FCPA will overlook this practice for now; once the U.S. company has an established business overseas, any subsequent bribes will be illegal.

73) Razor Sharp Electronics has been found guilty of manufacturing a product that caused harm to its users, violating criminal liability laws. What is the most likely outcome for Razor Sharp Electronics? Version 1

A) payment and monetary damages B) more severe punishment if Company Razor Sharp Electronics is outside the United States C) fines or imprisonment D) nothing if it was Company Razor Sharp Electronics’s first offense

74)

__________ are established through patents, copyrights, and trademarks. A) Digital signatures B) Ownership rights over private property C) Origination fees and tributes D) Ownership rights over intellectual property

75)

In common law, __________ refers to cases that have come before the courts in the past. A) custom B) precedent C) codification D) tradition

76)

The most widely practiced theocratic legal system in the modern world is A) Christian. B) Hindu. C) Jewish. D) Islamic.

Version 1

77) In the 1970s, the United States __________, which 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. A) adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions policy B) passed the Foreign Corrupt Practices Act C) joined Transparency International D) joined the Organisation for Economic Co-operation and Development (OECD)

78)

What system of law is based on a detailed set of laws organized into codes? A) municipal law B) contract law C) civil law D) common law

79) 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 185 countries that are now members of the __________, all of which have signed international treaties designed to protect intellectual property. A) World Intellectual Property Organization B) General Agreement on Tariffs and Trade C) Business Software Alliance D) Trade-Related Aspects of Intellectual Property Rights (TRIPS)

80) The central message of collectivism is that individual economic and political freedoms are the ground rules on which a society should be based. ⊚ true ⊚ false

Version 1

81) In terms of the socialist ideology, the communists believed that socialism could be achieved by democratic means and turned their backs on violent revolution and dictatorship. ⊚ true ⊚ false

82) Some believe the Cold War was simply about nuclear proliferation, but in many respects, it was a war between ideas of economic and political governance. ⊚ true ⊚ false

83) Most modern democratic states practice pure democracy in which citizens are directly involved in decision making. ⊚ true ⊚ false

84)

Democracy is a form of government that prohibits opposing political parties. ⊚ true ⊚ false

85) In a totalitarian country, there are safeguards to protect an individual's right to freedom of expression, opinion, and organization. ⊚ true ⊚ false

86) The number of command economies has fallen dramatically since the demise of communism in the late 1980s.

Version 1

⊚ ⊚

true false

87) The objective of a command economy is to encourage free and fair competition between private producers. ⊚ true ⊚ false

88) In mixed economies, governments tend to take into state ownership troubled firms whose continued operation is thought to be vital to national interests. ⊚ true ⊚ false

89) A nation’s legal system is usually of very little interest to international business managers. ⊚ true ⊚ false

90) Judge Norris operates in a country with a common law system. This system has more flexibility than a civil law system. ⊚ true ⊚ false

91)

A theocratic law system is one in which the law is based on religious teachings. ⊚ true ⊚ false

Version 1

92) The parties to an agreement normally resort to contract law when one party feels the other has violated either the letter or the spirit of an agreement. ⊚ true ⊚ false

93) out.

Contracts under a civil law system tend to be very detailed with all contingencies spelled ⊚ ⊚

true false

94) Some of the world’s important trading nations, including India and the United Kingdom, have not ratified the United Nations Convention on Contracts for the International Sale of Goods (CISG). ⊚ true ⊚ false

95) To facilitate international business, property rights are defined in a consistent way across countries. ⊚ true ⊚ false

96) Property rights can be violated in two ways—through private action and through public action. ⊚ true ⊚ false

97)

The Foreign Corrupt Practices Act does not allow for grease payments. ⊚ true ⊚ false

Version 1

98) Johan wanted to protect his screenplay from piracy, so he copyrighted it. Patents, copyrights, and trademarks establish ownership rights over intellectual property. ⊚ true ⊚ false

99) Niska is developing a chemical formula for a new drug to combat dementia. He will not secure a patent because doing so will open his idea to others and discourage him from furthering any extensive research on his initial idea. ⊚ true ⊚ false

100) The Trade-Related Aspects of Intellectual Property Rights agreement attempts to reduce intellectual property protections to enhance trade. ⊚ true ⊚ false

101)

Product liability sets certain safety standards to which a product must adhere. ⊚ true ⊚ false

102) Intelli-Toys manufactured a new line of educational toys for toddlers. If a child is injured while using these toys, Intelli-Toys’ product liability will be greater if the company did not conform to required safety standards. ⊚ true ⊚ false

Version 1

103) When Victoria returned home from vacation, she found her store had been robbed and her most valuable merchandise was gone. This violation of property rights is considered private action. ⊚ true ⊚ false

104) The political systems of a country raise ethical issues that have implications for the practice of international business. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 02_14th Edition 15) C 16) B 17) A 18) B 19) B 20) D 21) C 22) D 23) D 24) A 25) A 26) D 27) B 28) B 29) A 30) B 31) D 32) D 33) C 34) B 35) C 36) B 37) B 38) B 39) B 40) A Version 1

41) C 42) B 43) B 44) D 45) B 46) C 47) B 48) D 49) D 50) A 51) C 52) D 53) A 54) D 55) C 56) A 57) C 58) B 59) A 60) C 61) B 62) A 63) D 64) A 65) B 66) B 67) B 68) B 69) C 70) C Version 1

71) C 72) B 73) C 74) D 75) B 76) D 77) B 78) C 79) A 80) FALSE 81) FALSE 82) TRUE 83) FALSE 84) FALSE 85) FALSE 86) TRUE 87) FALSE 88) TRUE 89) FALSE 90) TRUE 91) TRUE 92) TRUE 93) FALSE 94) TRUE 95) FALSE 96) TRUE 97) FALSE 98) TRUE 99) FALSE 100) FALSE Version 1

101) FALSE 102) TRUE 103) TRUE 104) TRUE

Version 1

CHAPTER 3 1) To determine the level of economic development in a nation, economists often use GNI figures. What is GNI and is it the best indicator of a nation’s level of economic activity?

What is the philosophy of the Nobel Prize–winning economist Amartya Sen?

Why does education lead to economic development?

Discuss Samuel Huntington’s views on Islamic fundamentalism.

Version 1

5) Since the 1980s, there has been a transformation from centrally planned command economies to market-based economies. What is the rationale for this transformation?

6) Is privatization by itself enough to guarantee economic growth? Why? Explain using an example.

7) What are the factors that determine the long-run monetary benefits of doing business in a country?

What are the factors that determine the costs of doing business in a country?

Version 1

9) Why does doing business in a country with a relatively unsophisticated economy result in increased costs?

10)

What are the factors that contribute to the risks of doing business in a country?

11) __________ per person figures can be misleading because they don’t consider differences in the cost of living. A) Gross domestic product (GDP) B) Gross national income (GNI) C) Purchasing power parity (PPP) D) Human Development Index (HDI)

12) GNI per capita can be adjusted by __________ to account for differences in the cost of living. A) gross domestic product B) gross values added C) purchasing power D) the total value of goods and services produced

Version 1

13) The __________ adjustment allows for a more direct comparison of living standards in different countries. A) gross domestic product B) value added C) gross national income (GNI) D) purchasing power parity (PPP)

14) What might the presence of a black (or shadow) economy in a country mean to that country’s economy? A) A black economy indicates the overall level of corruption in that country is high and potential business investors will be wary of entering that country’s market leading to a reduction in the country’s GDP. B) A black economy may indicate that large amounts of economic activity have been unrecorded signaling that the country’s economic figures may be unreliable. C) A shadow economy indicates that the country operates two markets—one for the domestic market, the other for the international market. Having two markets raises the country’s overall economic performance. D) A shadow economy indicates that the country is not willing to be forthright in its business dealings—it “hides” any potential untapped markets to protect its domestic producers. This will have a negative effect on its economy.

15)

In a __________, the state owns all means of production. A) mixed economy B) planned economy C) market economy D) privatized economy

16) The economic freedom associated with a __________ creates greater incentives for innovation and entrepreneurship than either a planned or a mixed economy.

Version 1

A) closed economy B) political economy C) market economy D) command economy

17) What legal means can be used by the state to expropriate the profits from business innovation? A) demands for money to grant a license B) expropriation C) enforcing property rights D) excessive taxation

18) Several of the fastest-growing Asian economies adopted more __________ governments during the past three decades, including South Korea and Taiwan. A) totalitarian B) democratic C) dictatorial D) socialist

19) Investing in ______ is an important determinant of economic development as it leads to higher growth rates and a more productive population. A) services B) centralized urban centers C) education D) manufacturing

Version 1

20) To account for differences in the cost of living, one can adjust GNI per capita by __________, which allows for a more direct comparison of living standards in different countries. A) gross domestic product B) the Human Development Index C) living standards rate D) purchasing power

21) Maurice has an innovative idea that he would like to turn into a profitable business. He will have a greater chance of success if he starts his business in a ______ economy, because this type of economy creates incentives for innovation and entrepreneurship. A) command B) planned C) market D) mixed

22)

GNI per person figures can be misleading because A) they also include barter agreements. B) they provide a dynamic picture of development. C) they don’t consider differences in the cost of living. D) they don’t consider exchange rate.

23)

What helps in adjusting GNI such that it accounts for the differences in the cost of living? A) purchasing power parity (PPP) adjustment B) Human Development Index C) debt to GNI ratio D) consumer price index

Version 1

24) In some countries, the official GNI per capita measured at PPP data does not reflect the actual total annual income because A) it doesn’t consider differences in the cost of living. B) it gives a static picture of development. C) it fails to include income earned from other countries in the form of dividends. D) large amounts of economic activity may be in the form of barter agreements.

25) What was developed by the United Nations to measure the quality of life in different nations? A) gross national income B) Human Development Index C) purchasing power parity D) gross domestic product

26) Many countries in Africa score below 0.5 on the Human Development Index. This means that these countries have A) few political freedoms. B) poor quality of life. C) low purchasing power parity. D) no gross domestic product.

27)

What is one of the measures on which the Human Development Index (HDI) is based? A) life expectancy at birth B) political freedom C) attainment of housing D) whether the lowest incomes are sufficient to meet the basic needs of life

Version 1

28) __________, a Nobel Prize–winning economist, has argued that development is not just an economic process, but it is a political one as well. A) Hernando de Soto B) Karl Marx C) Samuel Huntington D) Amartya Sen

29)

According to Amartya Sen, development should be A) seen as a process of expanding the real freedoms that people experience. B) seen as a nonpolitical concept that focuses on the net income of a country. C) viewed as a purely economic process. D) assessed by material output measures such as GNI per capita.

30)

Which statement pertaining to innovation and entrepreneurship is true? A) They are the engines of growth. B) They require strong legal systems. C) They require state ownership of means of production. D) They require a mixed economy.

31)

A nation wanting to fuel long-term economic growth will focus on which two factors? A) state ownership of enterprises and control of trade activities B) innovation and entrepreneurial activity C) education and tax relief. D) strong infrastructure and business incentives to growth

Version 1

32)

A market economy encourages innovation because A) state ownership of enterprises reduces risks of innovation. B) economic freedom leads to greater incentives for innovation. C) government-owned and funded research centers become hubs of innovation. D) the prices of goods and services, including new products, are fixed by government.

33)

Which statement characterizes how stagnation can occur in planned economies?

A) In planned economies, entrepreneurial individuals have few economic incentives for innovation. B) Planned economies encourage private ownership of the means of production which can lead to the exploitation of workers. C) The prices of goods and services are fixed by market forces of supply and demand in a planned economy. D) In planned economies, the lack of barriers to trade results in increased competition for domestic producers.

34) __________ is required for a business environment to be conducive to innovation and entrepreneurial activity. A) State ownership of means of production B) Strong legal protection of property rights C) Barriers to foreign trade and investment D) Government regulation of the market

35) 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 they

Version 1

A) have political stability. B) invest in infrastructural development. C) better define and secure property rights. D) have adequate market regulation.

36) According to Hernando de Soto, which factor is essential for the developing world to be able to reap the benefits of innovation and entrepreneurship? A) detailed state planning B) restricting direct investment by foreign enterprises C) strong property rights D) market regulation

37) The political economy of many of the world’s nation-states has changed radically since the late 1980s. Which is a trend that has been evident? A) A wave of democratic revolutions has swept the world. B) Totalitarian governments have arisen, replacing democratically elected governments. C) There has been a strong move toward centrally planned economies and away from free market economic models. D) Mixed economies are fast replacing market economies.

38) Political scientist __________ predicts that there will be a world that is split into different civilizations, each of which has its own value systems and ideology. A) Samuel Huntington B) Amartya Sen C) Francis Fukuyama D) Hernando de Soto

Version 1

39)

What is one of the three main reasons for the spread of democracy?

A) New information and communication technologies have broken down the ability of the state to control access to uncensored information. B) Totalitarian regimes delivered economic progress to the bulk of their populations but not enough to the power brokers. C) Democratic regimes failed to deliver economic progress to the vast bulk of their populations. D) Economic advances in the past quarter-century have led to the emergence of a class of ruling elite.

40) According to which political scientist’s thesis is global terrorism a product of the tension between civilizations and the clash of value systems and ideology? A) Amartya Sen B) Samuel Huntington C) Francis Fukuyama D) Hernando de Soto

41) One of the reasons for the spread of democracy is the emergence of __________ who have pushed for democratic reforms. A) a more vocal working poor B) better educated lower classes C) a desperate urban poor D) increasingly prosperous middle and working classes

42) What reason can be attributed to the spread of democracy that has occurred since the 1980s?

Version 1

A) A state’s ability to control access to uncensored information has increased. B) The socialist model failed to deliver economic progress to the vast bulk of their populations. C) In many countries the middle and working classes have become less powerful. D) In many countries state ownership of firms has encouraged innovation and entrepreneurship.

43) In many countries, entrepreneurs and other business leaders, eager to protect their property rights and ensure the dispassionate enforcement of contracts, had pushed for __________; this contributed to a wave of democratic revolutions during the late 1980s and early 1990s. A) state ownership of productive resources B) regulated markets C) democratic reforms D) planned economies

44) Political scientist Samuel Huntington argues that modernization in non-Western societies can result in a retreat toward the traditional. This is exemplified by the A) resurgence of Islam in many traditionally Muslim societies. B) popularization of modern gadgets. C) adoption of Western culture in non-Western nations. D) higher levels of literacy and education.

45) According to political scientist Samuel Huntington, the rise of Islamic fundamentalism is a response to the

Version 1

A) corruption prevalent in planned economies. B) restricted access to formal education. C) alienation produced by modernization. D) restrictions associated with totalitarian regimes.

46)

Which statement best characterizes the position of political scientist Samuel Huntington?

A) There is a universal civilization based on widespread acceptance of Western democratic ideals. B) The rise of Islamic fundamentalism is a response to the alienation produced by modernization. C) Global terrorism is a product of the static nature of traditional values and religious systems. D) Many societies, by adopting the material paraphernalia of the modern world, are becoming more Western.

47)

Paralleling the spread of democracy since the 1980s has been the transformation from A) free-market economies to socialist economies. B) mixed economies to collectivist economies. C) open economies to closed economies. D) centrally planned economies to market-based economies.

48) Throughout the world, the rationale for economic transformation can be attributed to the fact that ______ economies failed to deliver the sustained economic performance of ______ economies. A) market-based; command and mixed B) command and mixed; market-based C) centrally planned command; mixed D) market-based; centrally planned command

Version 1

49) Many states in Asia, Latin America, and Western Europe have shifted away from a mixed economy to a market-based economy. Which measure is most likely to be promoted by such states? A) state ownership of enterprises B) fixing of prices by the government C) deregulation of the economy D) lowering competition

50)

Which is a step in the shift toward a market-based economic system? A) increasing trade barriers B) increasing price controls C) nationalization D) creation of a legal system to safeguard property rights

51) __________ involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. A) Privatization B) Developing command economies C) Deregulation D) Globalization

52) __________ is seen as a way to stimulate gains in economic efficiency by giving owners a powerful incentive—the reward of greater profits—to search for increases in productivity, to enter new markets, and to exit losing ones.

Version 1

A) Globalization B) Economic transformation C) Deregulation D) Privatization

53) Removing price controls, abolishing laws regulating the establishment and operation of private enterprises, and relaxing or removing restrictions on direct foreign investment are methods aimed at A) deregulation. B) regulating trade. C) privatization. D) decreasing entrepreneurship.

54)

The deregulation of a command economy involves which step? A) adding price controls B) temporarily restricting international trade C) abolishing laws regulating the establishment and operation of private enterprises D) increasing restrictions on direct investment by foreign enterprises

55)

Without a strong legal system in a market economy

A) the incentive to engage in economic activity can be increased substantially. B) private-sector entrepreneurs can expropriate the profits generated by the efforts of private and public entities. C) mechanisms for contract enforcement fall to private and corporate lawyers. D) private and public entities can expropriate the profits generated by the efforts of private-sector entrepreneurs.

Version 1

56)

Which country is engaged in deregulation efforts?

A) a country that implements a simplified income tax filing system B) a country that takes over a leading private bank to prevent it from filing for bankruptcy C) a country that provides agricultural subsidies to farmers D) a country that encourages competition and attracts foreign direct investment

57)

What is a characteristic of a command economy? A) promotion of foreign direct investment B) allowing prices to be set by the interplay between demand and supply C) limited international trade D) restricted state ownership of means of production

58) The finance minister of a country considers several large, state-owned iron manufacturing units to be inefficient and a source of corruption. To generate resources for public expenditure and promote economic growth, the government decides to auction an entire iron manufacturing plant to sell it to a strategic investor. This process exemplifies A) nationalization. B) industrialization. C) liberalization. D) privatization.

59) Studies of privatization in central Europe have shown that the process often fails to deliver predicted benefits if the newly privatized firms

Version 1

A) stop receiving subsidies from the government. B) are completely owned by private individuals. C) are sheltered from foreign competition. D) are allowed to restructure their operations.

60)

The sale of state assets through an auction is most likely to lead to A) trade certification. B) privatization. C) nationalization. D) market regulation.

61)

For privatization to work, it must also be accompanied by A) an increase in trade barriers and tariffs. B) an increase in government subsidies. C) stronger barriers to foreign competition. D) a general deregulation of the economy.

62) Which factor is likely to make a country a more attractive location for international business? A) totalitarian regimes B) planned economies C) government ownership of production methods D) market-based economic policies

63)

The benefits of doing business in a country are a function of

Version 1

A) the size and purchasing power of the market. B) its past wealth. C) its past growth. D) its future plans for infrastructure development.

64) Sony was a pioneer in the portable music market segment. The Sony Walkman was an innovative product that created a new category altogether and made Sony a technological leader. This gave the company an edge over other consumer electronics brands that introduced portable music players for a very long time. In this example, Sony had the A) vertical integration advantage. B) purchasing power parity advantage. C) free-rider advantage. D) first-mover advantage.

65) Google launched Google Plus to gain a foothold in the social media market. However, given that there are numerous social networking platforms and Facebook is already a leader in social media, Google Plus found it challenging to generate brand loyalty and establish itself in the market. This was because of A) incumbent disadvantage. B) disintermediation disadvantage. C) late-mover disadvantage. D) horizontal integration disadvantage.

66)

The costs of doing business in a country tend to be greater if A) political payoffs are not required to gain market access. B) supporting infrastructure is sponsored by government. C) local laws set strict standards with regard to environmental pollution. D) there are limits or caps on damage awards.

Version 1

67)

__________ are the advantages gained by early entrants into a market. A) Early-investor advantages B) First-mover advantages C) First-to-market advantages D) Late-mover advantages

68) Countries with __________ economies in which property rights are protected tend to achieve greater economic growth rates than other economies where property rights are poorly protected. A) mixed B) market C) centralized D) command

69) It may be more costly to do business in relatively primitive or undeveloped economies because of A) international trade restrictions. B) the lack of governmental support. C) difficulty obtaining workers. D) the lack of infrastructure and supporting businesses as well as the middle class.

70)

One visible indicator of __________ tends to be a country’s inflation rate. A) economic mismanagement B) high GNI C) political risks D) low HDI

Version 1

71) The overall attractiveness of a country as a potential market or investment site for an international business depends on A) if the country has a high gross national income. B) balancing the benefits, costs, and risks associated with doing business in that country. C) whether the company can be the first mover in the market. D) whether the government can be greased.

72) The likelihood that a trading partner will opportunistically break a contract or expropriate property rights is called a(n) A) economic risk. B) legal risk. C) cultural risk. D) political risk.

73)

Economic growth appears to be a function of a country’s capacity for growth and its A) previous economic success. B) political environment. C) free market system. D) mixed economy.

74)

__________ are the handicaps that late entrants to a market might suffer. A) Government regulations B) Late-mover disadvantages C) Black economy D) Purchasing power disparity

Version 1

75)

Which statement represents a first-mover advantage?

A) International firms may gain experience in that country’s business practices. B) An international firm can reap the rewards of growth in a new market without incurring the risks. C) A firm may have the opportunity to be the first to introduce generic brands to a market. D) A firm can gauge how well their product will do in the market without taking the risk of investing there.

76) GDP allows a more direct comparison of living standards in different countries than other measures. ⊚ true ⊚ false

77) Economist Amartya Sen argues that development is an economic process that should be assessed primarily by material output measures such as GNI per capita. ⊚ true ⊚ false

78) GNI is a common comparison used to measure levels of economic activity among nations. ⊚ true ⊚ false

79) Political freedom is one of the measures used by the Human Development Index (HDI) to measure the quality of human life in different nations. ⊚ true ⊚ false

Version 1

80) If a country’s economy is to sustain long-term economic growth, the business environment must be conducive to investment, R&D, innovation, and entrepreneurial activity. ⊚ true ⊚ false

81) The state of West Virginia was having budget difficulties, so it hired several private management consultancy firms to manage some state-owned enterprises. This is an example of privatization. ⊚ true ⊚ false

82) Peruvian development economist Hernando de Soto has argued that the chronic inability of property owners to establish legal title to the property they own is a key problem for innovation and entrepreneurial activity in developing nations. ⊚ true ⊚ false

83) Totalitarian states promote human freedom and human development, which facilitates economic progress. ⊚ true ⊚ false

84) Since the late 1980s, there has been a strong move away from a more free market economic model and toward more centrally planned and mixed economies. ⊚ true ⊚ false

Version 1

85) Many totalitarian regimes were able to deliver economic progress to the vast bulk of their populations, which curbed the spread of democracy during the late 1980s. ⊚ true ⊚ false

86) New information and communication technologies have enabled the spread of democratic ideals. ⊚ true ⊚ false

87) Transformation from centrally planned command economies to market-based economies can be attributed to the economic failure of command and mixed economies compared to marketbased systems. ⊚ true ⊚ false

88) Before the fall of communism, governments in command economies promoted deregulation and the free play of markets. ⊚ true ⊚ false

89) In mixed economies, in certain sectors the state sets prices, owns businesses, limits private enterprise, restricts investment by foreigners, and restricts international trade. ⊚ true ⊚ false

90) For privatization to work, it must also be accompanied by a more general deregulation and opening of the economy. ⊚ true ⊚ false

Version 1

91) To improve airport security following a major terrorist attack, the government of a country takes over the airport security industries. This is an example of privatization. ⊚ true ⊚ false

92) A country with a well-functioning market economy does not need laws protecting private property rights and providing mechanisms for contract enforcement. ⊚ true ⊚ false

93) When communism collapsed in eastern Europe, many of the communist countries lacked the legal structure required to protect property rights because all the property was earlier held by the state. ⊚ true ⊚ false

94) A market with a large number of consumers with low living standards will have a relatively large market when measured in economic terms. ⊚ true ⊚ false

95) The long-run monetary benefits of doing business in a country are a function of the size of the market, the present wealth of consumers in that market, and the likely future wealth of consumers. ⊚ true ⊚ false

Version 1

96) A country’s economic system, property rights regime, and education systems are reasonably good predictors of economic prospects. ⊚ true ⊚ false

97)

Economic risks are independent of political risk. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 03_14th Edition 11) B 12) C 13) D 14) B 15) B 16) C 17) D 18) B 19) C 20) D 21) C 22) C 23) A 24) D 25) B 26) B 27) A 28) D 29) A 30) A 31) B 32) B 33) A 34) B 35) C 36) C Version 1

37) A 38) A 39) A 40) B 41) D 42) B 43) C 44) A 45) C 46) B 47) D 48) B 49) C 50) D 51) C 52) D 53) A 54) C 55) D 56) D 57) C 58) D 59) C 60) B 61) D 62) D 63) A 64) D 65) C 66) C Version 1

67) B 68) B 69) D 70) A 71) B 72) B 73) C 74) B 75) A 76) FALSE 77) FALSE 78) TRUE 79) FALSE 80) TRUE 81) FALSE 82) TRUE 83) FALSE 84) FALSE 85) FALSE 86) TRUE 87) TRUE 88) FALSE 89) TRUE 90) TRUE 91) FALSE 92) FALSE 93) TRUE 94) FALSE 95) TRUE 96) TRUE Version 1

97) FALSE

Version 1

CHAPTER 4 1)

Compare and contrast folkways and mores.

Discuss the notion of culture at different levels within a country and give an example.

What are the determinants of culture?

4) Explain the concept of social stratification. What are the four basic principles on which social stratification is based?

Why is the role of education in a culture important to international companies?

Version 1

6) What is the connection between religion and ethical systems? Do they have any implications for business?

7) Consider the importance of unspoken language. Why is it important to be familiar with the unspoken language of another culture?

Discuss why the stratification of a society is important to business.

Explain how the Koran views business.

Version 1

10) Consider the influence of Confucian ethics on the economies of China, Japan, South Korea, and Taiwan.

11)

Describe the four dimensions of culture as identified by Geert Hofstede.

12)

Discuss the limitations of Hofstede’s research.

13)

What are the implications of cultural differences for international businesses?

Version 1

14)

Discuss the relationship between culture and national competitive advantage.

15)

Culture is A) a fully formed, fixed concept. B) constantly evolving. C) stable and unchanging. D) a certain but abstract concept.

16) The term __________ refers to a group of people sharing a common set of values and norms. A) mores B) society C) culture D) cohort

17)

Cross-cultural literacy refers to

Version 1

A) an individual’s self-concept derived from perceived membership in a relevant social group. B) the phenomenon of merging and converging cultures. C) abstract ideas about what a group believes to be good, right, and desirable. D) an understanding of how cultural differences can affect the way business is practiced.

18) Hassan lives in Saudi Arabia. If he is caught consuming alcohol, he will be accused of violating his country’s ______ and may face imprisonment. A) norms B) folkways C) mores D) values

19)

__________ is best defined as shared assumptions about how things ought to be. A) Norms B) Values C) Ethics D) Culture

20) The system of values and norms that are shared among a group of people and that when taken together constitute a design for living best defines A) society. B) value systems. C) principles. D) culture.

Version 1

21) Social rules and guidelines that prescribe appropriate behavior in particular situations are best described as A) norms. B) values. C) culture. D) society.

22)

People who share a common set of values and norms form a A) culture. B) society. C) country. D) caste.

23) Sangeeta is to attend a business dinner with executives from her company. She knows that it will be important to dress in business attire, display good social manners, and eat with the correct utensils. These actions represent A) values. B) folkways. C) mores. D) mandates.

24)

__________ are the routine conventions of everyday life. A) Folkways B) Mores C) Rites D) Beliefs

Version 1

25) When Bella visits her mother, she takes great pains to watch her language and use good manners because that is what her mother expects of her. This demonstrates the concept of A) folkways. B) mores. C) rites. D) beliefs.

26) For Jake and Tyrone, U.S. army veterans, ______ are not just abstract concepts. These men argue that concepts such as individual freedom and democracy are so important, they are worth fighting for. A) folkways B) values C) mores D) norms

27) A good example of a __________ is time. In some cultures, being on time for a business meeting is critical; in other cultures, time is viewed as being more elastic and keeping to a schedule less important. A) value B) mandate C) social rule D) folkway

28)

An act as simple as shaking hands when meeting new people is an example of

Version 1

A) values. B) symbolic behavior. C) mores. D) social stratification.

29)

How do folkways and mores differ? A) Folkways exclude rituals and symbolic behavior that are included in mores. B) Folkways are codified into laws, mores are not. C) Unlike folkways, mores do not carry much significance. D) Unlike folkways, mores can bring serious retribution.

30)

Mores are

A) the norms that are seen as central to the functioning of a society and its social life. B) the routine conventions of everyday life. C) abstract ideas about what a group believes to be right, good, and desirable. D) the social rules and guidelines that prescribe appropriate behavior in particular situations.

31) Sal has been in trouble his whole life. He stole from the local hardware store when he was 12, and as an adult he didn’t feel the need to be faithful to his wife. Sal is guilty of violating A) mores. B) folkways. C) ethics. D) values.

Version 1

32) __________ are typically defined on the basis of characteristics such as family background, occupation, and income. A) Social strata B) Norms C) Social structure D) Groups

33)

A major difference between Buddhism and Hinduism is that unlike Hinduism, Buddhism A) does not support the caste system. B) emphasizes wealth creation. C) promotes blind loyalty to employers. D) supports extreme ascetic behavior.

34) A __________ 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. A) society B) collective C) social strata D) group

35)

The social organization of Western society tends to emphasize on A) a group orientation. B) collectivist values. C) individual achievement. D) work groups.

Version 1

36) Which term refers to the extent to which individuals can move out of the strata into which they are born? A) caste stratification B) class system C) social mobility D) individual potential

37)

Hindus believe A) that there is but one true omnipotent God. B) in reincarnation, or rebirth into a different body, after death. C) in the importance of individual religious freedom. D) that a material quest is more important than a spiritual quest.

38) 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, is referred to as a ______ system. A) caste B) class C) social D) cultural

39) A __________ system is a less rigid form of social stratification in which social mobility is possible.

Version 1

A) caste B) normative C) religious D) class

40)

Which statement is true about a class system?

A) A class system is a more rigid form of social stratification, compared to a caste system. B) A class system is a closed form of stratification. C) Social mobility within a class system varies from society to society. D) In a class system, social position is determined at birth and cannot be changed during an individual’s lifetime.

41)

According to __________, suffering originates in people’s desires for pleasure. A) Hinduism B) Protestantism C) Buddhism D) Judaism

42)

A caste system differs from a class system because

A) a caste system is an open system of stratification, while a class system is a closed system of stratification. B) it is not possible for an individual to change his or her caste, while a class system allows people to change their class through individual achievement. C) the social mobility in caste systems varies from society to society, while in a class system there is no social mobility. D) a caste system is a less rigid form of social stratification, while a class system is a comparatively more rigid form of social stratification.

Version 1

43)

Ethical systems are defined as A) a set of moral principles, or values, that are used to guide and shape behavior. B) shared beliefs and rituals that are concerned with the realm of the sacred. C) routine conventions of everyday life. D) social rules that govern people’s actions toward each other.

44)

Religion may be defined as A) routine conventions of everyday life. B) social rules that govern people’s actions toward each other. C) shared beliefs and rituals that are concerned with the realm of the sacred. D) a set of moral principles, or values, that are used to guide and shape behavior.

45)

Hinduism and Buddhism both stress the importance of A) the caste system. B) the afterlife. C) Confucian ethics. D) life on earth.

46) Max Weber theorized that there was a relationship between Protestantism and the emergence of modern capitalism because A) Protestant ethics emphasize the importance of hard work and wealth creation and frugality. B) Protestantism promotes the hierarchical domination of religious and social life. C) Protestantism states that spiritual growth is more important than material wealth. D) Protestantism promotes blind loyalty to employers.

Version 1

47)

The concept of mobility between castes within an individual’s lifetime A) is an opportunity to adopt positions of responsibility and influence in society. B) makes no sense to traditional Hindus. C) shows a figurative “reincarnation” of a person. D) is a sign of spiritual progression to traditional Hindus.

48) Max Weber was a German sociologist who, in 1904, made the connection between __________ and “the spirit of capitalism.” A) Protestant ethics B) ethnocentrism C) cross-cultural literacy D) collectivism

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

50) A condition where people tend to perceive themselves in terms of their class background and this shapes their relationships with members of other classes is known as

Version 1

A) class stratification. B) social mobility. C) class mobility. D) class consciousness.

51) An upper-middle-class manager tends to have hostile relationships with the working-class employees in the firm because of his tendency to perceive himself as superior to them based on his class background. In this example, the manager exhibits A) class consciousness. B) cultural awareness. C) social mobility. D) group orientation.

52) There are three values central to the Confucian system of ethics that have very important economic implications. What is one of these values? A) filial piety B) rule-based law C) humaneness D) honesty in dealings with others

53) Which sociologist made a connection between Protestant ethics and “the spirit of capitalism”? A) Karl Marx B) Max Weber C) Amartya Sen D) Adam Smith

Version 1

54)

According to Islam, those who hold property are regarded as A) trustees. B) owners. C) tenants. D) speculators.

55)

Which observation is correct?

A) The economic principles established in the Koran are against free enterprise. B) The economic principles of Islam prohibit the payment or receipt of interest. C) The Koran speaks disapprovingly of earning legitimate profit through trade and commerce. D) Protection of the right to private property is not acceptable within Islam.

56)

Under the mudarabah banking system, when an Islamic bank lends money to a business A) it charges that business interest on the loan. B) the business needs to pay back the loan with an additional markup. C) it has to donate the interest received on the loan to a charitable trust. D) it takes a share in the profits that are derived from the investment.

57)

Which statement is true about the murabaha contract?

Version 1

A) Under the murabaha contract, when an Islamic bank lends money to a business it takes a share in the profits that are derived from the investment. B) Under the murabaha contract, money deposited in a savings account is treated as an equity investment in whatever activity the bank uses the capital for. C) The murabaha contract is widely used among the world’s Islamic banks because it is the easiest to implement. D) The murabaha contract is a more efficient system than the Western banking system since it encourages both long-term savings and long-term investment.

58) In countries where the value of __________ identification is considered to be primary, managers and workers are discouraged from moving from company to company. A) individual B) group C) cultural D) class

59) The __________ dimension of Hofstede’s study explores how a society deals with the fact that people are unequal in physical and intellectual capabilities. A) power distance B) individualism versus collectivism C) uncertainty avoidance D) masculinity versus femininity

60) Martina worried a lot about her job, which she chose specifically because it was very structured with clear rules and regulations. She carefully planned her career to maximize job security and retirement benefits. Martina would rate high on which of Hofstede’s four dimensions?

Version 1

A) power distance B) individualism versus collectivism C) uncertainty avoidance D) masculinity versus femininity

61)

The individualism versus collectivism dimension of Hofstede’s study explored

A) the extent to which different cultures socialized their members into accepting ambiguous situations and tolerating uncertainty. B) the relationship between gender and work roles. C) how a society deals with the fact that people are unequal in physical and intellectual capabilities. D) the relationship between the individual and his or her fellows.

62) According to Hofstede, an employee concerned about job security, career patterns, and retirement benefits would exhibit a high level of A) uncertainty avoidance. B) masculinity. C) power distance. D) collectivism.

63) The __________ is a research project spanning more than 100 countries that explores people’s values and norms, how they change over time, and what impact they have in society and business. A) World Values Survey B) Global Leadership and Organization Behavior Effectiveness Instrument C) Indulgence Versus Restraints Survey D) Chinese Value Survey

Version 1

64) According to Geert Hofstede’s study, which cultural dimension would be characterized by a greater readiness to take risks and less emotional resistance to change? A) high power distance cultures B) low uncertainty avoidance C) high collectivism D) low power distance cultures

65) The __________ refers to the extent to which a culture programs its citizens to accept delayed gratification of their material, social, and emotional needs. A) long-term versus short-term orientation dimension B) indulgence versus restraint dimension C) uncertainty avoidance D) power distance dimension

66) As a sixth dimension of Hofstede’s work, __________ refers to a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun. A) persistence B) indulgence C) reciprocation D) restraint

67) What sixth dimension has been proposed to be added to Hofstede’s original dimensions of culture?

Version 1

A) acceptance versus denial B) tradition versus modernism C) indulgence versus restraint D) contribution versus accumulation

68) Hofstede’s results, as might be expected, showed that nations such as __________ scored low on long-term orientation. A) the United States and Canada B) Denmark and Sweden C) Japan and Thailand D) Great Britain and Mexico

69) Hofstede's masculinity versus femininity dimension looked at the relationship between gender and work roles and found that in A) feminine cultures, gender roles were differentiated, and traditional “feminine values” determined cultural ideals. B) feminine cultures, gender roles were less distinguished; however, there was a great deal of differentiation between men and women in the same job. C) masculine cultures, gender roles were less distinguished, and little differentiation was made between men and women in the same job. D) masculine cultures, gender roles were differentiated, and traditional “masculine values” determined cultural ideals.

70)

Hofstede’s dimension of Confucian work dynamism

Version 1

A) captures attitudes toward time, persistence, ordering by status, saving face, respect for tradition, and reciprocation of gifts and favors. B) focuses on how a society deals with the fact that people are unequal in physical and intellectual capabilities. C) explores the relationship between the individual and his or her fellows. D) looks at the relationship between gender and the ability to accept ambiguous situations.

71)

Which scenario is an example of ethnocentrism?

A) A manager in India looks down upon his subordinates because they are from a lower caste, compared to him. B) An upper-middle-class woman talks rudely to a salesperson, because she looks down upon individuals belonging to the working class. C) An American manager criticizes the cultural practices of Saudi Arabia, when he is sent there on business, because it differs from his own cultural norms. D) A French business owner, who plans to expand his market to China, conducts a detailed cultural study of China to customize his marketing campaign.

72)

Ethnocentrism is a belief in the superiority of A) one’s business or organization over another. B) another group or culture over one’s own group or culture. C) one’s own ethnic group or culture. D) one’s own self over another person.

73) Class-based conflict between workers and management in class-conscious societies can lead to

Version 1

A) increased costs of doing business. B) decreased costs of doing business. C) companies going out of business. D) workers looking for new jobs in other businesses.

74) Several studies have shown that economic advancement and __________ are important factors in societal change. A) individualism B) collectivism C) culture D) globalization

75) One reason for Japan’s shift in values away from collectivism and toward individualism may be that A) richer societies exhibit less need for social and material support structures built on collectives. B) individualism is a more important trait in a global society. C) richer societies exhibit more need for social and material support structures built on collectives. D) increased urbanization and improvements in the quality and availability of education are both a function of economic progress.

76) The distinctive culture of a small country has been losing its relevance among the citizens of the country because the people of this country are extensively adopting certain universally accepted values and norms. This behavior of these citizens demonstrates

Version 1

A) the convergence hypothesis. B) ethnocentrism. C) social mobility. D) cultural stagnation.

77) Virtually all scholars agree on a simple definition of culture—that is, the collective system of values of a people. ⊚ true ⊚ false

78)

Norms are abstract ideas about what a group believes to be good, right, and desirable. ⊚ true ⊚ false

79) Folkways not only represent routine conventions of everyday life, but they also represent the moral significance of the social rules that govern people’s actions toward one another. ⊚ true ⊚ false

80) Upon meeting a foreign business executive, a Japanese executive will hold his business card in both hands and bow while presenting the card to the foreigner. This is an example of ritual behavior. ⊚ true ⊚ false

81) The term social strata refers to the extent to which individuals can move out of the strata into which they were born.

Version 1

⊚ ⊚

true false

82) Education plays an important role, from an international business perspective, as a determinant of national competitive advantage. ⊚ true ⊚ false

83) Both Hindus and Buddhists stress the afterlife and spiritual achievement rather than involvement in this world. ⊚ true ⊚ false

84)

Islam is a polytheistic religion, like Christianity and Judaism. ⊚ true ⊚ false

85) A caste system is a closed system of stratification in which social position is determined by the family into which the person is born. ⊚ true ⊚ false

86) Being born into a class system does not ultimately determine your social standing. In a class system, individuals can move into higher or lower classes based on their individual circumstances. ⊚ true ⊚ false

Version 1

87) Teaching cultural norms such as respect for others, obedience to authority, and honesty are part of the “hidden curriculum” of schools. ⊚ true ⊚ false

88) An antagonistic relationship between management and labor classes may result in lower costs of production. ⊚ true ⊚ false

89) Max Weber believed that Protestantism encouraged capitalism’s development by emphasizing the importance of wealth creation and frugality. ⊚ true ⊚ false

90) In countries where the value of group identification is considered to be primary, managers and workers are discouraged from moving from company to company. ⊚ true ⊚ false

91) The mudarabah contract is the most widely used Islamic banking method, because it is the easiest to implement. ⊚ true ⊚ false

92) Max Weber believed that devout Hindus would be less likely to engage in entrepreneurial activity than devout Protestants. ⊚ true ⊚ false

Version 1

93) Guanxi is an important mechanism for building long-term business relationships and getting business done in China. ⊚ true ⊚ false

94) Hofstede’s study found that in masculine cultures, gender roles were less distinguished, and little differentiation was made between men and women in the same job. ⊚ true ⊚ false

95) Hofstede’s research has been criticized because it appears to be based on gender stereotypes about masculinity and femininity, which seem inappropriate. ⊚ true ⊚ false

96) According to Hofstede, the concept of Confucian dynamism captures attitudes toward time, persistence, saving face, and respect for tradition. ⊚ true ⊚ false

97) The convergence hypothesis states that there is a slow but steady merging occurring across different cultures toward some universally accepted values and norms. ⊚ true ⊚ false

98) International businesses that are ill-informed about the practices of another culture are likely to fail. Version 1

⊚ ⊚

true false

99) The value systems and norms of a country are unrelated to the costs of doing business in that country. ⊚ true ⊚ false

100) Because of its individualistic mind-set, Japanese culture is more supportive of entrepreneurial activities than American culture. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 04_14th Edition 15) B 16) B 17) D 18) C 19) B 20) D 21) A 22) B 23) B 24) A 25) A 26) B 27) D 28) B 29) D 30) A 31) A 32) A 33) A 34) D 35) C 36) C 37) B 38) A 39) D 40) C Version 1

41) C 42) B 43) A 44) C 45) B 46) A 47) B 48) A 49) D 50) D 51) A 52) D 53) B 54) A 55) B 56) D 57) C 58) B 59) A 60) C 61) D 62) A 63) A 64) B 65) A 66) B 67) C 68) A 69) D 70) A Version 1

71) C 72) C 73) A 74) D 75) A 76) A 77) FALSE 78) FALSE 79) FALSE 80) TRUE 81) FALSE 82) TRUE 83) TRUE 84) FALSE 85) TRUE 86) TRUE 87) TRUE 88) FALSE 89) TRUE 90) TRUE 91) FALSE 92) TRUE 93) TRUE 94) FALSE 95) TRUE 96) TRUE 97) TRUE 98) TRUE 99) FALSE 100) FALSE Version 1

Version 1

CHAPTER 5 1) Discuss how companies such as General Motors, Exxon, IBM, and Xerox helped improve human rights in South Africa.

2) Should a multinational feel free to pollute in a developing nation? How does the issue of pollution relate to the tragedy of the commons?

In your opinion, are bribes ever acceptable? Why or why not?

Discuss the notion of corporate social responsibility. What does it mean for corporations?

Version 1

What are ethical dilemmas? Why do they exist?

Why are expatriate managers at a greater risk of violating their personal code of ethics?

7) Explain the Friedman doctrine. Who developed the philosophy? How well does this approach hold up ethically?

8) Discuss the cultural relativism approach to business ethics. What is the connection between this approach and the phrase "When in Rome do as the Romans do"? How well does this approach hold up ethically?

Version 1

9) Discuss the naive immoralist’s approach to business ethics. What are the criticisms of this approach?

10) Discuss the utilitarian approach to business ethics. When was this approach developed? What are its drawbacks?

11) What are the ways in which international business and its managers can ensure that ethical issues are considered in business decisions?

12)

Describe the five-step process that businesses can use to think through ethical problems.

13)

Why do organizations appoint an ethics officer? What are the duties of an ethics officer?

Version 1

14)

How can companies strengthen the moral courage of employees?

15)

Explain the concept of moral imagination as it relates to a company’s stakeholders.

16)

Discuss the link between the concept of sustainability and the tragedy of the commons.

17) The __________ occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation.

Version 1

A) tragedy of the commons B) moral ignorance C) noblesse oblige D) veil of ignorance

18) The __________ outlawed the paying of bribes to foreign government officials to gain business. A) Convention on Combating Bribery of Foreign Public Officials B) Foreign Corrupt Practices Act C) Convention on International Business Transactions D) Universal Declaration of Human Rights

19)

Facilitating payments are also known as A) grease monkeying. B) pocket lining. C) speed money. D) sliding.

20) Because of ______, General Motors was allowed to operate ethically in South Africa as long as the company did not obey the apartheid laws in its own South African operations. A) the Sullivan principles B) the righteous moral system C) noblesse oblige D) cultural relativism

Version 1

21) The __________ obliges member states to make the bribery of foreign public officials a criminal offense and excludes facilitating payments made to expedite routine government action. A) Convention on Combating Bribery of Foreign Public Officials B) Foreign Corrupt Practices Act C) Convention on International Business Transactions D) Universal Declaration of Human Rights

22)

Identify the incorrect statement about environmental regulations.

A) Environmental regulations are often lacking in developing nations. B) Environmental regulations are similar across developed and developing nations. C) Developed nations have substantial regulations governing the emission of pollutants, the dumping of toxic chemicals, and so on. D) Inferior environmental regulations in host nations, as compared to the home nation, can lead to ethical issues.

23) Over the past few years, two manufacturing plants have been built near the city of Miltonville. A four-acre area of land lies between these two plants and since no one “owns” this land, each plant is using it as a landfill to dump waste products. The once-beautiful land is now encased in garbage. What phenomenon does this portray? A) the Friedman effect B) noblesse oblige C) just distribution D) the tragedy of the commons

24)

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

Version 1

A) A textile company relocates to a developing nation to take advantage of cheap labor. B) A construction firm provides grease payments to a country to secure a building contract. C) A manufacturing plant moves its facility to allow its chemical waste to be drained into a nearby river. D) A global IT firm refuses to operate in countries with poor infrastructures.

25)

Which observation about the Foreign Corrupt Practices Act is true?

A) The act outlawed the paying of bribes to foreign government officials to gain business. B) There is enough evidence that it put U.S. firms at a competitive disadvantage. C) The act originally allowed for “facilitating payments.” D) The Nike case was the impetus for the 1977 passage of this act.

26)

Facilitating payments are A) a direct violation of the Foreign Corrupt Practices Act. B) permitted so long as they are designed only to gain exclusive preferential treatment. C) used to secure contracts that would otherwise not be secured. D) permitted under the amended Foreign Corrupt Practices Act.

27) The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions excludes A) bribes made to secure contracts that would otherwise not be secured. B) grease payments to gain exclusive preferential treatment. C) facilitating payments made to expedite routine government action. D) payments to government officials for special privileges.

Version 1

28) 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 is known as A) moral relativism. B) noblesse oblige. C) ethical dilemma. D) corporate social responsibility.

29) In a business setting, what is taken to mean benevolent behavior that is the responsibility of successful enterprises? A) Sullivan’s principles B) ethical dilemma C) tragedy of the commons D) noblesse oblige

30) BP, one of the world’s largest oil companies, has made it part of the company policy to undertake “social investments” in the countries where it does business. There was no economic reason for BP to make this social investment, but the company believes it is morally obligated to give something back to the societies that have made its success possible. BP’s actions are an example of A) cultural relativism. B) the Friedman doctrine. C) noblesse oblige. D) the tragedy of the commons.

31) The accepted principles of right or wrong governing the conduct of businesspeople are referred to as

Version 1

A) sustainable strategies. B) business ethics. C) moral worth of actions. D) ethical strategies.

32)

In the international business setting, one of the most common ethical issues involves A) outsourcing of services. B) government deregulation. C) the moral obligation of multinational corporations. D) facilitating payments.

33)

Ethical dilemmas exist because many real-world decisions involve A) first-, second-, and third-order consequences that are hard to quantify. B) people from different cultures. C) employers and employees. D) people from different multinational firms.

34) Kyler was managing a factory in Thailand, and had a decision to make. The factory used child labor, which he disapproved of, but he knew the families of these children might starve without their income. This situation, in which none of the available alternatives seems morally acceptable, is called A) an ethical dilemma. B) noblesse oblige. C) the tragedy of the commons. D) the free rider problem.

Version 1

35) Why might managers working abroad in multinational firms behave in a manner that is unethical? A) They feel pressure to meet unrealistic performance goals. B) They cannot combat the pressure they receive from an ethical leader. C) They must align their personal ethics to the business ethics of the foreign firm. D) They incorporate ethical issues into strategic and operational decision making.

36) Expatriate managers may experience more than the usual degree of pressure to violate their personal ethics because they A) are surrounded by their ordinary social context and supporting culture. B) are psychologically and geographically closer to the parent company. C) may be based in a culture that does not place the same value on ethical norms important in the manager’s home country. D) may be surrounded by local employees who have more rigorous ethical standards.

37)

Which term refers to the values and norms that the employees of an organization share? A) vision statement B) cultural relativism C) organizational culture D) corporate social responsibility

38) Grant works at a fast-food restaurant. One day he noticed a coworker giving free food to a friend. In not knowing how to handle the situation, Grant will most likely follow the example of A) the other employees. B) his supervisor. C) his family. D) government leaders.

Version 1

39) __________ approaches to business ethics are raised by business ethics scholars primarily to demonstrate that they offer inappropriate ethical decision making in a multinational enterprise. A) Cultural relativism B) The righteous moralist C) Straw man D) The naive immoralist

40) __________ argument 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. A) Rawls’s B) Kantian C) Sullivan’s D) Friedman’s

41) According to the __________ point of view, a firm should adopt the ethics of the culture in which it is operating. A) cultural relativism B) righteous moralist C) naive immoralist D) utilitarian approach

Version 1

42) Nestor is the expatriate manager of his company's textile plant in Cambodia. He observes that the working conditions in the Cambodian facility are terrible, compared to the manufacturing plants in the United States. He also finds that wages are much lower in Cambodia. Nestor is bothered by this and insists that the facility in Cambodia follow the standards set forth in the United States. What straw men approach to ethics is Razor Sharp Electronics using? A) cultural relativist B) righteous moralist C) utilitarian D) naive immoralist

43) A British firm that sets up production units in China is accused of releasing untreated chemical waste into water bodies. The manager of the firm defends the firm stating that factories in China set up by French and American firms also release untreated chemical waste into water bodies. What approach to business ethics is the manager using? A) righteous moralist B) utilitarian C) naive immoralist D) cultural relativist

44) Business ethics that either deny the value of business ethics or apply the concept in a very unsatisfactory way are termed A) straw man. B) the Sullivan principles. C) just distribution. D) rights theories.

45) The __________ approaches to ethics hold that the moral worth of actions or practices is determined by their consequences.

Version 1

A) naive immoralist B) cultural relativist C) righteous moralist D) utilitarian

46) __________ recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures. A) Rights theories B) Utilitarians C) Cultural relativists D) Kantian ethics

47)

According to Milton Friedman, the social responsibility of business is to A) protect workers. B) improve society. C) monopolize an industry. D) increase profits.

48)

According to the Friedman doctrine,

A) ethics are nothing more than the reflection of culture. B) a multinational’s home-country standards of ethics are inappropriate to follow in foreign countries. C) businesses should not undertake social expenditures beyond those mandated by the law and required for the efficient running of a business. D) if a manager of a multinational sees that firms from other nations are not following environmental legislation in a host nation, that manager should not either.

Version 1

49)

Tiana is a cultural relativist, which means she likely believes

A) a firm should adopt the ethics of the culture in which it is operating. B) the only social responsibility of a firm is to increase profits. C) a firm’s ethical policies should remain the same in all cultures. D) a multinational should follow its home-country cultural practices in all the host countries where it has operations.

50) Child labor is permitted and widely employed in Country X. A multinational company entering Country X decides to employ minors in its subsidiary, even though it is against the multinational’s home-country ethics. Which approach to business ethics would justify the actions of the multinational company? A) righteous moralist B) cultural relativism C) the justice theory D) the rights theory

51) A multinational company is accused of paying bribes to the government of a host country to obtain permission to build a production factory. The public relations manager of the company defends the company’s actions as being ethically sound; he states that in the host country, paying bribes to government officials is the accepted norm and is in keeping with the social practices in the host country. The public relations manager is using which philosophical doctrine to defend the actions of the company? A) the Friedman doctrine B) righteous moralist C) noblesse oblige D) cultural relativism

Version 1

52) In its extreme viewpoint, __________ suggests that if a culture supports slavery, it is all right to use slave labor in the country. A) the Friedman doctrine B) noblesse oblige C) righteous moralist D) cultural relativism

53)

The righteous moralist suggests that

A) ethics are nothing more than the reflection of culture. B) a multinational’s home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. C) the social responsibility of business is to increase profits, so long as the company stays within the rules of law. D) 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.

54)

According to the naive immoralist,

A) a multinational’s home-country standards of ethics are the appropriate ones for companies to follow in foreign countries. B) the social responsibility of business is to increase profits, so long as the company stays within the rules of law. C) ethics are nothing more than the reflection of a culture. D) if firms in a host nation do not follow ethical norms, then the manager of a multinational should not follow ethical norms there either.

55) An American manager in El Salvador routinely pays off the local drug lord to guarantee that his plant will not be bombed and that none of his employees will be kidnapped. The manager argues that such payments are ethically defensible because everyone is doing it. The manager’s argument exemplifies which ethical approach?

Version 1

A) naive immoralist B) Kantian ethics C) righteous moralist D) noblesse oblige

56)

The utilitarian approach to business ethics suggests that A) people should be treated as ends and never purely as means to the ends of others. B) the moral worth of actions or practices is determined by their consequences. C) people have dignity and need to be treated as such. D) human beings have fundamental rights and privileges that transcend national cultures.

57) An appliance manufacturer has decided to build a new manufacturing facility in Mexico. This decision will force the company to shut down a small plant in Kentucky, but the company executives decide that since the new facility will cut operating costs in half, it is worth it to close the plant that only employs 50 people. This thinking exemplifies the ______ approach to ethics. A) naive immoralist B) Friedman doctrine C) Kantian ethics D) utilitarian

58) The products of Southern Stores, an international sports apparel chain, are manufactured in sweatshop factories in Vietnam. According to the company president, using sweatshop labor offers a means of livelihood to children and young adults, as well as supplies good quality apparel to customers at a lower cost. She asserts that the actions of the company are justified because it results in the benefit of the maximum number of people. The company president’s argument is based on which ethical viewpoint?

Version 1

A) the righteous moralist B) the Friedman doctrine C) Kantian approach to business ethics D) utilitarian approach to business ethics

59)

The Kantian approach to ethics suggests that

A) human beings have fundamental rights and privileges that transcend national boundaries. B) the moral worth of actions or practices is determined by their consequences. C) people should be treated as ends and never purely as means to the ends of others. D) ethics are nothing more than the reflection of culture.

60)

Identify the correct statement about the rights theories.

A) Human beings have fundamental rights and privileges that transcend national boundaries. B) The moral worth of actions or practices is determined by their consequences. C) People should be treated as ends, never purely as means to the ends of others. D) The only social responsibility of business is to increase profits, so long as the company stays within the rules of law.

61) Which person believed that people should be treated as ends and never purely as means to the ends of others? A) John Stuart Mill B) Immanuel Kant C) Milton Friedman D) David Hume

Version 1

62) The United Nations Universal Declaration of Human Rights, related to employment, upholds which principle? A) the requirement for the formation of trade unions B) a sliding pay scale based upon need C) prohibition of trade unions D) protection against unemployment

63) Article 1 of the United Nations Universal Declaration of Human Rights states: All human beings are born free and equal in dignity and rights. This best echoes A) cultural relativism. B) the Friedman doctrine. C) the righteous moralist approach. D) Kantian ethics.

64) 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 thinking is in direct contrast to A) cultural relativism. B) Kantian ethics. C) rights theories. D) justice theories.

65)

Justice theories of business ethics focus on

Version 1

A) the moral worth of actions or practices. B) minimum levels of morally acceptable behavior. C) fundamental rights and privileges that transcend national boundaries. D) the attainment of a fair and equitable distribution of goods and services.

66)

John Rawls would agree with which statement?

A) Each person should be permitted the maximum amount of basic liberty compatible with a similar liberty for others. B) Freedom of speech and assembly is the single most important component in a justice system. C) Equal basic liberty is impossible to achieve in a pure market economy. D) Ethics is culturally determined.

67) Rawls’s philosophy that inequalities are justified if they benefit the position of the leastadvantaged person is known as the ______ principle. A) inequality B) equity C) difference D) ignorance veil

68)

According to John Rawls’s difference principle,

A) certain people or institutions are obligated to provide benefits or services that secure the rights of others. B) fundamental human rights should transcend national borders and cultures. C) the best decisions are those that produce the greatest good for the greatest number of people. D) inequalities are justified if they benefit the position of the least-advantaged person.

Version 1

69) A _____________ 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. A) Kantian ethicist B) righteous moralist C) naive immoralist D) utilitarian ethicist

70) Any person or institution that is capable of moral action such as a government or corporation is a A) moral agent. B) straw man. C) righteous moralist. D) naive immoralist.

71)

Under the veil of ignorance, everyone is imagined to be ignorant of A) all of their particular characteristics. B) fundamental rights and privileges. C) the moral worth of actions or practices. D) the minimum levels of morally acceptable behavior.

72) The veil of ignorance was developed by __________ as part of his approach to justice theories. A) Milton Friedman B) John Rawls C) Kantian D) Leon Sullivan

Version 1

73) _____________ enables managers to walk away from a decision that is profitable but unethical. A) Utilitarianism B) Righteousness C) Just distribution D) Moral courage

74)

A(n) ______ is considered an external stakeholder of an organization. A) employee B) board member C) customer D) shareholder

75)

External stakeholders A) are individuals or groups who own the business. B) include all employees, the board of directors, and stockholders. C) are typically customers, suppliers, competitors, etc. D) are individuals or groups who work for the business.

76)

Which group is an internal stakeholder? A) employees B) customers C) special-interest groups D) the board of directors

Version 1

77) __________ is a French term that refers to honorable and benevolent behavior, considered the responsibility of people of high (noble) birth. A) Bienveillante B) Honourable C) Aristocratic D) Noblesse oblige

78) _____________ means standing in the shoes of a stakeholder and asking how a proposed decision might impact that stakeholder. A) Veil of ignorance B) Difference principle C) Moral imagination D) Noblesse oblige

79) Davey works at a computer servicing center. His supervisor tells him to invoice the client for additional computer parts even though they will not be installed, stating “the customer will never know.” Davey refuses to do so. His response is an example of A) noblesse oblige. B) moral courage. C) just distribution. D) cultural relativism.

80) Companies can strengthen the __________ of employees by committing themselves to not retaliate against employees who complain about unethical actions.

Version 1

A) moral courage B) cross-cultural literacy C) veil of ignorance D) organizational culture

81) Establishing _____________ involves a business resolving to place moral concerns ahead of other concerns in cases where either the fundamental rights of stakeholders or key moral principles have been violated. A) a veil of ignorance B) a difference principle C) moral imagination D) moral intent

82) What is the term for a company’s formal statement of the ethical priorities it expects all of its employees to follow? A) code of ethics B) stakeholder pledge C) mission statement D) difference principle

83) As it relates to sustainability, what principle suggests that when assessing an action, if the state of scientific knowledge were uncertain, the action should not be pursued or be postponed until more knowledge becomes available? A) wait-and-see principle B) precautionary principle C) moral courage principle D) righteous moralist principle

Version 1

84) The core idea behind ______ is that an organization’s actions will not exert a negative impact on the ability of future generations to meet their own economic needs and that its actions impart long-run economic and social benefits on stakeholders. A) universalism B) sustainability C) just distribution D) moral imagination

85) Ethical strategies are the accepted principles of right or wrong governing the conduct of businesspeople. ⊚ true ⊚ false

86) Many ethical issues in international business are rooted in the fact that political systems, the law, economic development, and culture vary significantly from nation to nation. ⊚ true ⊚ false

87) The Sullivan principles mandated that GM could operate in South Africa as long as the company did not comply with and promoted the abolition of apartheid laws. ⊚ true ⊚ false

88) Corporations can contribute to the global tragedy of the commons by pumping pollutants into the atmosphere or dumping them in oceans or rivers in locations with weak environmental standards. ⊚ true ⊚ false

Version 1

89) International business executives find that making payments to corrupt government officials never results in economic advantages. ⊚ true ⊚ false

90) The Foreign Corrupt Practices Act was amended to allow “facilitating payments” to secure contracts that would not otherwise be secured. ⊚ true ⊚ false

91) There is no excuse for multinational corporations to ignore the ethical obligations placed upon them as it pertains to employment conditions, human rights, environmental pollution, and the use of power, since these obligations are well-known and are always clear-cut. ⊚ true ⊚ false

92) Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable. ⊚ true ⊚ false

93)

Personal ethics are unique to the individual and have no effect on societal business ethics. ⊚ true ⊚ false

94) An individual with a strong sense of personal ethics is less likely to behave in an unethical manner in a business setting.

Version 1

⊚ ⊚

true false

95) A firm’s values and norms shape its culture which, in turn, has an important influence on the ethics of the firm’s business decision making. ⊚ true ⊚ false

96) Milton 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. ⊚ true ⊚ false

97) Milton Friedman would argue that ethics are nothing more than a reflection of culture and therefore, a firm should adopt the ethics of the culture in which it is operating. ⊚ true ⊚ false

98) Cultural relativism suggests that even if slavery is culturally acceptable in a country, a foreign firm operating in that country should avoid using slave labor. ⊚ true ⊚ false

99) A manager from the United States is sent to Kenya to supervise the construction of a road. As a righteous moralist, he is likely to learn the ethics and values of Kenya and follow them, even if they don’t concur with his own. ⊚ true ⊚ false

Version 1

100) Most moral philosophers see value in utilitarian and Kantian approaches to business ethics. ⊚ true ⊚ false

101)

Utilitarian philosophy, based on the principle of justice, is considered fair and equitable. ⊚ true ⊚ false

102) According to Rawls, inequalities are unjust even if the system that produces inequalities is to the advantage of everyone. ⊚ true ⊚ false

103) Building an organizational culture that places a high value on ethical behavior requires incentive and reward systems. ⊚ true ⊚ false

104) Social responsibility refers to the idea that businesspeople should favor decisions that have both good economic and social consequences. ⊚ true ⊚ false

105) To establish moral intent, managers need to stand in the shoes of a stakeholder and ask how a proposed decision might impact that stakeholder.

Version 1

⊚ ⊚

true false

106) Fostering ethical behavior in a company is easily achieved by simply providing a company-specific code of ethics. ⊚ true ⊚ false

107) In a business setting, noblesse oblige is taken to mean benevolent behavior that is the responsibility of successful enterprises. ⊚ true ⊚ false

108) Ethics officers are hired by many businesses to make sure that all employees are trained to be ethically aware and to address employees’ questions about issues that may be ethical or unethical. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 05_14th Edition 17) A 18) B 19) C 20) A 21) A 22) B 23) D 24) C 25) A 26) D 27) C 28) D 29) D 30) C 31) B 32) C 33) A 34) A 35) A 36) C 37) C 38) B 39) C 40) D 41) A 42) B Version 1

43) C 44) A 45) D 46) A 47) D 48) C 49) A 50) B 51) D 52) D 53) B 54) D 55) A 56) B 57) D 58) D 59) C 60) A 61) B 62) D 63) D 64) A 65) D 66) A 67) C 68) D 69) C 70) A 71) A 72) B Version 1

73) D 74) C 75) C 76) A 77) D 78) C 79) B 80) A 81) D 82) A 83) B 84) B 85) FALSE 86) TRUE 87) TRUE 88) TRUE 89) FALSE 90) FALSE 91) FALSE 92) TRUE 93) FALSE 94) TRUE 95) TRUE 96) TRUE 97) FALSE 98) FALSE 99) FALSE 100) TRUE 101) FALSE 102) FALSE Version 1

103) TRUE 104) TRUE 105) FALSE 106) FALSE 107) TRUE 108) TRUE

Version 1

CHAPTER 6 1)

Explain the concept of free trade.

How does the Heckscher-Ohlin theory explain international trade?

3) Explain how the theories of trade differ in terms of their support to governmental intervention.

Explain Smith’s theory of absolute advantage.

Explain Ricardo’s theory of comparative advantage.

Version 1

Identify a major disadvantage of the product life-cycle theory.

Explain how the rivalry within an industry affects international competence.

What are the four attributes that are discussed in Porter’s diamond?

9) What are the assumptions that we make when we discuss a simple Ricardian model to support free trade?

Version 1

10) Briefly differentiate between constant returns to specialization and diminishing returns to specialization.

11)

Explain how the principle of diminishing returns weakens the Ricardian model.

12)

Explain the dynamic gains that are generated by opening an economy to trade.

13)

Explain Paul Samuelson’s critique.

Version 1

14) Do you think a new trade theorist would stress the role of luck and entrepreneurship? Explain.

15) Which theory would support the idea that by increasing the efficiency of resource utilization in the global economy, international trade results in greater economic growth and provides economic benefits to all countries that participate in a global trading system? A) first-mover advantage B) economies of scale C) gains from trade D) zero-sum game

16) Antonio is an artisan. The country he lives in allows him to sell his goods to people in other countries without any quotas or tariffs. Likewise, he is free to buy materials he needs for his craft from other countries without any restrictions. The country in which Antonio lives practices A) fair trade. B) socialism. C) free trade. D) mercantilism.

Version 1

17) What theory that supports the view that, in some cases, countries export because in certain industries the world market can support only a limited number of firms? A) Heckscher-Ohlin theory B) Smith’s theory C) Ricardo’s theory D) new trade theory

18) Country A exports electronic goods to Country B although there are no underlying differences in factor endowments between the two countries. Which theory explains this anomaly? A) comparative advantage theory B) new trade theory C) Ricardo’s theory D) Smith’s theory

19) Which observation is consistent with Michael Porter’s theory of national competitive advantage? A) Factors such as domestic demand and domestic rivalry explain nations’ dominance in production. B) Countries should produce only those goods for which they have a comparative advantage. C) Interplay between the factors of production cause international marketing decisions. D) International differences in labor productivity determine nations’ supremacy in production.

20) Which theory can be used to justify limited government intervention to support the development of certain export-oriented industries?

Version 1

A) Smith’s theory B) Ricardo’s theory C) new trade theory D) Heckscher-Ohlin theory

21) Which term refers to a situation where a government does not attempt to influence through quotas or tariffs what its citizens can buy from another country? A) economic patriotism B) protectionism C) free trade D) offshoring

22)

A major benefit of engaging in free trade is that it A) helps to reduce the financial volatility in global markets. B) helps countries protect the jobs that are available to their citizens. C) gives countries access to products that they cannot produce. D) allows governments to exert more control on businesses.

23) the

David Ricardo’s theory of comparative advantage explains international trade in terms of

A) varying proportions in the factors of production. B) number of firms that the world market can support. C) differences in productivity. D) late-mover advantage that certain countries and firms possess.

Version 1

24) Which theory emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods? A) Porter’s theory B) Smith’s theory C) Ricardo’s theory D) Heckscher-Ohlin theory

25) __________ stresses that in some cases countries specialize in the production and export of particular products because the world market can support only a limited number of firms. A) New trade theory B) Absolute advantage C) The world market theory D) Mercantilism

26)

__________ supports the idea that countries should export more than they import. A) Absolute advantage B) Mercantilism C) The world market theory D) New trade theory

27)

The principle of mercantilism views trade as a(n) __________ game. A) equal B) positive-sum C) zero-sum D) negative-sum

Version 1

28) __________ argued that countries should specialize in the production of goods for which they have an absolute advantage. A) Paul Krugman B) David Hume C) David Ricardo D) Adam Smith

29) Country A specializes in the production of copper and produces it more efficiently than any other country. It buys wheat, which it produces less efficiently than copper, from Country B, even though it produces wheat more efficiently than Country B. Which theory of international trade supports Country A’s decision to buy wheat from Country B? A) Ricardo’s theory of comparative advantage B) mercantilism C) Adam Smith’s theory of absolute advantage D) Vernon’s product life-cycle theory

30) The theory of comparative advantage suggests that trade is a __________ game in which all countries that participate realize economic gains. A) net-sum B) positive-sum C) zero-sum D) negative-sum

31)

The Heckscher-Ohlin theory predicts that countries will

Version 1

A) export those goods that make intensive use of factors that are locally scarce. B) export those goods that make intensive use of factors that are locally abundant. C) import those goods that make intensive use of factors that are locally abundant. D) import those goods that make intensive use of factors that are available worldwide.

32) The __________ theory argues that the pattern of international trade is determined by differences in factor endowments, rather than differences in productivity. A) comparative advantage B) Leontief Paradox C) Heckscher-Ohlin D) absolute advantage

33) A capital-intensive country exports products that are capital intensive. Which theory is this an example of? A) new trade B) Leontief paradox C) Porter’s diamond D) Heckscher-Ohlin

34) The __________ argues 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. A) product life-cycle theory B) Porter’s diamond C) new trade theory D) Leontief paradox

Version 1

35)

__________ are unit cost reductions associated with a large scale of output. A) Current account deficits B) Economies of scale C) Current account surpluses D) Factor endowments

36)

What is the main principle of mercantilism? A) Protection of domestic industries is not essential for a nation’s welfare. B) Government intervention is not required in global trade. C) Countries should encourage absolute free trade. D) It is in a country’s best interests to maintain a trade surplus.

37)

A flaw associated with mercantilism is that mercantilists A) do not support government intervention in trade. B) view trade as a zero-sum game. C) recommend policies to maximize imports. D) recommend countries maintain a negative trade balance.

38)

A country has an absolute advantage in the production of a product when it A) has the capability to produce the product within its boundaries. B) is more efficient than any other country in producing it. C) has the largest domestic demand for the product. D) has access to the raw materials needed to produce the product.

39) According to Adam Smith, a country should specialize in the production of a good when it has Version 1

A) an absolute advantage in the production of the good. B) a strong domestic demand for the good. C) the ability to help country increase its national output. D) the necessary raw materials for production.

40) Country A can produce product X, but it can also buy it at a cheaper price from Country B. Which course of action is suitable in this situation according to Adam Smith’s theory of absolute advantage? A) Country A should import product X from Country B and it should not attempt to produce it at home. B) Country A should partly import the product and also produce it domestically. C) Country A should produce more of product X and should attempt to obtain an absolute advantage for the product. D) Country A should subsidize the production of product X to obtain an absolute advantage over Country B.

41)

According to Ricardo’s theory of comparative advantage, a country should produce goods A) for which it has access to raw materials. B) that it can produce most efficiently. C) that have the highest domestic demand. D) for which it has an absolute advantage.

42)

Which statement supports the theory of comparative advantage? A) International trade is a zero-sum gain where one nation’s gain is another’s loss. B) Domestic industries are at risk when a country engages in free trade. C) A country should maintain a trade surplus to succeed in global trade. D) Global production is greater with unrestricted free trade than it is with restricted trade.

Version 1

43)

The theory of comparative advantage provides strong rationale for supporting the idea of A) business nationalism. B) free trade. C) protectionist trade policies. D) governmental intervention in trade.

44) Which term refers to a nation’s position in factors of production, such as skilled labor, land, or the capital necessary to compete in a given industry? A) current accounts B) factor endowments C) gains from trade D) economies of scale

45) The _______ predicts that countries will export those goods that make intensive use of factors that are locally abundant. A) theory of comparative advantage B) Ricardo theory C) new trade theory D) Heckscher-Ohlin theory

46)

Which statement is true of the Leontief paradox?

A) It shows an anomaly that occurs when a nation has high domestic demand for a product. B) It explains the relationship between domestic demand and comparative advantage. C) It disproved Ricardo’s theory of comparative advantage. D) It raised questions about the validity of the Heckscher-Ohlin theory.

Version 1

47) Despite the United States being abundant in capital compared to other nations, U.S. exports are less-capital intensive. This is in opposition to the Heckscher-Ohlin theory and is an example of A) Leontief’s paradox. B) Samuelson’s critique. C) economies of scale. D) gains from trade.

48) The rationale for the ______ theory is that the wealth and size of the U.S. market gave U.S. firms a strong incentive to develop new consumer products. A) absolute advantage B) Ricardo C) product life-cycle D) Heckscher-Ohlin

49) Country X, a developed country, invents a revolutionary electronic product. The country markets this new product in other poor countries to garner large profits. This occurrence is against the idea of A) product life-cycle theory. B) Ricardo’s theory. C) theory of absolute advantage. D) theory of comparative advantage.

50) Professor Nelson believes that early in the life cycle of a U.S. product, demand in other advanced countries is limited to high-income groups. Consequently, it is seldom worthwhile for firms in those countries to start producing the product. This view conforms to

Version 1

A) the product life-cycle theory. B) Ricardo’s theory. C) the theory of absolute advantage. D) the theory of comparative advantage.

51) A major disadvantage of the product life-cycle theory introduced by Vernon is that the theory A) is based on arguments which seem to be ethnocentric and dated. B) failed to explain the dominance of developed nations. C) applies only when a poor nation invents a new product. D) cannot be used to explain the production of luxury products.

52)

Which term refers to the unit cost reductions associated with increasing output levels? A) absolute advantage of production B) economies of scale C) constant marginal returns D) diminishing marginal returns

53) Walmart makes bulk purchases from its vendors and as a result it is able to get better deals than its competitors. This allows Walmart to offer greater discounts to its customers. In this case, Walmart benefits from A) first-mover advantage. B) constant marginal returns. C) economies of scale. D) absolute advantage of production.

Version 1

54)

What is one of the four attributes present in Porter’s diamond? A) economies of scale B) factor endowments C) structural innovation D) procedural innovation

55)

Which is a basic factor that a nation will possess as proposed by Porter? A) communication infrastructure B) skilled labor C) natural resources D) technological knowledge

56) Which factor, according to Porter, is most likely to give a country competitive advantage over another country? A) natural resources B) climate C) skilled labor and know-how D) demographics

57)

Porter argues that a nation’s firms gain competitive advantage if A) their domestic consumers lack technical awareness. B) they function in a labor-intensive market. C) the country has an abundant supply of unskilled workers. D) their domestic consumers are sophisticated and demanding.

Version 1

58) If the textile industry in a nation is characterized by vigorous domestic rivalry, which observation of this nation’s international competency is most likely to be true? A) The nation will have access to such basic factors of the textile industry as natural resources. B) The nation’s textile firms will have a competitive advantage in international trade. C) The domestic customers of the textile firms will be less demanding. D) The nation’s textile industry will lack the advanced factors that are necessary to be internationally competent.

59)

A country’s balance-of-payments accounts keep track of the A) basic factor endowments and advanced factor endowments that the nation possesses. B) payments to and receipts from other countries for a particular time period. C) income taxes paid by domestic firms and the spending on the firms. D) total value of taxes paid by domestic firms and the spending on the firms.

60) The balance-of-payment account that records onetime changes in the stock of assets is the ______ account. A) capital B) current C) financial D) monetary

61)

As a trade theory, mercantilism was based on the idea that a trade surplus would lead to A) an absolute advantage for all trading partners. B) accumulations of gold and silver. C) first-mover advantages. D) lower levels of imports and exports overall.

Version 1

62)

Factor endowments refer to the extent to which a country A) supports education, research, and development. B) develops the infrastructure to support industrialism. C) supports free trade. D) has such factors of production as land, labor, and capital.

63)

A neo-mercantilist strategy would promote A) limiting both imports and exports. B) the equal distribution of imports and exports. C) boosting both imports and exports. D) boosting exports and limiting imports.

64) According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to A) develop cost-saving process innovations. B) invite foreign direct investment in domestic industries. C) lower the cost of goods and services to offset a fall in demand. D) import more goods to combat rising costs.

65) Declan’s company manufactures specialized parts for automated machinery. Although it started out as a small company, with the advent of robotics and other technological innovations, the company now ships out such large quantities of product that its unit cost is less than half of its competitors. This scenario exemplifies the concept of

Version 1

A) product life cycle. B) economies of scale. C) gains from trade. D) diminishing returns.

66)

One of the advantages of being the first mover in a market is A) there is little risk involved. B) the ability to benefit from a higher cost structure. C) the ability to capture scale economies ahead of later entrants. D) local governments are more favorable to the first movers.

67)

Diminishing returns to specialization occur when A) each additional unit is produced with a lesser number of laborers. B) a nation’s gross domestic product declines for a few years. C) production possibility frontier appears as a rectangle. D) more units of resources are required to produce each additional unit.

68) What will happen, according to Paul Samuelson’s critique, if a rich country enters into a free trade agreement with a poor country? A) Both the countries will incur losses due to the exchanges between them. B) The productivity of the poor country will decline rapidly. C) The poor country will rapidly improve its productivity. D) Both the countries will garner benefits from the exchanges between them.

Version 1

69) Company A entered the production of office software before its competitors. Because of this, the company’s products are more familiar among and favored by customers. This situation exemplifies A) first-mover advantages. B) diminishing marginal returns. C) economies of scale. D) constant marginal returns.

70) Which theory suggests that first-mover advantages are significant in the export of a good? A) product life-cycle theory B) Ricardo’s theory C) new trade theory D) theory of comparative advantage

71)

New trade theory suggests that nations

A) increase their commitment to research and development. B) adopt policies that promote strong competition within domestic markets. C) cannot benefit from trade when they do not differ in resource endowments or technology. D) may benefit from trade even when they do not differ in resource endowments or technology.

72) The commercial aircraft industry can support only a limited number of firms, largely because the existence of established firms would make it difficult to be competitive. This is a basic tenet of

Version 1

A) mercantilism. B) the theory of absolute advantage. C) Heckscher-Ohlin theory. D) new trade theory.

73) Which theory stresses the role of luck, entrepreneurship, and innovation in the production and export of a good or service by the firms in a country? A) product life-cycle theory B) Ricardo’s theory C) theory of comparative advantage D) new trade theory

74)

Regarding the four components of the diamond, Porter contends that government

A) can influence the domestic demand conditions and the domestic rivalry components of the diamond, but not the other two components. B) can influence each of the four components of the diamond either positively or negatively. C) can influence the factor endowments and the related and supporting industries components of the diamond, but not the other two components. D) has little or no effect on the four components that shape the environment in which firms compete.

75) The theories of international trade claim that promoting free trade is generally in the best interests of

Version 1

A) a country, although it may not always be in the best interest of an individual firm or consumer. B) all multinational corporations. C) an individual firm, although it may not always be in the best interest of a country. D) the World Trade Organization.

76) When economists talk about the gains from trade, they are referring to the net profits realized by expanding one’s market for any given product. ⊚ true ⊚ false

77) Managed trade can be described as a situation in which issues related to trade—such as what can be traded and in what quantities—are determined by market forces, government mandates, and negotiated agreements. ⊚ true ⊚ false

78) Adam Smith’s theory of absolute advantage implies that a laissez-faire stance toward trade is in the best interests of a country. ⊚ true ⊚ false

79) Porter’s theory of national competitive advantage recommends that government should never interfere in free trade policies. ⊚ true ⊚ false

80)

Mercantilist doctrine advocates unrestricted free trade between countries.

Version 1

⊚ ⊚

true false

81) As a trade theory, the strongest feature of mercantilism is that it views trade as a positivesum game in which all countries can benefit. ⊚ true ⊚ false

82) 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

83) Factor endowments refer to a country’s factors of production, such as land, labor, and capital. ⊚ true ⊚ false

84) The Heckscher-Ohlin theory is considered the best predictor of real-world international trade patterns. ⊚ true ⊚ false

85) Heckscher-Ohlin theory stresses that comparative advantage arises from differences in productivity. ⊚ true ⊚ false

Version 1

86) A key assumption in the Heckscher-Ohlin theory is that technologies are the same across countries. ⊚ true ⊚ false

87) Some of the arguments made by the product life-cycle theory seem ethnocentric and increasingly dated when viewed from an Asian or European perspective. ⊚ true ⊚ false

88) Specialized Hydraulics manufactures and sells small quantities of each of its products, but it can still benefit from economies of scale. ⊚ true ⊚ false

89)

The simple model of free trade assumed away transportation costs between countries. ⊚ true ⊚ false

90) In the simple model of free trade, resources always move easily from one economic activity to another. ⊚ true ⊚ false

91) According to Paul Samuelson’s critique, a poor country will rapidly improve its productivity if a rich country enters into a free trade agreement with it. ⊚ true ⊚ false

Version 1

92) Apple’s iPhone was unique when it first came out, with many features that no other phones had. As such, it enjoyed great success and dominated the cell phone market. This demonstrates the first-mover advantage. ⊚ true ⊚ false

93) New trade theorists stress the role of luck, entrepreneurship, and innovation in giving a firm first-mover advantages. ⊚ true ⊚ false

94) According to the new trade theory, firms that establish a first-mover advantage with regard to the production of a particular new product may subsequently dominate global trade in that product. ⊚ true ⊚ false

95) From a profit perspective, it makes sense for firms to disperse their productive activities to those countries where they can be performed most efficiently. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 06_14th Edition 15) C 16) C 17) D 18) B 19) A 20) C 21) C 22) C 23) C 24) D 25) A 26) B 27) C 28) D 29) A 30) B 31) B 32) C 33) D 34) A 35) B 36) D 37) B 38) B 39) A 40) A Version 1

41) B 42) D 43) B 44) B 45) D 46) D 47) A 48) C 49) A 50) A 51) A 52) B 53) C 54) B 55) C 56) C 57) D 58) B 59) B 60) A 61) B 62) D 63) D 64) A 65) B 66) C 67) D 68) C 69) A 70) C Version 1

71) D 72) D 73) D 74) B 75) A 76) FALSE 77) TRUE 78) TRUE 79) FALSE 80) FALSE 81) FALSE 82) TRUE 83) TRUE 84) FALSE 85) FALSE 86) TRUE 87) TRUE 88) FALSE 89) TRUE 90) FALSE 91) TRUE 92) TRUE 93) TRUE 94) TRUE 95) TRUE

Version 1

CHAPTER 7 1)

Compare and contrast import quotas and voluntary export restraints.

Describe the Buy America Act. What is its connection with local content requirements?

Define dumping. How do governments respond to charges of dumping?

Explain the notion of predatory behavior with regard to dumping.

Discuss the economic reasons for government intervention in markets.

Version 1

6) Discuss the infant industry argument for intervention in markets. What is GATT’s position on the argument?

7) Summarize Paul Krugman’s arguments against adopting a trade policy that benefits domestic firms at the expense of other countries.

Discuss the establishment of GATT. What was GATT’s objective?

What happened to GATT during the 1980s and early 1990s?

Version 1

10) What has been the experience of the WTO to date? What does the future look like for the organization?

11)

What are the central issues facing the WTO at the present time?

12) Why are tariff rates on agricultural products generally higher than tariff rates on manufactured products or services?

13)

What is the TRIPS agreement? Why was it established?

Version 1

14)

Discuss the Doha Round of trade talks.

15) Explain the disadvantages of government protectionism as it relates to competitive advantage.

16)

__________ are levied as a proportion of the value of the imported good. A) Specific tariffs B) Import quotas C) Ad valorem tariffs D) Tariff rate quotas

17) To help farmers who are struggling with their crops in harsh economic times, the U.S. government might provide cash grants, low-interest loans, or tax breaks. By lowering the farmers’ production costs in a difficult economic environment, these ______ help the farmers compete against foreign imports and gain export markets. Version 1

A) ad valorem tariffs B) specific tariffs C) import quotas D) subsidies

18) The extra profit that producers make when supply is artificially limited by an import quota is referred to as a A) quota rent. B) specific tariff. C) tariff rate quota. D) subsidy.

19) The __________ 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. A) General Agreement on Tariffs and Trade B) Buy America Act C) American Reinvestment Act D) Smoot-Hawley Act

20) The United States has raised taxes on avocados imported from Mexico. These taxes are an example of a(n) A) tariff. B) import quota. C) local content requirement. D) subsidy.

Version 1

21)

Of the main instruments of trade policy, which is the oldest and simplest? A) tariffs B) subsidies C) import quotas D) bans

22)

Specific tariffs are A) levied as a proportion of the value of the imported good. B) government payments to domestic producers. C) limits on trade imposed by an exporting company. D) levied as a fixed charge for each unit of a good imported.

23)

Tariffs do not benefit A) consumers. B) domestic producers. C) governments. D) domestic firms.

24)

Which observation about tariffs is true? A) Tariffs are generally anti-producer and pro-consumer. B) Export tariffs are used to ensure there is sufficient supply of a good within a country. C) Import tariffs reduce domestic prices on goods. D) Import tariffs increase the overall efficiency of the world economy.

Version 1

25)

Antidumping duties are often called A) export duties. B) positive duties. C) retroactive duties. D) countervailing duties.

26)

Import tariffs A) reduce the price of foreign goods. B) create efficient utilization of resources. C) reduce the overall efficiency of the world economy. D) are generally pro-consumer and anti-producer.

27) In the United States, 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. This is an example of A) a subsidy. B) an import quota. C) a local content requirement. D) an ad valorem tariff.

28) Country X is efficient in producing heating and cooling equipment. Foreign firms can sell coils and exchangers to this country at a competitive price, but the government of country X stipulates that at least 60 percent of the component parts must be produced domestically in the country. This is an example of a(n) A) antidumping restraint. B) quota rent. C) local content requirement. D) voluntary export restraint.

Version 1

29) A company that sells its product in a foreign market below the cost of production may be accused of A) pandering. B) profiteering. C) carnivorous behavior. D) dumping.

30) By lowering production costs, __________ help domestic producers compete against foreign imports and gain export markets. A) subsidies B) duties C) quotas D) tariffs

31)

Which observation about subsidies is true?

A) Government subsidies must be paid for, typically by taxing individuals and corporations. B) Subsidies are used to reduce exports from a sector, often for political reasons. C) All subsidies are successful at increasing the international competitiveness of domestic producers. D) Subsidies help foreign producers gain a competitive advantage over domestic producers.

32)

A consequence of subsidies is that subsidies

Version 1

A) make domestic producers vulnerable to foreign competition. B) lead to lowered production. C) protect inefficient domestic producers. D) produce revenue for the government.

33) According to the __________ policy, subsidies can help a firm achieve a first-mover advantage in an emerging industry. A) strategic trade B) antidumping C) tariff quota D) free trade

34) An ____ is a direct restriction on the quantity of some good that may be imported into a country. A) import tariff B) import quota C) import subsidy D) ad valorem tariff

35)

A common hybrid of a quota and a tariff is known as A) an import tariff quota. B) a voluntary export restraint. C) an ad valorem tariff. D) a tariff rate quota.

36)

Who benefits from an import tariff?

Version 1

A) the government B) consumers C) foreign producers D) everyone

37) If a country is experiencing a surge of auto parts from a trading manufacturer, it might ask that country to set a limit on how much can be exported. This limit is known as a(n). A) voluntary export restraint. B) quota rent. C) tariff rate quota. D) export embargo.

38) The Japanese government was pressured by the U.S. government to place limits on the number of vehicles exported to the United States by Japanese automobile producers in 1981. This is an example of A) tariff rate quota. B) specific tariffs. C) voluntary export restraint. D) ad valorem tariff.

39)

Tariff rate quotas are common in agriculture, where their goal is to A) reduce the use of synthetic fertilizers. B) limit imports over quota. C) increase agricultural imports. D) increase foreign competition.

Version 1

40) Domestic producers experience limited import conditions 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) a trade surplus. B) an ad valorem profit. C) a countervailing duty. D) a quota rent.

41)

Foreign producers typically agree to voluntary export restrictions because A) their manufacturing capacity is limited. B) they can divert their exports to other countries and charge more for their products. C) they fear far more damaging punitive tariffs or import quotas might follow if they do

not. D) they are required to by the World Trade Organization.

42)

Which statement concerning a voluntary export restraint is true? A) It benefits domestic producers by limiting import competition. B) In most cases, it benefits consumers. C) It lowers the domestic price of an imported good. D) It is a variant of the ad valorem tariff.

43) According to __________, some specific fraction of a good must be produced domestically. A) import quotas B) voluntary export restraints C) local content requirements D) antidumping duties

Version 1

44) According to the Buy America Act, if a company 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. This is an example of A) antidumping duties. B) voluntary export restraints. C) import quotas. D) local content requirements.

45)

Local content regulations A) protect domestic producers by limiting foreign competition. B) lower the prices of imported components. C) tend to benefit consumers and not producers. D) encourage outsourcing of production units.

46)

What are administrative trade policies? A) Requirements that some specific fraction of a good be produced domestically. B) Quotas on trade imposed by the exporting country. C) Bureaucratic rules designed to make it difficult for imports to enter a country. D) Punishments to foreign firms that engage in dumping.

47) Suppose Australia exports lithium-ion batteries to almost every country in the world except Japan because Japan’s customs inspectors insist on testing every battery to ensure it works. This would be an example of which trade barrier?

Version 1

A) export restraint B) administrative trade policies C) local content requirement D) ad valorem

48) If Italy exports vast quantities of olive oil to Greece, selling it below Italy’s cost of production, it would be an example of A) an export restraint. B) dumping. C) local content requirements. D) countervailing.

49) In 1997, two South Korean manufacturers of semiconductors, LG Semicon and Hyundai Electronics, were accused of selling dynamic random access memory chips (DRAMs) in the U.S. market at below their costs of production. It was alleged that the firms were trying to unload their excess production in the United States. This is an example of A) an ad valorem tariff. B) a subsidy. C) dumping. D) an import quota.

50) What was the purpose of the establishment of the Common Agricultural Policy (CAP) by the European Union? A) to increase imports and raise prices B) to protect the jobs of Europe’s farmers C) to increase the import of grapes for the wine industry D) to make farmers in Europe more productive

Version 1

51) According to the infant industry argument, many developing countries have a potential __________ in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries. A) absolute advantage B) comparative advantage C) opportunity cost D) competitive advantage

52) Strategic trade policy suggests that a government should use __________ to support promising firms that are active in newly emerging industries. A) tariff rate quotas B) quota rents C) subsidies D) ad valorem tariffs

53) The U.S. government has used the threat of punitive trade sanctions to try to get the Chinese government to enforce intellectual property laws. This is an example of government intervention based on A) countervailing duties. B) national security. C) administrative trade policies. D) retaliation.

54) According to the __________ argument, governments should temporarily support new industries until they have grown strong enough to meet international competition.

Version 1

A) retaliatory action B) human rights C) infant industry D) antidumping

55)

The infant industry argument is criticized because it relies on an assumption that

A) new manufacturing industries in developing nations can initially compete with established industries in developed countries. B) selling goods in a foreign market at below their “fair” market value is legally and ethically justified. C) the domestic industry in a developing nation lacks the capacity to meet demand. D) firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market.

56)

According to the strategic trade policy argument,

A) government intervention is not required because firms can borrow money from the capital markets to finance the required investments. B) selling goods in a foreign market at below their “fair” market value is legally and ethically justified. C) government support can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors. D) a government should use subsidies to support promising firms that are active in old, established industries.

57)

A political reason for governments to intervene in markets would be to

Version 1

A) help citizens obtain jobs in foreign markets. B) aid their country’s businesses in foreign markets. C) subsidize multinational companies. D) protect jobs and industries from unfair foreign competition.

58) Strategic trade policy suggests that in industries where the existence of substantial scale economies implies that the world will profitably support only a few firms, countries may predominate in the export of certain products simply because they had firms that were able to A) influence the assignment of tariffs. B) influence the assignment of quotas C) capture first-mover advantages. D) capitalize on late-mover advantages.

59) Economist Paul Krugman has suggested that trade policy designed to retaliate against another country’s trade policy would A) benefit the multinational firms of both countries. B) benefit the citizens of both countries. C) hurt the multinational firms of both countries. D) hurt the citizens of both countries.

60) Economist Paul Krugman suggests that strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that A) provides enhanced protection for intellectual property of those firms. B) boosts national income at the expense of other countries. C) reduces domestic agricultural profits. D) depletes national income to the benefit of other countries.

Version 1

61) Economic problems during the Great Depression were compounded in 1930 when the U.S. Congress passed the __________, aimed at avoiding rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products. A) Smoot-Hawley Act B) Antidumping Act C) Helms-Burton Act D) D’Amato Act

62) Free trade as a government policy was first officially embraced by Great Britain in 1846, when the British Parliament repealed a law that placed a high tariff on A) all agricultural products. B) wheat. C) textiles. D) corn.

63)

The Smoot-Hawley Act was aimed at A) diverting consumer demand toward foreign products. B) promoting unrestricted free trade. C) limiting global warming. D) avoiding rising unemployment.

64)

What was the result of the Smoot-Hawley Act? A) Other countries reacted by raising their own tariff barriers. B) Other countries reacted by lowering their trade barriers. C) U.S. exports increased. D) The United States began to get out of the Great Depression.

Version 1

65) What reason can be attributed to the pressure for greater protectionism that occurred during the 1980s and early 1990s? A) The U.S. Congress erected an enormous wall of tariff barriers. B) Japanese economic failure strained the world trading system. C) The persistent trade surplus in the United States strained the world trading system. D) Many countries found ways to get around GATT regulations.

66)

The ultimate purpose of GATT was to A) safeguard intellectual property rights. B) eliminate barriers to free trade. C) subsidize agricultural workers. D) protect rising unemployment.

67) According to the 1986 Uruguay Round, the __________ was to be created to implement the GATT agreement. A) World Trade Organization B) International Monetary Fund C) United Nations D) World Bank

68) After the Uruguay Round of GATT negotiations extended global trading rules to cover trade in services, the first two industries targeted for reform by the WTO were A) textiles and technology. B) telecommunications and financial services. C) automotive and aerospace. D) agriculture and consulting services.

Version 1

69) The WTO argues that removing tariff barriers and subsidies in the agricultural sector could A) protect domestic agriculture in developed nations. B) lower the overall level of agricultural trade. C) restrict global economic growth. D) lower prices to consumers and make it fairer for developing nations.

70)

The TRIPS regulations established at the 1995 Uruguay Round A) established regulations on patents and copyrights. B) set a new level of agriculture subsidies. C) organized OECD countries to eliminate tariffs on textiles. D) established new tariff levels on technology.

71)

TRIPS regulations oblige WTO members to A) grant and enforce patents lasting at least 100 years. B) grant and enforce copyrights lasting 100 years. C) comply with the rules within five years in the case of the rich countries. D) comply with the rules within 10 years in the case of the poorest countries.

72) __________ are the highest rate that can be charged, which is often, but not always, the rate that is charged. A) Ad valorem tariff rates B) Tariff rents C) Specific tariff rates D) Bound tariff rates

Version 1

73)

The WTO’s GATS has taken the lead in A) providing enhanced protection for intellectual property. B) extending free trade agreements to services. C) reducing agricultural subsidies. D) enforcing GATT rules.

74)

Tariff rates on agricultural products are generally A) much lower than tariff rates on manufactured products or services. B) much lower than import fees on electronics. C) much higher than tariff rates on manufactured products or services. D) much higher than import fees on electronics.

75)

One issue at the forefront of the agenda of the WTO is the A) decrease in antidumping policies. B) low level of protectionism in agriculture. C) strong protection for intellectual property rights in many nations. D) continued high tariff rates on goods and services in many nations.

76) WTO rules allow countries to __________ 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. A) impose antidumping duties on B) subsidize C) lower the import quota on D) place countervailing duties on

Version 1

77) The __________ raised tariff barriers in the hope of protecting jobs and diverting consumer demand away from foreign products. A) Smoot-Hawley Act B) Helms-Burton Act C) General Agreement on Tariffs and Trade D) Buy America Act

78)

A key goal of the 1986 Uruguay Round was to A) extend GATT to cover trade in commodities. B) extend GATT rules to cover trade in services. C) increase agricultural subsidies. D) loosen the GATT’s monitoring and enforcement mechanisms.

79) GATS, a sister body of the World Trade Organization, is responsible for extending free trade agreements to A) agriculture. B) commodities. C) services. D) intellectual property.

80)

Inadequate protections for intellectual property A) led to the creation of GATS. B) led to the Smoot-Hawley Act. C) reduce the incentive for innovation. D) are one of the issues addressed by the local content requirement.

Version 1

81) __________ in agriculture could jump-start economic growth among the world’s poorer nations and alleviate global poverty. A) Quota rents B) Free trade C) Strategic trade policy D) Subsidies

82) A government intervenes to help firms and industries establish a competitive advantage. What may happen as a result of this action? A) It may invite retaliation and trigger a trade war. B) The policies may be captured by foreign investors and turned to their advantage. C) Despite being well executed, the intervention is unlikely to work. D) They usually establish new tariff levels on technology—to the detriment of all in the industry.

83)

Which is a trade barrier that affects a firm’s strategy?

A) Tariffs lower the cost of exporting. B) Quotas may enhance a firm’s ability to serve a country from outside of that country. C) To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise. D) The threat of antidumping actions promotes the firm’s ability to use aggressive pricing to gain market share in a country.

84) Many firms, of all national origins, increasingly depend on __________ for their competitive advantage.

Version 1

A) globally dispersed production systems B) specific tariffs C) infant industries D) subsidies

85)

Identify the true statement about trade barriers.

A) They lower the costs of exporting products to a country. B) They may put a firm at a competitive advantage to indigenous competitors. C) They may help a firm to serve a country from locations outside of that country. D) To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise.

86)

What is the result of the threat of antidumping action?

A) It limits the ability of a firm to use aggressive pricing to gain market share in a country. B) It enhances competition from low-cost foreign producers. C) It helps the firm raise capital in the primary market. D) It enhances a firm’s competitive advantage against other domestic competitors.

87) Business firms that lobby their governments to engage in protectionism may miss the opportunity to build __________ by constructing a globally dispersed production system. A) an absolute advantage B) a competitive advantage C) a strategic trade advantage D) a comparative advantage

Version 1

88) Tariffs are seen as being anti-producer since they tend to increase foreign competition and lower domestic prices overall. ⊚ true ⊚ false

89)

Export tariffs are far less common than import tariffs. ⊚ true ⊚ false

90) Under a tariff rate quota, a higher tariff rate is applied to imports within the quota than those over the quota. ⊚ true ⊚ false

91) A country adopts a “make and buy local” act stating that for a product to be labeled as domestically made, 60 percent of its component parts must be manufactured in the country. This reflects a local content requirement and serves to benefit both the producer and the local consumer. ⊚ true ⊚ false

92) Administrative trade policies are bureaucratic rules designed to make it difficult for imports to enter a country. ⊚ true ⊚ false

93) A U.S. manufacturing plant allows its hazardous waste to empty into a local waterway. Antidumping policies are designed to punish domestic firms that engage in such practices. ⊚ true ⊚ false Version 1

94) Protecting industries deemed important for national security, consumer protection, and retaliating against unfair foreign competition are economic arguments for government intervention. ⊚ true ⊚ false

95) The infant industry argument is the most recent argument proposed for government intervention in trade. ⊚ true ⊚ false

96) The strategic trade policy argues that governments can help raise national income if they can ensure domestic firms gain first-mover advantages in any given industry. ⊚ true ⊚ false

97) Governments do not always act in the national interest when they intervene in the economy; politically important interest groups often influence them. ⊚ true ⊚ false

98)

Trade wars benefit countries with interventionist governments. ⊚ true ⊚ false

99) During the 1980s and early 1990s, the world trading system erected by the GATT gained momentum as protectionist demands generally decreased across the world.

Version 1

⊚ ⊚

true false

100) The World Trade Organization was created as part of the Uruguay Round of GATT negotiations. ⊚ true ⊚ false

101)

The WTO does not have the power to impose trade sanctions. ⊚ true ⊚ false

102) Antidumping actions are concentrated in certain sectors of the economy such as basic metal industries, chemicals, plastics, and machinery and electrical equipment. ⊚ true ⊚ false

103) The TRIPS regulations oblige WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years. ⊚ true ⊚ false

104) One of the successful outcomes of the Doha Round negotiations has been that many nations have proceeded with bilateral free trade agreements. ⊚ true ⊚ false

105)

Tariffs on industrial goods remain higher than tariffs on services.

Version 1

⊚ ⊚

106)

true false

Tariff barriers raise the costs of exporting products to a country. ⊚ true ⊚ false

107) To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 07_14th Edition 16) C 17) D 18) A 19) B 20) A 21) A 22) D 23) A 24) B 25) D 26) C 27) B 28) C 29) D 30) A 31) A 32) C 33) A 34) B 35) D 36) A 37) A 38) C 39) B 40) D 41) C Version 1

42) A 43) C 44) D 45) A 46) C 47) B 48) B 49) C 50) B 51) B 52) C 53) D 54) C 55) D 56) C 57) D 58) C 59) D 60) B 61) A 62) D 63) D 64) A 65) D 66) B 67) A 68) B 69) D 70) A 71) D Version 1

72) D 73) B 74) C 75) D 76) A 77) A 78) B 79) C 80) C 81) B 82) A 83) C 84) A 85) D 86) A 87) B 88) FALSE 89) TRUE 90) FALSE 91) FALSE 92) TRUE 93) FALSE 94) FALSE 95) FALSE 96) TRUE 97) TRUE 98) FALSE 99) FALSE 100) TRUE 101) FALSE Version 1

102) TRUE 103) TRUE 104) FALSE 105) FALSE 106) TRUE 107) TRUE

Version 1

CHAPTER 8 1)

Discuss the two main forms of FDI.

2) Discuss the trends in FDI over the past 30 years. Be sure to differentiate between the stock of FDI and the flow of FDI.

Discuss the reasons for the growth in FDI over the past 30 years.

4) What is a greenfield investment? How does it compare to an acquisition? Which form of FDI is a firm more likely to choose? Explain your answer.

Version 1

5) Discuss why firms selling products with low value-to-weight ratios choose FDI over exporting.

What are the major drawbacks of licensing according to the internalization theory?

What is an oligopoly? Discuss the impact of interdependence in an oligopoly.

8) Why do many economists favor internalization theory as an explanation for FDI compared to Knickerbocker’s theory?

9) Discuss an example that substantiates Dunning’s argument about location-specific advantages.

Version 1

10) Discuss the benefits and costs of FDI from the perspective of a host country and from the perspective of the home country.

11) What are the possible adverse effects of FDI on a host country’s balance-of-payments position?

12)

Describe some home-country policies that encourage outward FDI.

13)

What are the ways in which host governments restrict inward FDI?

Version 1

14)

Describe the situations when licensing is not a good option for a firm.

15) When a firm is considering FDI, what are some of the negotiating points it must weigh before making its decision?

16)

FDI occurs when a firm A) ships its products from one country to another. B) invests directly in facilities to produce a product in a foreign country. C) invests in the shares of another company operating in the same country. D) grants permission to another company in a different country to use its brand name.

17)

Which scenario is an example of a greenfield investment?

Version 1

A) A Chinese sugar maker sets up a sugar crushing facility in Cuba. B) A Serbian automobile company purchases a Croatian component manufacturer. C) A Finnish mobile phone manufacturer expands its production facility in Finland. D) An Indian oil exploration company acquires an oil refining company.

18) Which statement is true about the growth of foreign direct investment in the world economy over the last few decades? A) FDI has experienced a slower growth than world output. B) FDI has accelerated faster than world trade growth. C) FDI has remained the same over the past few decades. D) FDI has dropped dramatically.

19)

The majority of cross-border investment in the developed world is in the form of A) hostile takeovers. B) greenfield investments. C) competitive investments. D) mergers and acquisitions.

20)

A German car manufacturer purchases a U.S. producer of car tires. This is an example of A) an acquisition. B) an absolute advantage. C) a greenfield investment. D) a merger.

21)

Since World War II, the largest source country for FDI has been

Version 1

A) China. B) Japan. C) the United States. D) the Netherlands.

22)

Which factor has had a positive effect on the volume of foreign trade investments? A) emerging social democracies B) fluctuating current rates C) aging demographics D) world economy globalization

23)

What has made the United States an attractive target for foreign direct investment? A) its emerging economy B) its laissez-faire political environment C) its large and wealthy domestic markets D) its closed society

24)

The stock of FDI refers to the

A) amount of FDI undertaken over a given period of time. B) total accumulated value of foreign-owned assets at a given time. C) flow of FDI out of a country. D) amount of foreign direct investment made by domestic companies over a given period of time.

25)

The __________ of FDI refers to the amount of FDI undertaken over a given time period.

Version 1

A) stock B) net value C) accumulated value D) flow

26)

What is the primary reason Africa has attracted FDI in recent years? A) growth of the services sector B) complete deregulation of markets C) wave of privatization D) raw material availability

27) What primarily explains why developing nations are characterized by a lower percentage of cross-border mergers and acquisitions compared to developed nations? A) fewer target firms to acquire in developing nations B) fierce opposition to mergers and acquisitions in developed nations C) unwillingness of foreign companies to invest in developing nations D) presence of import quotas in developing nations

28) When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than undertake greenfield investments? A) Greenfield investments are characterized by reduced management control. B) Mergers and acquisitions are preferred because most greenfield investments fail. C) It is easier and less risky for a firm to build strategic assets than acquire similar assets. D) Mergers and acquisitions are quicker to execute than greenfield investments.

Version 1

29) __________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. A) Comparative advantage B) Multipoint competition C) Competitive advantage D) Economic advantage

30) Sandusky Robotics decides to move its manufacturing plant from Sandusky, Ohio to Seoul, South Korea because it will have access to highly skilled labor at a lower cost. This represents A) multipoint competition. B) the eclectic paradigm. C) location-specific advantages. D) an oligopoly.

31) EDM Designs grants a foreign entity the right to produce and sell the company’s glow-inthe-dark t-shirts in return for a royalty fee on every shirt sold. What approach to FDI does this represent? A) licensing B) outsourcing C) exporting D) merging

32) Which branch of economic theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets?

Version 1

A) internalization theory B) product life-cycle theory C) multipoint competition theory D) strategic behavior theory

33) Novelty handbags, based in France, obtained the right to produce and sell a U.S.-based company’s handbags. Novelty must pay the U.S. company a royalty fee for every handbag it sells. In this example, Novelty handbags is the A) exporter. B) licensee. C) licensor. D) franchisor.

34) 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 A) have a low value-to-weight ratio. B) have a high value-to-weight ratio. C) can be produced only in one region. D) require locally sourced raw materials.

35) Advanced Marketing Software has decided not to license its software products for fear that doing so will allow competitors to access the company’s advanced computing framework. Because of this, the company decides that FDI will better suit its needs for expansion. Which economic theory does this represent?

Version 1

A) Knickerbocker’s theory B) internalization theory C) the noninterventionist theory D) the eclectic paradigm

36) __________ gives a firm tight control over its technological know-how, operations, and business strategy in a foreign country that may be required to maximize its profitability. A) Licensing B) Exporting C) Foreign direct investment D) Franchising

37) __________ and its extensions can help to explain imitative FDI behavior by firms in oligopolistic industries. A) Internalization theory B) The eclectic paradigm C) The noninterventionist theory D) Knickerbocker’s theory

38) Which factor specifically reduces the viability of an exporting strategy specifically for products with low value-to-weight ratios? A) foreign exchange controls B) trade barriers C) transportation costs D) output quality

Version 1

39) How can governments increase the attractiveness of FDI and licensing relative to exporting? A) by implementing import quotas B) by imposing FDI limits in industries C) by increasing tax rates D) by limiting free flow of capital

40) According to the _______ theory, one drawback of licensing is that it may result in a firm giving away valuable technological know-how to a potential foreign competitor. A) internalization theory B) product life-cycle theory C) multipoint competition principle D) eclectic paradigm

41) In which situation does the internalization theory recommend FDI as opposed to licensing? A) when the firm has know-how that can be adequately protected by a licensing contract B) when the firm produces products that have a low value-to-weight ratio C) when a firm’s skills and know-how are amenable to licensing D) when the firm needs tight control over a foreign entity

42)

An industry composed of a few large firms is best described as A) an oligopoly. B) a monopoly. C) an oligarchy. D) a perfectly competitive market.

Version 1

43)

What is a direct consequence of the interdependence between firms in an oligopoly? A) increased regulation B) increased consumer welfare C) imitative behavior D) longer product life cycles

44)

Which observation concerning Knickerbocker’s theory is true? A) It does not explain imitative FDI behavior by firms in oligopolistic industries. B) Economists favor this theory as an explanation for FDI compared to the internalization

theory. C) It addresses the issue of whether FDI is more efficient than exporting or licensing for expanding abroad. D) It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license.

45) __________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. A) Horizontal integration B) Multipoint competition C) An oligopoly D) Vertical integration

46)

Which statement reflects Knickerbocker’s theory?

Version 1

A) When a firm has valuable know-how that cannot be adequately protected by a licensing contract, it engages in FDI. B) When a firm’s skills and know-how are not amenable to licensing, it usually prefers the FDI route. C) By placing tariffs on imported goods, governments indirectly increase the cost of exporting relative to foreign direct investment and licensing. D) When a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry will be compelled to make similar investments.

47) What is the term that describes when two or more enterprises encounter each other in different regional markets, national markets, or industries? A) multipoint competition B) monopoly C) location-specific competition D) oligopoly

48)

What is a major drawback of using Knickerbocker’s theory in explaining FDI?

A) It ignores the fact that firms invest in a foreign country when demand in that country will support local production. B) It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license. C) It fails to identify when it is profitable to invest abroad. D) It ignores the fact that licensing as an entry strategy has its limitations.

49) The __________ suggests that a firm will establish production facilities where foreign assets or resource endowments that are important to the firm are located.

Version 1

A) product life-cycle theory B) internalization theory C) multipoint competition theory D) eclectic paradigm

50) Advantages that arise from using resource endowments or assets that are tied to a particular place and that a firm finds valuable to combine with its own unique assets are known as ______ advantages. A) location-specific B) capital-specific C) absolute D) production factor

51) According to the __________ view of FDI, multinational enterprises (MNE) extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange. A) imperialist B) conservative C) free market D) radical

52) Which view of FDI traces its roots to classical economics and the international trade theories of Adam Smith and David Ricardo? A) imperialist B) conservative C) free market D) radical

Version 1

53)

Which political view allows FDI so long as the benefits outweigh the costs? A) the traditional view B) the pragmatic nationalist view C) the radical view D) the free market view

54) A country rejects FDI proposals in certain industries. It does so because the tangible advantages of such investments are lesser than potential costs like loss of employment and reduction of overall well-being. However, it aggressively pursues inviting foreign investments in sectors like infrastructure, education, and health care because of the benefits that accrue with them. Which political view of FDI is discussed in this example? A) the pure market view B) the free market view C) the radical view D) the pragmatic nationalist view

55) A country has adopted neither a radical policy nor a free market policy, but rather one that posits that FDI has both benefits and costs. This is best described as A) pragmatic nationalism. B) postmodernism. C) the free market view. D) the noninterventionist principle.

56)

__________ traces its roots to Marxist political and economic theory.

Version 1

A) The radical view B) Pragmatic nationalism C) The free market view D) The noninterventionist principle

57)

__________ argues that FDI is a benefit to both the source country and the host country. A) Pragmatic nationalism B) The free market view C) The noninterventionist principle D) The radical view

58)

The pragmatic nationalist view highlights __________ of FDI. A) only the benefits B) only the costs C) both the benefits and costs D) neither the benefits nor the costs

59) An aspect of __________ 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. A) the radical view B) the noninterventionist principle C) the free market view D) pragmatic nationalism

Version 1

60) Recent years have seen __________ in the number of countries that adhere to a radical ideology regarding FDI. A) a marked decline B) no change C) a marked increase D) a slight increase

61)

According to pragmatic nationalist view, FDI should be allowed so long as A) the benefits outweigh the costs. B) they do not aggressively court domestic firms. C) the costs outweigh the benefits. D) the MNE does not seek tax breaks or grants.

62) Why is it said that not all the new jobs created by FDI represent net additions in employment? A) because of the uncertainty of the overall economic environment B) because most of the job creation is indirect in nature C) because jobs created by an investment may be offset by the jobs lost in domestic companies D) because the unemployment rate more or less remains constant over the short term

63) When a company brings capital and/or technology to a host country, the host country benefits from the A) political effect of FDI. B) resource-transfer effect of FDI. C) balance-of-payments effect of FDI. D) bandwagon effect of FDI.

Version 1

64)

Direct effects of FDI on employment in the host country arise when a foreign MNE A) causes local suppliers to hire more people. B) transfers trained managers from the home country to work in the host country. C) creates jobs because of increased local spending by employees of the MNE. D) employs a number of host-country citizens.

65)

Host country citizens that are employed by an MNE following an FDI are an example of A) an internality. B) a direct effect. C) an externality. D) an indirect effect.

66) A country’s __________ accounts keep track of both its payments to and its receipts from other countries. A) current B) offshore C) balance-of-payments D) currency

67) If the FDI is a substitute for imports of goods or services, the effect can be to improve the __________ of the host country’s balance of payments. A) offshore account B) currency account C) market imperfections D) current account

Version 1

68) FDI can benefit the home country’s __________ if the foreign subsidiary creates demands for home-country exports of capital equipment, intermediate goods, complementary products, and the like. A) balance of payments B) oligopolistic industry C) current accounts D) licensing endeavors

69) Which situation arises when a country is importing more goods and services than it is exporting? A) current account surplus B) trade deficit C) trade surplus D) trade balance

70) In which situation would FDI improve the current account of the host country’s balance of payments? A) if the foreign subsidiary imports a substantial number of its inputs from abroad B) if the FDI reduces existing employment opportunities C) if the FDI is a substitute for imports of goods or services D) if the FDI results in substitution of products produced domestically

71) In which way can the source country’s balance of payments benefit from FDI made in a foreign country?

Version 1

A) from cash outflow during the initial investment to finance the FDI B) if the purpose of the foreign investment is to serve the home market from a low-cost production location C) from the inward flow of foreign earnings D) if FDI is a substitute for direct exports

72) How is the adverse effect of the balance of payments for the home country due to FDI usually offset? A) by increased imports to the home country as a result of the FDI B) by the subsequent inflow of foreign earnings C) by substituting direct exports made earlier from the home country D) by further investments usually made to expand foreign operations

73)

FDI undertaken to serve the home market is known as A) outsourcing. B) FDI substitution. C) offshore production. D) home market FDI.

74) How can FDI undertaken to serve the home market stimulate economic growth in the home country? A) by freeing home-country resources to concentrate on activities where the home country has a comparative advantage B) by importing more goods and services than it is exporting C) by circumventing trade barriers that may have prevented direct exports in the past D) by reducing demand for home-country exports of capital equipment, intermediate goods, and complementary products

Version 1

75)

What is double taxation in the context of FDI? A) taxation at twice the normal rate for foreign companies B) taxing the producers as well as suppliers C) taxation of income in both home and host country D) taxation of both income as well as dividends paid

76)

The two most common methods of restricting inward FDI are ownership restraints and A) resource endowments. B) performance requirements. C) national sovereignty. D) incentives.

77)

Which is a home-country policy aimed at restricting outward FDI flow?

A) taxing domestic companies’ foreign earnings at a higher rate than their domestic earnings B) implementation of government-backed insurance programs to cover major types of foreign investment risk C) eliminating double taxation of foreign income D) persuading host countries to relax their restrictions on inbound FDI

78) __________ is essentially the service-industry version of licensing, although it normally involves much longer-term commitments. A) Franchising B) Subsidizing C) Greenfield investment D) Patenting

Version 1

79) 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 A) firm has a short time in which to complete the negotiations. B) host government places a high value on what the firm has to offer. C) number of comparable alternatives open to the firm is low. D) host government does not place a high value on the firm’s offering.

80) The __________ and Knickerbocker’s theory of FDI tend to be less useful from a business perspective because they are descriptive rather than analytical. A) noninterventionist theory B) internalization theory C) eclectic paradigm D) product life-cycle theory

81) As transportation costs or trade barriers increase, exporting becomes unprofitable, and the choice is between FDI and A) subsidies. B) incentives. C) licensing. D) resource endowments.

82)

Licensing would be a good option for firms in which industry?

Version 1

A) It would be a good option in high-technology industries in which protecting firmspecific expertise is of paramount importance. B) It would be a good option in global oligopolies, in which competitive interdependence requires that multinational firms maintain tight control over foreign operations. C) It would be a good option in industries in which intense cost pressures require that multinational firms maintain tight control over foreign operations. D) It would be a good option in fragmented, low-technology industries in which globally dispersed manufacturing is not an option.

83) The amount of foreign direct investment (FDI) undertaken over a given time period is known as the stock of FDI. ⊚ true ⊚ false

84) FDI has been declining in the last few decades because protectionist pressures have become less intense. ⊚ true ⊚ false

85)

Mergers and acquisitions are quicker to execute than greenfield investments. ⊚ true ⊚ false

86) Stanley Semiconductors wants to build a new factory overseas to aid the firm in distributing its products to foreign markets. To do so, Stanley will obtain a license agreement. ⊚ true ⊚ false

Version 1

87) By placing tariffs on imported goods, governments increase the cost of exporting relative to foreign direct investment and licensing. ⊚ true ⊚ false

88) Suppose there are only three firms that control 90 percent of the steel production in the United States. This would be an example of an oligopoly. ⊚ true ⊚ false

89)

Rivals rarely imitate what a firm does in an oligopoly. ⊚ true ⊚ false

90)

John Dunning pioneered the eclectic paradigm. ⊚ true ⊚ false

91) According to the radical view, the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries. ⊚ true ⊚ false

92) Countries adopting a pragmatic stance pursue policies designed to maximize the national benefits and minimize the national costs. ⊚ true ⊚ false

Version 1

93) Research supports the view that multinational firms often transfer significant technology when they invest in a foreign country. ⊚ true ⊚ false

94) A computer manufacturer locates a production facility in a developing country. Prior to this investment, the developing country lacked any research and development resources or skills but now there has been a significant transfer of technology which has spurred growth in the country. This is an indirect effect of FDI. ⊚ true ⊚ false

95) Governments normally are concerned when their country is running a surplus on the current account of their balance of payments. ⊚ true ⊚ false

96)

In general, FDI in the form of greenfield investments should increase competition. ⊚ true ⊚ false

97) For the home country, the current account of the balance of payments improves if the purpose of the foreign investment is to serve the home market from a low-cost production location. ⊚ true ⊚ false

98)

Offshore production refers to FDI undertaken to serve the home market. ⊚ true ⊚ false

Version 1

99)

The WTO supports the promotion of international trade in services. ⊚ true ⊚ false

100)

One way countries have encouraged firms to undertake FDI is through double taxation. ⊚ true ⊚ false

101) The British advanced corporation tax system taxed British companies’ foreign earnings at a higher rate than their domestic earnings. This tax code created an incentive for British companies to invest abroad. ⊚ true ⊚ false

102) Tax concessions, low-interest loans, and grants or subsidies are all incentives that governments offer to foreign firms to invest in their countries. ⊚ true ⊚ false

103) Licensing is usually a good option for firms in high-tech industries where protecting firm-specific expertise is of paramount importance. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 08_14th Edition 16) B 17) A 18) B 19) D 20) A 21) C 22) D 23) C 24) B 25) D 26) D 27) A 28) D 29) B 30) C 31) A 32) A 33) B 34) A 35) B 36) C 37) D 38) C 39) A 40) A 41) D Version 1

42) A 43) C 44) D 45) B 46) D 47) A 48) B 49) D 50) A 51) D 52) C 53) B 54) D 55) A 56) A 57) B 58) C 59) D 60) A 61) A 62) C 63) B 64) D 65) B 66) C 67) D 68) A 69) B 70) C 71) C Version 1

72) B 73) C 74) A 75) C 76) B 77) A 78) A 79) B 80) D 81) C 82) D 83) FALSE 84) FALSE 85) TRUE 86) FALSE 87) TRUE 88) TRUE 89) FALSE 90) TRUE 91) TRUE 92) TRUE 93) TRUE 94) FALSE 95) FALSE 96) TRUE 97) FALSE 98) TRUE 99) TRUE 100) FALSE 101) FALSE Version 1

102) TRUE 103) FALSE

Version 1

CHAPTER 9 1)

Discuss the trend toward increased regional economic integration.

Compare and contrast a free trade area and a common market. Provide examples.

3) What is the political case for integration? How did political arguments influence the establishment of the European Union?

What are impediments to countries integrating?

What prompted the formation of the European Union?

Version 1

6) What is the Single European Act? What was the effect of the Single European Act on the EU economy? Did the Single European Act achieve its goals?

7) How will EU countries benefit from the establishment of a single currency? What, if any, are the costs of a single currency?

8) Explain the North American Free Trade Agreement (NAFTA) and its renegotiation as the United States-Mexico-Canada Agreement (USMCA).

9) Explain how Mercosur has changed over time. What are the implications of these changes?

Version 1

10)

What is ASEAN? What is its basic goal? How successful is ASEAN?

11) Describe the state of economic integration in Africa. What factors have hindered the process?

12)

Discuss the opportunities arising from the creation of the EU for international businesses.

13) Describe the disadvantages of economic integration for international businesses. How can firms protect themselves from these threats?

Version 1

14) Four countries in Southeast Asia agree to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and the factors of production among each other. What is this type of agreement called? A) political union B) regional economic integration C) greenfield investment D) strategic trade policy

15)

From least integrated to most integrated, the levels of economic integration are a

A) common market, a free trade area, an economic union, a customs union, and a political union. B) free trade area, a customs union, a common market, an economic union, and a political union. C) customs union, a free trade area, a common market, a political union, and an economic union. D) common market, an economic union, a customs union, a free trade area, and a political union.

16) Three Latin American countries enter into an agreement to remove all tariffs and trade barriers between them. They have adopted a common external trade policy as well. Which level of economic integration best describes this arrangement?

Version 1

A) political union B) customs union C) common market D) economic union

17)

A common market differs from a customs union in that a common market A) requires harmonization of members’ tax rates. B) has a common currency. C) holds a common external trade policy toward nonmembers. D) allows factors of production to move freely among members.

18) __________ involves the free flow of products and factors of production between member countries, the adoption of a common external trade policy, a common currency, harmonization of members’ tax rates, and a common monetary and fiscal policy. A) An economic union B) A common market C) A customs union D) A free trade area

19)

Which is the most enduring free trade area in the world? A) Central America Free Trade Association (CAFTA) B) European Free Trade Association (EFTA) C) Association of Southeast Asian Nations (ASEAN) D) North American Free Trade Association (NAFTA)

20)

Which feature of an economic union differentiates it from a common market?

Version 1

A) free flow of products and factors of production between member countries B) a common monetary and fiscal policy C) a common external trade policy toward nonmembers D) ability of factors of production to move freely between members

21)

Why is the European Union considered an imperfect economic union? A) Factors of production are not allowed to move freely between member countries. B) Not all members of the union have adopted the euro. C) Almost all markets are heavily regulated. D) Products and services are not allowed to move freely between member countries.

22) The move toward economic union raises the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations. What offers a solution to this problem? A) a common market B) a free trade area C) a customs union D) a political union

23) Four Latin American 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) an efficient market. B) a common market. C) a customs union. D) a full political union.

Version 1

24) __________ entails even closer economic integration and cooperation than a common market. A) A customs union B) A free trade area C) An economic union D) A political union

25) Country X and Country Y reach an agreement to boost bilateral trade. They agree to remove all barriers to the trade of goods and services. They, however, are free to determine their own trade policies with regard to nonmembers. This is an example of which level of economic integration? A) a customs union B) an economic union C) a common market D) a free trade area

26)

Which feature of a customs union differentiates it from a free trade area? A) harmonization of members’ tax rates B) a common currency C) a common external trade policy toward nonmembers D) ability of factors of production to move freely between members

27)

Which situation would be present with economic integration under a common market?

Version 1

A) the absence of a common external trade policy among members B) a mandatory adoption of a common currency and a unified approach to tax rates C) a centralized political entity to oversee and coordinate economic, social, and foreign policy D) no restrictions on immigration or emigration resulting in the free movement of labor and capital

28) __________ eliminates trade barriers between member nations, adopts a common external policy, and permits factors of production to move freely between member countries but it also requires a common currency, harmonization of members’ tax rates, and a common monetary and fiscal policy. A) A free trade area B) A common market C) An economic union D) A customs union

29)

Linking neighboring countries economically and making them interdependent A) increases the potential for violent conflict. B) creates increased political tensions. C) leads to dilution of cultures. D) creates incentives to increase political cooperation as well.

30)

Why doesn’t Great Britain use the euro as its national currency? A) It would have to convert its economic structure to the euro. B) It would have to relinquish control of its monetary policy to the EU. C) It would have to change its financial markets operations. D) It would have to obtain approval from the U.S. Federal Reserve.

Version 1

31)

A political benefit of economic integration is that it

A) enables participants to achieve gains from the free flow of trade. B) enables participants to achieve gains from the free flow of investment. C) allows countries to specialize in the production of goods and services that they can produce most efficiently. D) reduces the potential for violent conflict and allows the participants to enhance their political weight in the world.

32) Which statement explains why economic integration has never been easy to achieve or sustain, despite the strong economic and political arguments in support? A) No country has shown significant improvement because of economic integration. B) Countries fear a reduction of their political weight in the world because of economic integration. C) Linking neighboring economies and making them increasingly dependent on each other creates little incentive for political cooperation. D) While a nation as a whole may benefit significantly, certain groups may lose.

33) Trade __________ occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. A) deficit B) diversion C) creation D) distortion

34) Which situation occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area?

Version 1

A) efficiency gain B) trade diversion C) trade deficit D) trade creation

35) Country A and Country B entered into a free trade agreement recently. After this, Country A starts importing heavy machinery from Country B. Country A previously imported such machinery at lower rates from another country. What has occurred in this scenario? A) trade creation B) efficiency gain C) trade deficit D) trade diversion

36)

To ensure a free trade agreement does not result in trade diversion, the WTO should A) cover nontariff barriers to trade. B) allow services to be covered along with goods. C) encourage lower-cost external suppliers. D) keep tax rates the same among member and nonmember states.

37) __________ may occur when higher-cost external producers are replaced by lower-cost external producers within the free trade area. A) Trade creation B) A customs union C) Trade diversion D) A common market

Version 1

38)

A concern of some economists regarding regional integration is that

A) the benefits of regional integration are determined by the extent of trade diversion. B) the benefits of regional integration may have been oversold, while the costs have been ignored. C) a regional free trade agreement will benefit the world only if the amount of trade it diverts exceeds the amount it creates. D) the costs of regional integration will be exceedingly high with little chance that the benefits will outweigh the costs.

39)

In theory, WTO rules should ensure that a free trade agreement A) does not result in trade creation. B) does not result in trade diversion. C) results in trade creation. D) results in trade diversion.

40)

The European Community was established by the A) Treaty of Rome signed in 1957. B) Maastricht Treaty signed in 1992. C) Maastricht Treaty of 1994. D) Single European Act of 1987.

41) The __________ is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states. A) European Parliament B) European Commission C) Council of the European Union D) Court of Justice

Version 1

42)

Why is the European Council said to be the ultimate controlling authority within the EU?

A) It is responsible for implementing EU legislation and monitoring compliance with EU laws by member states. B) Its role in setting competition policy is becoming increasingly important to business. C) It has the right to vote on the appointment of commissioners. D) Draft legislation from the commission can become EU law only if the council agrees.

43) Which body is directly elected by the populations of the member states and is primarily a consultative rather than legislative body? A) the European Parliament B) the European Commission C) the Council of the European Union D) the Court of Justice

44)

What was the outcome of the Treaty of Lisbon signed in 2007? A) It established the European Community. B) It resulted in the adoption of the euro. C) It changed the name of the European Community to the European Union. D) It increased the power of the European Parliament.

45)

Which observation pertaining to the EU’s Court of Justice is correct?

A) It is composed of two judges from each country. B) It is the supreme appeals court for EU law. C) Its judges are required to act as representatives of national interests. D) A member country can bring other members to the court for failing to meet EU treaty obligations only with the support of two other uninvolved EU countries.

Version 1

46)

Which observation is true of the euro?

A) It is used by all member states of the European Union. B) While recommended, it is not required that participating countries give up their own currencies. C) It required participating countries to give up control over monetary policy. D) By adopting it, the EU created the most widely traded currency in the world.

47) Which treaty, signed in February 1992, committed EC members to adopting a common currency by January 1, 1999? A) the Maastricht Treaty B) the Treaty of Rome C) the Single European Act D) the Treaty of Lisbon

48)

What is a benefit of the euro? A) governments gaining greater control over their monetary policies B) reduced competition in most industries C) zero interest expense for businesses D) lower foreign exchange and hedging costs

49)

What is a disadvantage of the euro? A) higher foreign exchange and hedging costs B) national authorities losing control over monetary policy C) difficulty comparing prices across Europe D) undermining the development of a pan-European capital market

Version 1

50) In __________, 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. A) an optimal currency area B) a unified economic area C) a uniform currency zone D) a monetary zone

51)

What was required for new applicants to qualify for EU membership? A) minimum economy size of €1 trillion B) nationalization of private assets C) deregulation of markets D) sustained GDP growth of 10 percent for five years

52)

What is a consequence of the expansion of the EU from 15 nations to 28 nations? A) delays in decision-making processes B) elimination of the sovereign debt crisis C) euro becoming the most traded currency in the world D) huge initial impact on the overall economic welfare

53)

For which reason has Turkey been denied membership in the EU? A) Only about 10 percent of Turkey’s international trade is with the EU. B) There are concerns over human rights issues in the country. C) The country has yet to form a customs union with the EU. D) Turkey has a weak economy.

Version 1

54) How does NAFTA seem to increase the international competitiveness of U.S. and Canadian firms? A) It gives them access to scarce natural resources previously unavailable. B) It increases tariff barriers making the North American market less attractive to Asian companies. C) It allows them to take advantage of lower labor costs in Mexico. D) It gives them production bases in South American markets such as Brazil and Argentina.

55) What was the main objection raised by those in the United States and Canada who opposed the ratification of the NAFTA? A) job losses B) balance-of-payment problems C) threat of competition from Asian companies D) threat of a loss of national sovereignty

56)

In 1990, Bolivia, Peru, Ecuador, Colombia, and Venezuela relaunched A) Mercosur. B) NAFTA. C) APEC. D) the Andean Pact.

57)

Mercosur originated as __________ between Brazil and Argentina in 1988.

Version 1

A) a common market B) a free trade pact C) a customs union D) an economic union

58)

What is the position of Alexander Yeats, as it pertains to Mercosur?

A) The trade diversion effects of Mercosur outweigh its trade creation effects. B) The fastest growing items in intra-Mercosur trade were capital-intensive goods produced efficiently in the member countries. C) Mercosur countries will be able to compete globally once the group’s external trade barriers come down. D) The customs union is becoming more perfect over time.

59) In early 2006, six CARICOM members established the __________, which was modeled on the EU’s single market. A) Central American Common Market B) Central America Free Trade Agreement C) Caribbean Single Market and Economy D) North American Free Trade Area

60)

Which statement regarding ASEAN is true?

A) China, India, South Korea, and Singapore are among its members. B) Collectively, the member states account for about 55 percent of world trade. C) It is slowly progressing toward establishing a free trade zone. D) It has been successful in fulfilling its basic objective of fostering freer trade between member countries.

Version 1

61)

What is the most frequently aired objection to free trade in Africa?

A) These economies are too small for free trade to exist. B) These countries are not ready for a full-fledged political union with a common currency. C) The countries need to be “protected” by tariff barriers from unfair foreign competition. D) The larger nations such as South Africa and Kenya stand to lose too much from free trade and competition.

62) The __________ represents the interests of member states and is clearly the ultimate controlling authority within the EU. A) European Council B) European Parliament C) Court of Justice D) European Commission

63) Adopted by the member nations of the European Community in 1987, the ______ committed member countries to work toward the establishment of a single market by December 31, 1992. A) Treaty of Rome B) Single European Act C) Treaty of Lisbon D) Maastricht Treaty

64)

How has the euro contributed to increasing competition in the European region?

Version 1

A) by increasing hedging costs B) by increasing the cost of capital C) by making price comparisons easy D) by enabling a common monetary policy

65)

There are two main trading blocs in Europe, the European Union and the A) Mercosur. B) Andean Community. C) European Free Trade Association. D) European Council.

66)

Based on recent activity, the power of the European Parliament has A) diminished in the light of Brexit. B) been eliminated and given over to the European Council. C) been increasing at a rapid pace. D) been increasing, although not by as much as parliamentarians would like.

67)

The __________ is primarily a consultative rather than legislative body. A) European Parliament B) Court of Justice C) Council of the European Union D) European Commission

68) What event caused many EU countries to wait on adopting the euro as a common currency?

Version 1

A) the 2016 U.S. election results B) the debt crisis of 2010–2012 C) the 9/11 terrorist attacks D) the dismantling of the Court of Justice

69) Three long-term EU members, Great Britain, __________, and Sweden, have not adopted the euro. A) France B) Italy C) Denmark D) Greece

70)

On average, studies indicate that NAFTA’s overall impact has been A) large but negative. B) large and positive. C) small and negative. D) small but positive.

71) According to __________, the trade diversion effects of Mercosur outweigh its trade creation effects. A) Alexander Yeats B) the majority of economists C) Jacques Delors D) the World Trade Organization

Version 1

72) The most recent attempt to reenergize the free trade movement in Africa occurred in early 2001, when __________, Uganda, and Tanzania, member states of the East African Community (EAC), committed themselves to relaunching their bloc, 24 years after it collapsed. A) Sudan B) Ethiopia C) Kenya D) Somalia

73) What two industries were most affected by the USMCA trade agreement between the United States, Mexico, and Canada? A) steel and lumber B) agriculture and textiles C) oil and natural gas D) automobile and dairy

74)

What argument is offered by critics of the USMCA? A) Although prices will be lowered for consumers, it will put producers out of business. B) Workers in all three countries will have less protection overall. C) The mandates contained in the agreement will result in trade diversion. D) It does not go far enough and lacks provisions for the digital economy.

75)

The second largest currency zone in the world was created as a result of the A) Treaty of Rome. B) Maastricht Treaty. C) Treaty of Lisbon. D) Single European Act.

Version 1

76) The lowering of barriers to trade and investment among countries has led to __________ throughout the EU. A) higher costs of borrowing B) increase prices C) increase in hedging costs D) increased price competition

77)

Once barriers to trade and investment are removed, companies

A) can realize cost economies by centralizing production in key locations regardless of culture differences. B) can treat a group of integrated countries like the EU as a single market and produce standardized products for it. C) no longer have to deal with competitive practices that formerly limited their ability to realize cost economies. D) may still find it difficult to produce a standardized product for a single multiplecountry market.

78) The emerging role of the __________ in competition policy suggests the EU is increasingly willing and able to intervene and impose conditions on companies proposing mergers and acquisitions. A) European Commission B) Court of Justice C) European Council D) European Parliament

79) If a firm is outside of a trading area, it runs the risk of being shut out of the single market through the creation of a

Version 1

A) “trade fortress.” B) contracting economy. C) single-market zone. D) destabilized economy.

80) The past two decades have shown a marked decrease in the number of regional trade agreements. ⊚ true ⊚ false

81) Bryce lives in a country where there are no barriers to the trade of goods and services. This is called a free trade area/zone. ⊚ true ⊚ false

82) In a customs union, trade barriers are eliminated among member countries, and each country maintains its own external trade policies. ⊚ true ⊚ false

83)

The European Union is an example of an economic union. ⊚ true ⊚ false

84) In terms of regional economic integration, coordination and policy harmonization problems increase as the number of countries that seek agreement increases. ⊚ true ⊚ false

Version 1

85)

Since everyone benefits from economic integration, it is easy to achieve and sustain. ⊚ true ⊚ false

86) Concerns about national sovereignty in the EU have been a major impediment to economic integration. ⊚ true ⊚ false

87) A regional free trade agreement will benefit the world only when the amount of trade it creates exceeds the amount of trade it diverts. ⊚ true ⊚ false

88) It is impossible for regional economic integration to result in trade diversion since both GATT and the WTO cover both tariff and nontariff barriers to regional economic integration. ⊚ true ⊚ false

89) A central reason for the establishment of the EU was the devastation of western Europe during two world wars and the desire for a lasting peace. ⊚ true ⊚ false

90) The Council of the European Union is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states.

Version 1

⊚ ⊚

true false

91) The judges of the European Court of Justice are required to act as representatives of national interests, rather than as independent officials. ⊚ true ⊚ false

92) The Single European Act committed EU countries to adopting a common currency by January 1, 1999. ⊚ true ⊚ false

93) Establishment of the euro created the largest currency zone in the world, replacing the position the U.S. dollar had held for decades. ⊚ true ⊚ false

94) Brigitte lives in France and is in the market for a new car. Because of the adoption of the euro, Brigitte can easily compare car prices across countries in Europe. ⊚ true ⊚ false

95) The implied loss of national sovereignty to the European Central Bank (ECB) underlies the decision by Great Britain, Denmark, and Sweden to stay out of the eurozone for now. ⊚ true ⊚ false

Version 1

96)

The Andean Pact is a highly successful common market modeled after the EU. ⊚ true ⊚ false

97) Political turmoil in several African nations has persistently impeded any meaningful progress in economic integration. ⊚ true ⊚ false

98) A benefit to companies of economic integration is the opportunity to centralize their production and reduce costs. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 09_14th Edition 14) B 15) B 16) B 17) D 18) A 19) B 20) B 21) B 22) D 23) B 24) C 25) D 26) C 27) D 28) C 29) D 30) B 31) D 32) D 33) C 34) B 35) D 36) A 37) A 38) B 39) B Version 1

40) A 41) B 42) D 43) A 44) D 45) B 46) C 47) A 48) D 49) B 50) A 51) C 52) A 53) B 54) C 55) A 56) D 57) B 58) A 59) C 60) C 61) C 62) A 63) B 64) C 65) C 66) D 67) A 68) B 69) C Version 1

70) D 71) A 72) C 73) D 74) C 75) B 76) D 77) D 78) A 79) A 80) FALSE 81) TRUE 82) FALSE 83) TRUE 84) TRUE 85) FALSE 86) TRUE 87) TRUE 88) FALSE 89) TRUE 90) FALSE 91) FALSE 92) FALSE 93) FALSE 94) TRUE 95) TRUE 96) FALSE 97) TRUE 98) TRUE

Version 1

CHAPTER 10 1) With the help of an example, explain how a tourist participates in the foreign exchange market.

What are the main uses of foreign exchange markets for international business?

3) What is meant by the phrases “the dollar is selling at a discount” on the 30-day forward market and “the dollar is selling at a premium” on the 30-day forward market?

4) Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

Version 1

What is the law of one price?

6) Discuss the failure of PPP theory to predict exchange rates accurately. What is the purchasing power parity puzzle?

Compare and contrast the Fisher Effect and the International Fisher Effect.

8) Consider the role of investor psychology and bandwagon effects on how well purchasing power parity and the international Fisher effect explain short-term movements in exchange rates.

Version 1

Discuss the two schools of thought on exchange rate forecasting.

10)

Explain the difference between fundamental analysis and technical analysis.

11) Compare and contrast currencies that are freely convertible, externally convertible, and nonconvertible.

12) Describe transaction exposure and translation exposure. How can translation and transaction exposure be minimized?

Version 1

13)

Explain the notion of economic exposure. How can economic exposure be minimized?

14)

How can a firm minimize its foreign exchange exposure?

15)

The rate at which one currency is converted into another is known as the A) exchange rate. B) currency swap rate. C) fluctuation rate. D) carry over rate.

16)

__________ arises from volatile changes in exchange rates. A) Translational exposure B) Foreign exchange risk C) Economic exposure D) Transactional exposure

Version 1

17) Currency __________ typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. A) hedging B) risk mitigation C) speculation D) arbitrage

18)

What are the two main functions of the foreign exchange market? A) trading foreign company equities and converting currency B) reducing currency volatility and setting interest rates C) insuring companies against interest rate risk and enabling imports and exports D) converting currency and providing some insurance against foreign exchange risk

19) A pair of earrings costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which statement is correct? A) The United States offers a better deal. B) The deal is the same in both countries. C) Britain offers a better deal. D) A trader can make money by buying the earrings in Britain and selling in the United States at $50.

20)

An exchange rate of €1 = $1.30 indicates that A) $1 is worth 1.30 euros. B) one could get 1.30 euros for $1. C) one euro buys 1.30 dollars. D) one euro buys 0.77 dollars.

Version 1

21) The __________ helps consumers compare the relative prices of goods and services in different countries. A) interest rate B) GDP growth rate C) exchange rate D) tariff rate

22) A U.S.-based company today invests some of its spare cash in a German money market account that will earn 8 percent for two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8 percent on its investment? A) The German euro rises in value against the dollar. B) Interest rates in the United States move down. C) Short-term interest rates in German money markets shoot up. D) The dollar appreciates against the German euro.

23)

Which term refers to the rate at which one currency is converted into another? A) basis point B) spread C) exchange rate D) interchange rate

24) The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as

Version 1

A) currency arbitrage. B) currency speculation. C) currency hedging. D) currency risk mitigation.

25) Borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high, is referred to as A) carry trade. B) swing trade. C) channel trade. D) price action trade.

26) Assume that the interest rate on borrowing in Japan is 1 percent, while the interest rate on deposits in Australian banks is 5 percent. A trader borrows in yen and then converts the money into Australian dollars and deposits it in an Australian bank to make a 4 percent margin. This is an example of which type of trade? A) swing trade B) carry trade C) channel trade D) price action trade

27) Milo is traveling to Ireland on vacation. When he arrives, he goes to a bank to convert his U.S. dollars into the local currency—the euro. What exchange rate will be used to handle this transaction? A) currency swap rate B) forward rate C) carry trade D) spot exchange rate

Version 1

28) __________ are reported on a real-time basis on many financial websites and are continually changing—their value being determined by supply and demand for that currency relative to others. A) Spot exchange rates B) Currency swaps C) Forward exchange rates D) Future exchange rates

29) When two parties agree to exchange currency and execute the deal immediately, the transaction is a A) futures exchange. B) carry trade. C) spot exchange. D) forward exchange.

30)

How is it that spot exchange rates are determined?

A) by the interaction between the demand and supply of one currency relative to other currencies B) by taking the previous days’ average of both currencies to be traded C) by the daily set rate posted by the International Monetary Fund D) by predicting future currency movements and applying a factor to the current day’s trade

31) Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive

Version 1

A) $1,000. B) $750. C) $1,500. D) $667.

32) __________ are exchange rates governing some specific future date foreign exchange transactions. A) Spot exchange rates B) Forward exchange rates C) Future exchange rates D) Currency swaps

33) Assuming the 30-day forward exchange rate for converting dollars into yen was $1 = ¥130 and the spot exchange rate was $1 = ¥120, the dollar is selling at a __________ on the 30day forward market. A) premium B) margin C) discount D) subsidy

34) The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates is referred to as A) currency pairing. B) carry trade. C) currency exchange. D) currency swap.

Version 1

35)

Where is the most important foreign exchange trading center located? A) London B) New York C) Tokyo D) Singapore

36) Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m. is ¥120 = $1, and the yen/dollar exchange rate quoted in New York at the same time is ¥123 = $1. A dealer in New York uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo, thereby making a profit. The dealer has engaged in A) a currency swap. B) an arbitrage. C) a trade. D) a straddle.

37)

__________ is quoted for 30 days, 90 days, and 180 days into the future. A) A forward exchange rate B) A currency swap C) A spot exchange rate D) An arbitrage

38) If Javier and Miguel agree to exchange currency and execute the deal at some specific time in the future, a __________ occurs.

Version 1

A) currency swap B) forward exchange C) hedging D) spot exchange

39) Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about A) anticipated currency swap rates. B) stability in the global marketplace. C) future currency movements. D) the carry trades that will occur.

40) __________ is used by international businesses and their banks to move out of one currency and into another for a limited period without incurring foreign exchange risk. A) An arbitrage B) A carry trade C) A spot exchange D) A currency swap

41) The __________ is a global network of banks, brokers, and foreign exchange dealers connected by electronic communications systems. A) foreign exchange market B) united global database C) global marketplace D) foreign market database

Version 1

42)

The foreign exchange market is

A) open for only 12 hours in a day. B) characterized as the market that never sleeps. C) open for most of the day, but closes for three hours each day—between 2:00 a.m. and 5:00 a.m. Greenwich Mean Time. D) open during normal business hours (9:00 a.m. to 5:00 p.m., local time) in each of the primary locations from which it operates: Tokyo, London, and New York.

43) Although a foreign exchange transaction can involve any two currencies, most transactions involve __________ on one side. A) pounds B) yen C) dollars D) euros

44) A key feature of a(n) __________ is that it allows the entity conducting the transaction to do so without incurring foreign exchange risk. A) carry trade B) currency swap C) arbitrage D) currency pairing

45)

Which foreign exchange trading center has the highest percentage of activity? A) New York B) Zurich C) London D) Singapore

Version 1

46)

The purchasing power parity (PPP) theory argues that the exchange rate will A) increase if a country is experiencing inflation. B) change even if relative prices remain unchanged. C) increase if a country is experiencing deflation. D) change if relative prices change.

47) Purchasing power parity theory states that given relatively efficient markets, the price of a “basket of goods” should be A) much less in industrialized countries. B) much less in third world countries. C) variable depending upon the current rate of exchange between the producer and consumer of the products in the “basket.” D) roughly equivalent in each country.

48) Suppose a government increases the money supply. As a result, there is a surge in the demand of goods as consumers rush to spend their extra money, but producers cannot keep up with demand. What will be the result? A) price inflation B) a recession C) an efficient market D) capital flight

49) will

The purchasing power parity (PPP) theory tells us that a country with a high inflation rate

Version 1

A) export more goods to other countries. B) see depreciation in its currency exchange rate. C) import more goods from other countries. D) see an appreciation in its currency exchange rate.

50) 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 A) the bandwagon effect. B) countertrade theory. C) the Fisher effect. D) the law of one price.

51)

How is the International Fisher effect best characterized?

A) It has proven to have substantial power at predicting long-run changes in forward exchange rates. B) It has proven to have substantial power at predicting short-run changes in spot exchange rates. C) It has not proven to be a good predictor of long-run changes in forward exchange rates. D) It has not proven to be a good predictor of short-run changes in spot exchange rates.

52) If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it, what will happen? A) The dollar will appreciate against the yen. B) The dollar will depreciate against the yen. C) The exchange rates will remain the same. D) The yen will appreciate against the dollar.

Version 1

53) The __________ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. A) law of one price B) principle of consistent pricing C) model of fair pricing D) rational price theory

54) According to the law of one price, if the exchange rate between the British pound and the dollar is £1 = $1.50, a shirt that retails for $120 in New York should sell for __________ in London. A) £180 B) £50 C) £60 D) £80

55) Assume that the law of one price holds. A shirt that retails for $120 in New York sells for £60 in London. The exchange rate between the British pound and the dollar is £1 = $1.50. Assuming away transportation costs and trade barriers, this creates a profit-making opportunity called A) currency swap. B) arbitrage. C) currency trade. D) straddle.

56) The __________ suggests that given relatively efficient markets, the price of a “basket of goods” should be roughly equivalent in each country.

Version 1

A) random walk theory B) theory of competitive advantage C) theory of price inflation D) purchasing power parity theory

57) Suppose the price of a Big Mac in New York is $3.00 and the price of a Big Mac in Paris is equivalent to $3.75 at the prevailing euro/dollar exchange rate. Using the concept of purchasing power parity, the euro is A) undervalued by 25 percent against the dollar. B) overvalued by 25 percent against the dollar. C) appreciating relative to the dollar. D) depreciating relative to the dollar.

58)

Identify the correct statement about the PPP theory. A) It predicts that exchange rates are determined by relative prices. B) It yields accurate predictions of short-run movements in exchange rates. C) It best predicts exchange rate changes for countries with low rates of inflation. D) It includes transportation costs and trade tariffs.

59) What is the result when the quantity of money in circulation in a country rises faster than the country’s stock of goods and services? A) inflation B) credit squeeze C) deflation D) production surplus

Version 1

60)

The purchasing power parity puzzle is best described as

A) reduced levels of inflation in countries where the growth in the money supply is faster than the growth in its output. B) the reason countries with high inflation rates see depreciation in their currency exchange rates. C) identical products being sold in different countries for the same price when their price is expressed in terms of the same currency. D) the failure to find a strong link between relative inflation rates and exchange rate movements.

61) The __________ states that a country’s “nominal” interest rate is the sum of the required “real” rate of interest and the expected rate of inflation over the period for which the funds are to be lent. A) PPP theory B) efficient market theory C) law of one price D) Fisher Effect

62) It follows from the Fisher Effect that if the real interest rate is the same worldwide, any difference in interest rates between countries reflects differing expectations about A) foreign exchange rates. B) inflation rates. C) unemployment rates. D) GDP growth rates.

63) 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.

Version 1

A) purchasing power parity theory B) efficient market theory C) International Fisher Effect D) law of one price

64) 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) Fisher Effect B) bandwagon effect C) arbitrage D) decoupling of markets

65) The __________ school of thought argues that forward exchange rates do the best possible job of forecasting future spot rates and therefore investing in forecasting services would be a waste of money. A) inefficient market B) efficient market C) random walk D) speculative

66)

With which statement would a follower of the inefficient market school of thought agree?

Version 1

A) Companies would be better off investing in foreign exchange forecasting services. B) Forward exchange rates do the best possible job of forecasting future spot exchange rates. C) Companies can optimize their foreign exchange transactions by using forward markets. D) Forward rates reflect all available information about likely future changes in exchange rates.

67) __________ uses price and volume data to determine past trends, which are expected to continue into the future. A) Technical analysis B) Fundamental analysis C) Efficient market theory D) Value investing

68)

A currency is said to be freely convertible when

A) its exchange rate with respect to other currencies is decided by the central bank of the country. B) residents alone are allowed to convert it into a foreign currency without any limitations. C) neither residents nor nonresidents are allowed to convert it into a foreign currency. D) both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it.

69)

__________ is one in which prices do not reflect all available information.

Version 1

A) Inefficient market B) Speculative market C) Efficient market D) Externally convertible market

70) __________ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. A) Lead strategy B) Fundamental analysis C) Lag strategy D) Technical analysis

71)

A country has an externally convertible currency. This means that A) neither residents nor nonresidents are allowed to convert it into a foreign currency. B) both residents and nonresidents can purchase unlimited amounts of a foreign currency

with it. C) only nonresidents may convert it into a foreign currency without any limitations. D) the government limits convertibility to preserve foreign exchange reserves.

72)

What happens when restrictions on external convertibility are imposed? A) Foreign companies wishing to do business in that country will be denied. B) Domestic companies will be able to freely invest abroad. C) The amount of product a foreign company can produce in that country will be limited. D) Domestic companies’ ability to invest abroad will be limited.

73)

Capital flight is most likely to occur when

Version 1

A) the value of the domestic currency is depreciating rapidly because of hyperinflation. B) a country’s economic prospects are solid and promising. C) the value of the domestic currency is appreciating rapidly. D) the value of the foreign currency is depreciating rapidly.

74)

Why do governments limit currency convertibility? A) to preserve foreign exchange reserves B) to spend foreign exchange reserves C) to keep domestic companies from investing abroad D) to allow nonresidents to convert money to foreign currencies

75) __________ 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. A) The random walk effect B) The Fisher Effect C) The International Fisher Effect D) Capital flight

76) __________ refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. A) Countertrade B) Carry trade C) Dumping D) Capital flight

Version 1

77) The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values is known as __________ exposure. A) economic B) financial C) translation D) transaction

78) What concept is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs? A) translation exposure B) economic exposure C) transaction exposure D) trade exposure

79) Lead Technologies, based in the United States, decides it wants to collect all of its foreign currency receivables from Singapore early because the currency in Singapore is expected to depreciate. This is an example of A) the efficient market school. B) arbitrage. C) a lead strategy. D) a lag strategy.

80)

An example of transaction exposure is when

A) companies borrow funds in their own domestic currency. B) companies have obligations for the purchase of goods at previously agreed prices. C) there is an impact of currency exchange rates on the reported financial statements of a company. D) changing exchange rates have a long-term effect on future prices, sales, and costs.

Version 1

81)

A lag strategy involves

A) attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate. B) delaying collection of foreign currency receivables if that currency is expected to appreciate. C) paying foreign currency payables before they are due when a currency is expected to appreciate. D) delaying collection of foreign currency receivables if that currency is expected to depreciate.

82) The convertible currency market converts the currency of one country into that of another country. ⊚ true ⊚ false

83) When Lana traveled from the United States to Italy, she had to change her money from dollars into euros. Lana was participating in the currency exchange market. ⊚ true ⊚ false

84) Perla likes to gamble in the foreign exchange market, so she sometimes moves her funds from dollars to euros hoping she will make money based on the exchange rates. This demonstrates a carry trade. ⊚ true ⊚ false

85) Currency fluctuations can make seemingly profitable trade and investment deals unprofitable, and vice versa, due to currency volatility and fluctuations.

Version 1

⊚ ⊚

86)

true false

Carry trade is nonspeculative in nature. ⊚ true ⊚ false

87) 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. ⊚ true ⊚ false

88) If the spot exchange rate is £1 = $1.50 when the market opens, and £1 = $1.48 at the end of the day, the pound has appreciated, and the dollar has depreciated. ⊚ true ⊚ false

89) To minimize the risk of an unanticipated change in exchange rates, a company can protect itself by entering into a spot exchange contract. ⊚ true ⊚ false

90) If $1 bought more yen with a spot exchange than with a 30-day forward exchange, it indicates the dollar is expected to depreciate against the yen in the next 30 days. When this occurs, we say the dollar is selling at a discount on the 30-day forward market. ⊚ true ⊚ false

Version 1

91) If the spot rate is $1 = 120, and the 30-day forward rate is $1 = 130, the dollar is selling at a discount in the forward market. ⊚ true ⊚ false

92) risk.

A currency swap deal enables companies to insure themselves against foreign exchange ⊚ ⊚

true false

93) The most important trading centers for currencies are Zurich, Frankfurt, Paris, Hong Kong, and Sydney. ⊚ true ⊚ false

94) Arbitrage opportunities in foreign exchange markets tend to be small and disappear quickly. ⊚ true ⊚ false

95) If the law of one price were true for all goods and services, the purchasing power parity (PPP) exchange rate could be found from any individual set of prices. ⊚ true ⊚ false

96) There are many impediments to the free flow of goods and services in an efficient market. ⊚ true ⊚ false

Version 1

97) The purchasing power parity (PPP) theory is a strong predictor of short-run movements in exchange rates covering time spans of five years or less. ⊚ true ⊚ false

98) 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. ⊚ true ⊚ false

99) There is no evidence that psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates. ⊚ true ⊚ false

100) The efficient market school argues that investing in exchange rate forecasting services would be a waste of money. ⊚ true ⊚ false

101) Transaction 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. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 10_14th Edition 15) A 16) B 17) C 18) D 19) A 20) C 21) C 22) D 23) C 24) B 25) A 26) B 27) D 28) A 29) C 30) A 31) C 32) B 33) A 34) D 35) A 36) B 37) A 38) B 39) C 40) D Version 1

41) A 42) B 43) C 44) B 45) C 46) D 47) D 48) A 49) B 50) C 51) D 52) A 53) A 54) D 55) B 56) D 57) B 58) A 59) A 60) D 61) D 62) B 63) C 64) B 65) B 66) A 67) A 68) D 69) A 70) B Version 1

71) C 72) D 73) A 74) A 75) D 76) A 77) D 78) B 79) C 80) B 81) B 82) FALSE 83) TRUE 84) TRUE 85) TRUE 86) FALSE 87) TRUE 88) FALSE 89) FALSE 90) TRUE 91) FALSE 92) TRUE 93) FALSE 94) TRUE 95) TRUE 96) FALSE 97) FALSE 98) TRUE 99) FALSE 100) TRUE Version 1

101) TRUE

Version 1

CHAPTER 11 1) Discuss when a nation might choose the process of dollarization. Provide an example of a country that has used this process.

What is the international monetary system? What are the major trading currencies?

3) Explain the events that led to the failure of the Bretton Woods system of fixed exchange rates.

Discuss the significance of the Jamaica Agreement.

Version 1

5) Compare and contrast a pegged exchange system with a dirty-float system of exchange rates.

What is the gold standard? What was the major advantage of the system?

7) With the help of an example, explain how balance-of-trade equilibrium is maintained under the gold standard.

What is the Bretton Woods agreement? How was it different from the gold standard?

9) Identify the multinational institutions that were established at the Bretton Woods agreement. What were their roles in the international monetary system?

Version 1

10) Discuss the arguments that favor a floating exchange rate system against a fixed exchange rate system.

11)

Present the common arguments that favor fixed exchange rates.

12)

Describe the different exchange rate policies that are in practice today.

13) What is a currency board? Why do countries choose this type of system? What are the disadvantages of this type of arrangement?

Version 1

14) Recent policies of the International Monetary Fund have drawn a lot of criticism. Discuss these criticisms.

15) How can international companies reduce their economic exposure in a world of constantly fluctuating exchange rates?

16)

Do you think businesses can influence government policies? Explain your answer.

17)

The __________ refers to the institutional arrangements that govern exchange rates.

Version 1

A) World Bank B) international monetary system C) currency exchange D) gold standard

18) The currency of Lebanon is fixed relative to the U.S. dollar. This means that the exchange rate between the Lebanese pound and other currencies is determined by the dollar exchange rate. This reflects a A) pegged exchange rate. B) floating exchange rate. C) managed float system. D) fixed exchange rate.

19) When a country tries to hold the value of its currency within some range against an important reference currency such as the U.S. dollar without adopting a formal pegged rate, it is referred to as a A) gold standard. B) pegged float. C) dirty float. D) currency peg.

20)

The amount of a currency needed to purchase one ounce of gold was referred to as the A) golden rule. B) gold standard. C) pegged gold value. D) gold par value.

Version 1

21)

A country is said to be in balance-of-trade equilibrium when

A) the income its residents earn from exports is equal to the money its residents pay to other countries for imports. B) it produces all the goods needed for domestic consumption. C) the number of products exported makes up for or exceeds the number of products that must be imported. D) it produces all the goods needed for exportation.

22) The world’s four 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. This characterizes a A) pegged exchange rate regime. B) floating exchange rate regime. C) managed-float system. D) fixed exchange rate regime.

23) Prior to the introduction of the euro, several member states of the European Union participated in a __________ system, in which the values of a set of currencies are fixed against each other at some mutually agreed upon exchange rate. A) floating exchange rate B) currency board C) fixed exchange rate D) pegged exchange rate

24)

International Monetary Fund members were __________ in the Jamaica agreement.

Version 1

A) not permitted to sell their own gold reserves B) permitted to sell their own gold reserves, but only at the price set by IMF C) required to hold their gold reserves in escrow D) permitted to sell their own gold reserves at the market price

25)

The value of the U.S. dollar increased between 1980 and 1985 A) despite running a growing trade deficit. B) despite exporting substantially more than it imported. C) because of a growing trade surplus. D) because of strong fiscally conservative policies of the U.S. government.

26)

One factor that initiated the collapse of the fixed exchange rate system was A) a worsening of Great Britain’s balance of trade. B) the recession in third world countries. C) price inflation in Europe. D) a worsening of U.S. foreign trade position.

27) What change was made to the International Monetary Fund’s Articles of Agreement in the Jamaica agreement? A) IMF members were permitted to use the U.S. dollar as the convertible currency. B) Gold was declared as a formal reserve asset for IMF members. C) IMF members were permitted to sell their gold reserves at the market price. D) IMF members were restricted from entering the foreign exchange market.

28) __________ exchange rates were declared as acceptable in the Jamaica agreement of the International Monetary Fund. Version 1

A) Pegged B) Fixed C) Floating D) Gold standard

29) For which reason is the current foreign exchange system sometimes thought of as a managed-float system? A) The exchange rates of a currency are determined by market forces. B) Governments intervene frequently in the foreign exchange market. C) Major currencies are allowed to freely float against each other. D) Countries use a reference currency to estimate the value of their currencies.

30)

The rise in the value of the dollar between 1985 and 1988 A) gave U.S. goods a competitive advantage over others. B) made imports relatively cheap. C) gave U.S. goods a comparative advantage over others. D) made imports expensive.

31)

The international monetary system refers to the institutional arrangements that govern A) microeconomic parameters. B) exchange rates. C) gross domestic product. D) foreign direct investment.

32) When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a __________ regime. Version 1

A) currency board exchange B) pegged exchange rate C) fixed exchange rate D) floating exchange rate

33)

Pegged exchange rate means that the value of a currency is A) fixed against other currencies based on an agreement. B) not determined by free market forces. C) fixed relative to a reference currency. D) independent of the valuations of other currencies.

34) A country wants to hold its currency against the U.S. dollar without a formal pegged rate. The central bank of the country will intervene in the foreign exchange market to maintain the value of its currency should it depreciate too rapidly against the dollar. This practice is known as A) a monetary run. B) a currency flip. C) an unpegged rate. D) a managed float.

35) After World War II, the world’s major industrial nations arranged their currencies against each other at a mutually agreed on exchange rate. This is an example of a __________ system. A) fixed exchange rate B) dirty float exchange C) pegged exchange rate D) floating exchange rate

Version 1

36)

Which statement is true of the gold standard? A) The gold standard was adopted only by the smaller nations of the world. B) Currencies were pegged to gold under the gold standard. C) Convertibility to gold was not guaranteed under the gold standard. D) The gold standard was not helpful in maintaining balance-of-trade equilibrium.

37)

Gold par value refers to the A) ratio of the price of gold in a currency to the price of gold in U.S. dollars. B) amount of a currency needed to purchase one ounce of gold. C) ratio of price of gold in a currency to the price of gold in euros. D) amount of gold required to equal the reference currency that a nation is using.

38) 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-trade surplus D) foreign debt crisis

39)

A country’s trade balance is in surplus when A) its exports are more than its imports. B) it experiences negative inflation. C) its exports equal the imports. D) the prices of commodities are low in the country.

40)

An advantage of using the gold standard is that the standard

Version 1

A) makes sure that goods are not priced out from markets due to inflation. B) does not require a commitment from a nation to maintain its currency’s value. C) effectively prevents the devaluation of currencies across the world. D) contains a powerful mechanism for achieving balance-of-trade equilibrium by all countries.

41) 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) It would lead to price deflation in the country.

42)

International Development Association loans

A) receive direct funding from the World Bank. B) must be countersigned by a partnering, wealthy country such as the United States, Japan, or Germany. C) are funded through subscriptions from wealthy members. D) receive direct funding from the International Monetary Fund.

43)

The agreement reached at Bretton Woods established the A) International Monetary Fund. B) World Economic Forum. C) United Nations. D) International Atomic Energy Agency.

Version 1

44)

Which statement is true of the Bretton Woods agreement?

A) All countries agreed to fix the value of their currency in terms of gold under the agreement. B) The system accepted the British pound as the official reference currency against gold. C) The agreement established a floating system of monetary exchange. D) Two multinational institutions, the World Economic Forum and WTO, were formed under the agreement.

45) If Mexico suffered from “fundamental disequilibrium,” and its government chose not to devalue its currency, a likely consequence would be A) a persistent trade surplus. B) high unemployment. C) an immediate balance-of-payments equilibrium. D) an increase in exports.

46)

Identify the currency that was directly linked to gold under the Bretton Woods system. A) pound B) yen C) euro D) dollar

47) What will happen if a country increases its money supply rapidly under a fixed exchange rate regime? A) Imports will become less attractive in that country. B) The country will face negative inflation. C) The trade deficit would widen in that country. D) The country’s products will become more attractive in world markets.

Version 1

48)

What is a disadvantage of using a rigid policy of fixed exchange rates? A) It is likely to create high unemployment in some cases. B) It will lead to inflationary economies across the world. C) It is likely to bring about trade wars between nations. D) It will instigate competitive devaluations and intense competition.

49)

What was the World Bank’s initial mission? A) implementing a rigid fixed exchange rate regime B) promoting the gold standard across the world C) providing low-interest loans to help finance the building of Europe’s economy D) implementing a flexible fixed exchange rate regime

50)

Which argument is in favor of floating exchange rates?

A) A country’s ability to expand or contract its money supply should be limited by the need to maintain exchange rate parity. B) Maintaining balance-of-trade equilibrium is not in the best interest of a country. C) Countries can isolate themselves from uncertainties when they trade using a mutually agreed-on exchange rate. D) Governments can restore monetary control by removing the obligation to maintain exchange rate parity.

51) Advocates of a __________ argue that removal of the obligation to maintain exchange rate parity would restore monetary control to a government.

Version 1

A) fixed exchange rate regime B) dirty-float system C) floating exchange rate regime D) pegged exchange rate regime

52)

The monetary autonomy argument is supported by the advocates of A) a dirty-float system. B) fixed exchange rates. C) pegged exchange rates. D) floating exchange rates.

53)

Supporters of floating exchange rates

A) argue that floating rates help adjust trade imbalances. B) argue that floating rates lead to a more stable world monetary system. C) claim that trade deficits are determined by the balance between savings and investment in a country. D) claim that trade deficits are not determined by the external value of currency.

54)

The monetary autonomy argument holds that A) each country should be allowed to choose its own inflation rate. B) inflation is beneficial to a country’s economy and growth. C) inflation is detrimental to a country’s economy and growth. D) countries should restrict inflation based on the global standards.

55)

Those against the use of fixed exchange rates would argue that

Version 1

A) monetary discipline is the most important determinant of a strong economy. B) each country has the freedom to choose its own inflation rate. C) market speculation can cause fluctuations in exchange rates. D) governments are likely to expand the monetary supply far too rapidly due to political pressures.

56)

Which argument strengthens the idea of floating exchange rates? A) External agencies should not interfere in the monetary policies of a country. B) Trade deficits can be corrected through changes in exchange rates. C) Changes in exchange rates will not impact the trade balance in a country. D) Governments should act in ways to minimize the uncertainty in monetary markets.

57) The exchange rate policy where the exchange rate is determined completely by market forces is called a A) managed float. B) fixed peg. C) free float. D) currency board.

58) The exchange rate policy where the government intervenes in the exchange rate system only in a limited way is known as a A) managed float. B) fixed peg. C) free float. D) currency board.

Version 1

59) Under a __________ exchange rate regime, a country will attach the value of its currency to that of a major currency. A) managed float B) pegged C) free float D) currency board

60)

Which statement is true of pegged exchange rates? A) A pegged exchange rate allows a country’s currency to be determined by market

forces. B) A pegged exchange rate weakens the monetary discipline of a country. C) Pegged exchange rates are popular among many of the world’s smaller nations. D) Adopting a pegged exchange rate regime increases inflationary pressures in a country.

61) A country that introduces a currency board commits itself to converting its domestic currency on demand into A) another currency at a fixed exchange rate. B) gold or silver at a fixed exchange rate. C) gold or silver at a floating exchange rate. D) another currency at a floating exchange rate.

62)

Under a currency board system A) inflation rates are maintained at a high level. B) countries issue domestic notes at will. C) interest rates remain constant. D) the government lacks the ability to set interest rates.

Version 1

63)

Exchange rates are __________ under a pure “free float” system. A) completely balanced B) determined by market forces C) wildly variable and unpredictable D) determined by the government

64) The great virtue claimed for a __________ is that it imposes monetary discipline on a country and leads to low inflation. A) fixed exchange rate B) managed-float system C) pegged exchange rate D) floating exchange rate

65) __________ limits the ability of the government to print money and, thereby, create inflationary pressures. A) A dirty-float system B) A managed-float system C) The European Monetary System D) A currency board system

66) if

Currencies of countries with currency boards will become uncompetitive and overvalued

Version 1

A) local inflation rates remain higher than the inflation rate in the country to which the currency is pegged. B) the country to which the currency is pegged experiences a trade deficit. C) local inflation rates are lower than the inflation rate in the country to which the currency is pegged. D) the country to which the currency is pegged experiences a trade surplus.

67) During the 1990s, some Japanese and 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) moral hazard B) tragedy of the commons C) dollarization D) dirty float

68)

A currency crisis results in a sharp depreciation of the value of the currency due to A) the loss of confidence in a country’s banking system. B) heavy foreign debt obligations. C) high levels of trade deficit. D) a speculative attack on the exchange value.

69)

Moral hazard arises when people behave recklessly because A) of the restrictions that exist in a country's monetary policy. B) of the restrictions the IMF has imposed on them. C) they know they will be saved if things go wrong. D) they face financial difficulties arising out of external factors.

Version 1

70)

A common criticism against the powerful International Monetary Fund is that the IMF A) lacks any real mechanism for accountability. B) is hesitant to help banks when they are in crisis. C) has not intervened to resolve the Asian crisis. D) did not try to resolve the Mexican currency crisis.

71) A __________ is a situation in which a country cannot service its foreign debt obligations. A) currency crisis B) banking crisis C) foreign debt crisis D) moral crisis

72)

Loans issued by the IMF

A) are conditional loans. B) are unconditional loans. C) include a macroeconomic policy that calls for lower interest rates. D) include a macroeconomic policy that calls for increases in public spending to improve infrastructure in a country.

73)

The Asian economic crisis and the global financial crisis of 2008–2009 were caused by A) high inflation rates. B) excessive debt. C) low inflation rates. D) a huge trade surplus.

Version 1

74)

What is a common underlying cause of financial crises? A) a narrowing current account deficit B) excessive expansion of domestic borrowing C) low relative price inflation rates D) asset price deflation

75) A __________ 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) currency B) banking C) foreign debt D) domestic debt

76)

Which observation is true of the current system of the foreign exchange market?

A) Most of the currencies can be converted to gold in the current system of foreign exchange. B) The current system is driven by fixed exchange rates. C) Currencies float freely against others in the current system. D) The current system is a combination of government intervention and speculative activity.

77)

Which tactic will help a company hedge against currency fluctuations? A) finding a large supplier to supply all the raw materials B) manufacturing raw materials in-house C) basing business in a single country D) dispersing production to different geographic locations

Version 1

78)

Contracting out manufacturing allows companies to reduce economic exposure because A) multiple suppliers attract subsidies from government. B) it reduces the pressure on them to maintain a trade surplus. C) it allows companies to shift suppliers from country to country. D) quality issues are insignificant when manufacturing is contracted to others.

79) Increasingly the __________ has been acting as macroeconomic police of the world economy, insisting that countries seeking significant borrowings adopt certain macroeconomic policies. A) Economic and Social Council (ECOSOC) B) International Monetary Fund (IMF) C) United Nations (UN) D) World Bank

80) Countries that require substantial loans from the International Monetary Fund to survive will probably __________ due to IMF-mandated economic policies. A) benefit from a sharp expansion of demand in the long term B) endure a sharp contraction of demand in the long term C) benefit from a sharp expansion of demand in the short term D) endure a sharp contraction of demand in the short term

81)

In the face of unpredictable movements in exchange rates, businesses should A) pursue strategies that will reduce their economic exposure. B) pursue strategies that will decrease their strategic flexibility. C) pursue strategies that will reduce their foreign market exposure. D) sell off investments in foreign subsidiaries and consolidate domestic facilities.

Version 1

82) It is difficult if not impossible to get adequate insurance coverage for exchange rate changes that A) will occur in the next few weeks. B) might occur in the next few months. C) might occur several years in the future. D) might occur in the coming days.

83) The international monetary system refers to the institutional arrangements that govern exchange rates. ⊚ true ⊚ false

84)

The gold standard called for fixed exchange rates against the U.S. dollar. ⊚ true ⊚ false

85) The fixed exchange rate system established at Bretton Woods failed due to speculative pressures on the U.S. dollar. ⊚ true ⊚ false

86)

Gold was declared as the formal reserve asset in the Jamaica agreement of 1976. ⊚ true ⊚ false

87) Market forces have produced a stable dollar exchange rate under a floating exchange rate regime. Version 1

⊚ ⊚

true false

88) The agreement reached at Bretton Woods established the International Monetary Fund (IMF) and the World Bank. ⊚ true ⊚ false

89) After the agreement reached at Bretton Wood, the dollar was the only currency that could be convertible into gold. ⊚ true ⊚ false

90)

Implementing a fixed exchange rate regime increases price inflation in countries. ⊚ true ⊚ false

91) An underdeveloped nation has a poor credit rating and is considered a risky customer. Despite this, the World Bank will offer this country a low-interest loan. ⊚ true ⊚ false

92)

Fixed exchange rates lead to speculation and uncertainty in the value of currencies. ⊚ true ⊚ false

93)

Adopting a pegged exchange rate regime increases the inflationary pressures in a country.

Version 1

⊚ ⊚

true false

94) 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

95)

Interest rates adjust automatically under a strict currency board system. ⊚ true ⊚ false

96) The International Monetary Fund’s original function was to provide a pool of money from which members could borrow in the short term. ⊚ true ⊚ false

97) The IMF does not expect governments to meet any obligations except to pay back the money it borrows. ⊚ true ⊚ false

98) In 2018–2019, the IMF stepped in to help stabilize the value of the Pakistani currency on foreign exchange markets by lending it foreign currency. This constitutes a foreign debt crisis. ⊚ true ⊚ false

Version 1

99) The definition of moral hazard is when people behave recklessly without regard for the consequences. ⊚ true ⊚ false

100) The current system of foreign exchange is a mixed system of government intervention and speculative activity. ⊚ true ⊚ false

101) Firms cannot utilize the forward exchange market when they are faced with uncertainty about the future value of currencies. ⊚ true ⊚ false

102) An effective business strategy to reduce economic exposure is to contract out high-valueadded manufacturing. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 11_14th Edition 17) B 18) A 19) C 20) D 21) A 22) B 23) C 24) D 25) A 26) D 27) C 28) C 29) B 30) B 31) B 32) D 33) C 34) D 35) A 36) B 37) B 38) B 39) A 40) D 41) B 42) C Version 1

43) A 44) A 45) B 46) D 47) C 48) A 49) C 50) D 51) C 52) D 53) A 54) A 55) B 56) B 57) C 58) A 59) B 60) C 61) A 62) D 63) B 64) C 65) D 66) A 67) A 68) D 69) C 70) A 71) C 72) A Version 1

73) B 74) B 75) B 76) D 77) D 78) C 79) B 80) D 81) A 82) C 83) TRUE 84) FALSE 85) TRUE 86) FALSE 87) FALSE 88) TRUE 89) TRUE 90) FALSE 91) TRUE 92) FALSE 93) FALSE 94) TRUE 95) TRUE 96) TRUE 97) FALSE 98) FALSE 99) FALSE 100) TRUE 101) FALSE 102) FALSE Version 1

Version 1

CHAPTER 12 1)

What is a capital market? Define market makers.

Explain how equity loans and debt loans differ in terms of attractiveness to businesses.

3) Explain the changes observed in the risk of investments when an investor increases the number of stocks in his or her portfolio.

4) There is a low correlation between the movement of stock markets in two different countries. What are the two factors that influence this?

Version 1

Analyze the impact of technology on the growth of the global capital market.

Briefly describe the trends observed in the global deregulation of financial services.

7) What are the financial advantages that make the Eurocurrency market attractive to both depositors and borrowers?

What are the drawbacks of the Eurocurrency market?

Describe a fixed-rate bond.

Version 1

10)

What are foreign bonds?

11)

Explain Eurobonds with an example.

12)

Write a brief note on foreign exchange risks and the cost of capital.

13)

How can a borrower hedge against unpredictable movements in exchange rates?

Version 1

14)

How does growth in global capital markets impact investing firms?

15) Banks such as JPMorgan Chase and investment firms such as Charles Schwab are referred to as ______ in that they connect investors and borrowers, either directly or indirectly. A) market makers B) currency traders C) financial advisors D) venture capitalists

16)

__________ perform a direct connection function in capital markets. A) Insurance brokers B) Investment banks C) Pension fund managers D) Commercial banks

17) __________ requires a corporation to repay a predetermined portion of the loan amount at regular intervals regardless of how much profit it is making.

Version 1

A) An equity loan B) A stock loan C) A debt loan D) A bonded loan

18)

The liquidity of the market is __________ in a purely domestic capital market. A) held in reserves B) unlimited C) based upon the stock market D) limited

19)

The cost of capital is A) higher in a purely domestic capital market than in a global market. B) lower in a domestic capital market than in an international market. C) higher in a global market than in a purely domestic capital market. D) the same in either a global market or a purely domestic capital market.

20)

The risk associated with a portfolio

A) declines exponentially as the number of stocks purchased increases and continues to decline until a point of zero risk is reached. B) decreases as the investor increases the number of stocks in her portfolio. C) grows exponentially with the number of stocks purchased. D) increases as the investor increases the number of stocks in her portfolio.

21)

The systematic risk of the stock market is the

Version 1

A) movement in a stock portfolio’s value that is attributable to the individual selections made for that portfolio. B) level of diversifiable risk in an economy. C) movement of the economy of a country. D) level of nondiversifiable risk in an economy.

22) A __________ brings together those who want to invest money and those who want to borrow money. A) consumer market B) value chain C) supply chain D) capital market

23)

Market makers are A) financial service companies that connect investors and borrowers. B) nonbank financial institutions who want to invest money. C) high net worth individuals with surplus cash to reinvest. D) those who want to borrow money including individuals, companies, and governments.

24)

Which statement is true of market makers? A) Commercial banks are not allowed to function as market makers. B) Market makers are large investors who drive an economy. C) Market makers facilitate only equity-based loans. D) Market makers connect investors and borrowers in a capital market.

Version 1

25) A corporation looking to expand sells stock to investors. The money the corporation receives from the sale of stock will be used to buy additional machinery and open a second plant. This type of investment is called a(n) ______ loan. A) debt B) investment C) equity D) specific purpose

26)

If a corporation takes out a debt loan, it should be aware that

A) management has the discretion in how much and how often it will pay back its investors. B) the loan must be paid back at regular intervals regardless of how much profit the corporation is making. C) the stock sold to obtain the loan gives shareholders a claim to the corporation’s profits. D) the corporation need not pay back the debt loan if they incur losses.

27)

When an investor purchases a corporate bond, he purchases the right to receive a A) share of the overall revenues that the company generates. B) part of the title for the assets that the corporate holds. C) specified fixed stream of income from the corporation. D) share of the profits that the company generates through operations.

28)

An important drawback of a purely domestic capital market is that the A) investment does not receive protection from governments. B) investments are riskier than in global capital markets. C) market lacks a strong regulatory mechanism. D) cost of capital tends to be higher than it is in a global market.

Version 1

29)

A purely domestic capital market faces the problem of A) foreign exchange risk. B) limited liquidity. C) lack of regulation. D) deregulated markets.

30)

The cost of capital is the A) interest received on investments made by the company. B) price of borrowing money. C) difference between cost of inputs and outputs. D) total value of raw materials that a company uses.

31)

As investors increase the number of stocks in their portfolio, the portfolio’s risk A) increases initially and declines later. B) declines slowly and steadily. C) increases exponentially. D) declines rapidly in the beginning.

32)

Systematic risk refers to movements in a stock portfolio’s value that are A) attributable to macroeconomic forces affecting an economy. B) specific to the firm or individuals who invest in a portfolio. C) attributable to factors pertaining to an individual firm. D) specific to the company that facilitates the investment portfolio.

Version 1

33) The relatively low correlation between the movement of stock markets in different countries indicates that A) diversifying a portfolio will increase the risk of investing. B) most countries face similar economic conditions. C) countries pursue different macroeconomic policies. D) most stock markets are highly segmented from each other.

34) The element of risk into investing in foreign assets is greater with __________ exchange rates. A) floating B) pegged C) fixed D) managed

35)

__________ is made when a corporation sells stock to investors. A) A corporate bond sale B) A debt loan C) A Eurobond investment D) An equity loan

36) In __________, the limited pool of investors implies that borrowers must pay more to persuade investors to lend them their money. A) a purely domestic market B) a mixed market C) an international market D) a purely Euro market

Version 1

37) Investors are able to reduce risks by diversifying an investment portfolio internationally, and the risk reduction effects would be greater if not for A) volatile exchange rates associated with the current floating exchange risk regime. B) the different kinds of tax regimes in different countries. C) the inaccessibility of foreign stock exchanges to most investors. D) the poor quality of many stocks in international start-up firms.

38) A __________ market benefits investors by providing a wider range of investment opportunities, thereby allowing them to build portfolios of international investments that diversify their risks. A) foreign exchange B) global capital C) domestic exchange D) domestic capital

39)

Which statement reflects the use of information technology in financial services? A) Information technology prevents the spread of financial crises. B) Financial services are an information-intensive industry. C) Financial services do not use decision-making systems. D) It does not require the processing of large volumes of information.

40) What is a disadvantage of the integration of the international capital market facilitated by technology?

Version 1

A) Segregated international capital markets will emerge as a result of technology. B) Complexity in processing large volumes of data will increase. C) Shocks that occur in one financial center will spread globally. D) Systems integration hinders real-time data transfer across different countries.

41) Hedge funds position themselves to make __________ bets on assets that they think will __________. A) long; weather a volatile market B) long; increase in value C) short; weather a volatile market D) short; increase in value

42)

Which statement is true of the deregulation of the financial industry? A) Countries can strengthen the global capital market by encouraging strict regulations. B) Financial services have historically been the most deregulated of all industries. C) Deregulation helped the development of an international capital market. D) Deregulation compels financial services companies to remain as domestic companies.

43)

Hedge funds A) are public investment funds that invest in corporate bonds and shares. B) make long bets rather than short bets. C) are investment funds managed by the government. D) make short bets on assets that they think will decline in value.

44)

Some analysts, who believe that globalization of capital has serious risks, argue that

Version 1

A) capital does not shift in and out of countries as quickly as conditions change. B) individual nations are becoming more vulnerable to speculative capital flows. C) deregulation of trade is helpful for the economic growth in a country. D) most of the capital that moves internationally is pursuing long-term gains.

45)

What is a disadvantage of the global capital market? A) Foreign investments may be driven by speculative flows in the market. B) A truly global market reduces the liquidity of investments. C) The availability of capital is low in a global capital market. D) The cost of capital is more in a global market than a domestic market.

46) According to some analysts, deregulation and reduced controls on cross-border capital flows are A) having a stabilizing effect on national economies. B) making individual nations more vulnerable to speculative capital flows. C) making investors nervous and causing them to pull their money out of foreign nations. D) allowing undeveloped nations to enter the global market.

47)

Harvard economist Martin Feldstein argues that the lack of patient money is due to

A) the flood of information, due to the Internet, that investors receive about current events in other countries. B) money owners and managers preferring to keep their money “home.” C) the relative scarcity of information that investors have about foreign investments. D) money owners and managers preferring to place their money in foreign investments.

48)

A Eurocurrency is

Version 1

A) the currency used by the countries of the European Union. B) the currency formerly used in many European countries before the formation of the European Union and the institution of the euro. C) any currency banked outside of its country of origin. D) any currency banked within a European country.

49)

The Eurocurrency market is attractive to both depositors and borrowers because A) it allows fair trade within the European Union. B) it has strong government regulations and safeguards. C) of its commitment to economic growth in underdeveloped nations. D) of its lack of government regulation.

50)

__________ is characterized by a lack of government regulation. A) The Eurocurrency market B) A money market fund C) The New York Stock Exchange D) A hedge fund

51)

__________ deposits are regulated in all industrialized countries. A) U.S. currency B) Domestic currency C) Foreign currency D) Eurocurrency

52)

Companies receive __________ when using the Eurocurrency market.

Version 1

A) a lower interest rate on deposits and pay more for loans B) tax incentives C) a higher interest rate on deposits and pay less for loans D) liquid asset reserve waiver

53)

Investors who purchase a fixed-rate bond receive A) incremental payouts until the bonded money runs out. B) cash payoffs only at maturity. C) a full cash payoff on demand. D) a fixed set of cash payoffs.

54)

Foreign bonds sold in the United States are referred to as A) Yankee bonds. B) Uncle Sam’s bonds. C) Bulldogs. D) Eagles.

55)

__________ are normally underwritten by an international syndicate of banks. A) Samurai bonds B) Eurobonds C) Yankee bonds D) Foreign bonds

56)

What central issue led to the development of the Eurocurrency market?

Version 1

A) the overinflated exchange value of the dollar with the euro B) distrust by European nations of the gold standard being pegged to the U.S. dollar C) business losses resulting from the communist takeover of eastern Europe D) persistent trade imbalances between members of the European Union and the rest of the world

57)

Which statement is true of Eurocurrency? A) The Eurocurrency market is a relatively high-cost source of funds. B) It is produced and banked within European countries. C) Eurocurrency can be created anywhere in the world. D) It is used only for internal transactions within European Union.

58)

Because the Eurocurrency market lacks government regulation, it A) is separated from the foreign exchange market. B) is attractive to both depositors and borrowers. C) is associated with low risk. D) gives high levels of investor protection.

59) Banks offer higher interest rates on Eurocurrency deposits than on deposits made in the home currency because Eurocurrency deposits A) are funded by the European union. B) lack government regulations. C) are associated with low risk. D) have minimum foreign exchange risk.

60)

What is an advantage that banks have when they deal with foreign currencies?

Version 1

A) Interest payments to customers are low when dealing with foreign currencies. B) Accounts need not be maintained when dealing with foreign currencies. C) Risks that investors face are low when dealing with foreign currencies. D) Governments give banks more freedom when dealing with foreign currencies.

61)

When using the Euromarkets, companies A) have funds that lack liquidity. B) pay less for loans. C) attract low interest rates. D) are secured from foreign exchange risks.

62)

One drawback of the Eurocurrency market is A) increased governmental controls. B) high reserve ratio requirements. C) low interest rates on deposits. D) exposure to foreign exchange risk.

63)

What is a characteristic of fixed-rate bonds?

A) Returns from fixed-rate bonds are dependent on the profitability of the issuing company. B) Investors get back the face value of the bond at maturity of fixed-rate bonds. C) Fixed-rate bonds issue cash payoffs only at maturity of fixed-rate bonds. D) Investors get a share of the company’s profit when using fixed-rate bonds.

64) __________ are sold outside of the borrower’s country and are denominated in the currency of the country in which they are issued. Version 1

A) Micro bonds B) Eurobonds C) Foreign bonds D) Regulatory bonds

65) The United States sells bonds that are denominated in dollars in Europe. This is an example of a A) foreign bond. B) Eurobond. C) micro bond. D) regulatory bond.

66) __________ are international bonds, normally underwritten by an international syndicate of banks and placed in countries other than the one in whose currency the bond is denominated. A) Micro bonds B) Foreign bonds C) Eurobonds D) Regulatory bonds

67)

Eurobonds are A) denominated in the currency of the country in which they are issued. B) normally underwritten by an international syndicate of banks. C) denominated in a currency that is accepted by the European Union. D) sold outside the borrower’s country with reference to the originating currency.

Version 1

68) A German corporation issues a bond denominated in dollars that has no regulatory interference. This is an example of a A) foreign bond. B) Eurobond. C) micro bond. D) regulatory bond.

69)

What makes Eurobonds more attractive than most major domestic bonds? A) presence of regulatory interference B) strong disclosure requirements C) favorable tax status D) protection from exchange risks

70)

Historically, __________ separated national equity markets from each other. A) substantial regulatory barriers B) fixed exchange rates C) financial similarities D) desire for high levels of profit

71)

Approximately two-thirds of all Eurocurrencies are A) Euro-yen. B) Euro-pound. C) Euro-euro. D) Euro-dollars.

72)

Which statement reflects a drawback of the Eurocurrency market?

Version 1

A) Borrowing funds within its home country can expose a company to foreign exchange risk. B) There is a greater probability of a bank failure that would cause depositors to lose their money. C) The system is overregulated and, therefore, more costly. D) The higher interest rate received on home-country deposits reflects the costs of insuring against bank failure.

73)

Which statement characterizes the Eurobond market?

A) There are many regulations that protect investors. B) Government limitations are generally more stringent for securities denominated in foreign currencies. C) There are less stringent disclosure requirements than in most domestic bond markets. D) They have an unfavorable tax status.

74)

__________ can inject risk into foreign currency borrowing. A) Movements in exchange rates B) Use of fixed-exchange rates C) Issue of domestic bonds D) Use of pegged exchange rates

75) Borrowers can hedge against foreign exchange risks by entering into a __________ contract. A) hedge fund insurance B) prevailing exchange rate C) forward D) global capital market

Version 1

76)

A Japanese firm enters into a forward contract. By doing so, it will A) increase the risk involved in a transaction. B) lower the borrower’s cost of capital. C) benefit the borrower because the interest rate will be lower. D) raise the borrower’s cost of capital.

77) A capital market brings together those who want to invest money and those who want to borrow money. ⊚ true ⊚ false

78) One reason corporations like debt loans is that although a portion of the loan amount must be repaid, it only needs to be paid when the corporation is profitable. ⊚ true ⊚ false

79)

The cost of capital is the difference between cost of inputs and outputs. ⊚ true ⊚ false

80) By using the global capital market, investors have a much wider range of investment opportunities than in a purely domestic capital market. ⊚ true ⊚ false

Version 1

81) Compared to investing in a purely domestic capital market, investors who diversify with an international portfolio, raise their risk level considerably. ⊚ true ⊚ false

82) The relatively low correlation between the movements of stock markets in different countries indicates that countries face different economic conditions. ⊚ true ⊚ false

83) Using floating exchange rates will help countries reduce the risk of investing in foreign assets. ⊚ true ⊚ false

84)

Financial services is an information-intensive industry. ⊚ true ⊚ false

85) The cost of recording, transmitting, and processing information has doubled with advancements in technology since 1964. ⊚ true ⊚ false

86) Historically, in country after country, the financial services industry has been void of any meaningful regulation. ⊚ true ⊚ false

Version 1

87) The Eurocurrency market has been one cause of a decrease in global financial regulations. ⊚ true ⊚ false

88)

The globalization of capital has been universally seen as a positive development. ⊚ true ⊚ false

89) Economist Martin Feldstein has coined the term hot money to pertain to long-term capital flows. ⊚ true ⊚ false

90) The global capital market often lacks information about the fundamental quality of foreign investments. ⊚ true ⊚ false

91) If the international capital market continues to grow, financial intermediaries likely will provide less quality information about foreign investment opportunities. ⊚ true ⊚ false

92)

Any currency can become a Eurocurrency. ⊚ true ⊚ false

Version 1

93) Banks charge borrowers a lower interest rate on Eurocurrency borrowings than for borrowings in the home currency. ⊚ true ⊚ false

94) The spread between the Eurocurrency deposit rate and the Eurocurrency lending rate is more than the spread between the domestic deposit and lending rates. ⊚ true ⊚ false

95)

Governments give banks less freedom when they deal in foreign currencies. ⊚ true ⊚ false

96)

Depositors are not protected against bank failures in the Eurocurrency market. ⊚ true ⊚ false

97) Suppose ExxonMobil Corporation, a U.S. oil and gas company, issues bonds in Japanese yen and sold them in Japan. This would be an example of a foreign bond. ⊚ true ⊚ false

98) Eurobonds are usually offered to residents of the country in whose currency they are denominated. ⊚ true ⊚ false

Version 1

99) Government limitations are more severe for securities denominated in foreign currencies than for domestic securities. ⊚ true ⊚ false

100)

Eurobonds fall within the regulatory domain of the European Economic Community. ⊚ true ⊚ false

101)

Historically, regulatory barriers have made national equity markets work together. ⊚ true ⊚ false

102) A Chinese firm borrows 1 million U.S. dollars from an American bank. The cost of this loan will be less if the U.S. dollar appreciates against the Chinese currency. ⊚ true ⊚ false

103) The forward exchange market does not provide adequate coverage for long-term borrowings. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 12_14th Edition 15) A 16) B 17) C 18) D 19) A 20) B 21) D 22) D 23) A 24) D 25) C 26) B 27) C 28) D 29) B 30) B 31) D 32) A 33) C 34) A 35) D 36) A 37) A 38) B 39) B 40) C Version 1

41) B 42) C 43) D 44) B 45) A 46) B 47) C 48) C 49) D 50) A 51) B 52) C 53) D 54) A 55) B 56) C 57) C 58) B 59) B 60) D 61) B 62) D 63) B 64) C 65) A 66) C 67) B 68) B 69) C 70) A Version 1

71) D 72) B 73) C 74) A 75) C 76) D 77) TRUE 78) FALSE 79) FALSE 80) TRUE 81) FALSE 82) TRUE 83) FALSE 84) TRUE 85) FALSE 86) FALSE 87) TRUE 88) FALSE 89) FALSE 90) TRUE 91) FALSE 92) TRUE 93) TRUE 94) FALSE 95) FALSE 96) TRUE 97) TRUE 98) FALSE 99) FALSE 100) FALSE Version 1

101) FALSE 102) FALSE 103) TRUE

Version 1

CHAPTER 13 1)

What is strategy? How does strategy relate to a firm’s profitability?

What is the difference between profitability and profit growth?

How can a firm increase its profitability?

4) Discuss the efficiency frontier. How does strategic positioning relate to the efficiency frontier?

Version 1

5) Consider the firm in terms of a value chain. What is the difference between primary activities and support activities? Provide examples of each.

How can the marketing and sales functions of a firm create value?

Describe the benefits of global expansion for firms.

Discuss the creation of a global web of value creation activities.

What are learning effects? When are learning effects most significant?

Version 1

10)

How can firms successfully leverage the skills developed at the subsidiary level?

11) What are the two types of competitive pressures that firms competing in the global marketplace face? How do firms respond to these pressures?

12) Discuss how a firm’s marketing strategies may have to address differences in distribution channels in other countries.

13) Consider a transnational strategy. Why would a firm choose this strategic alternative? What are the disadvantages of this strategy?

Version 1

14)

Discuss the evolution of strategy. How does cost become important in the long term?

15)

__________ is measured by the percentage increase in net profits over time. A) Profit growth B) Value C) Profitability D) Operational economy

16)

The amount of value a firm creates is measured by the

A) economies of scale they are able to achieve. B) difference between its costs of production and the quality that consumers perceive in its products. C) profitability the firm achieves. D) difference between its costs of production and the price that it charges for its products.

17) Which term refers to 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?

Version 1

A) economies of scale B) diminishing returns C) efficiency frontier D) value creation scale

18) The strategy, operations, and organization of a firm must all be consistent with each other if the firm is to __________ and achieve superior profitability. A) exploit core competencies B) attain a comparative advantage C) experience a learning curve D) attain a competitive advantage

19)

__________ include the design, creation, and delivery of a product. A) Primary activities B) Core competencies C) Support activities D) Universal needs

20) A pharmaceutical firm wants to expand its offering by coming up with new drugs to treat Type II diabetes. What would be a primary activity for this firm? A) information technology systems B) research and development C) company infrastructure D) logistics and supply chain

21)

Top management should be viewed as part of the firm’s

Version 1

A) primary activities. B) experience curve. C) infrastructure. D) universal strategy.

22) __________ can be defined as the rate of return that the firm makes on its invested capital, which is calculated by dividing the net profits of the firm by total invested capital. A) Profitability B) Performance C) Cash flow D) Efficiency

23)

The percentage increase in net profits over time measures A) capital return. B) profitability. C) market growth. D) profit growth.

24) Generally speaking, what is the result when customers place more value on a firm's products? A) The firm will make less profit, overall. B) The firm can charger higher prices for those products. C) There will be more competitive pressure from other firms. D) It will lessen consumer surplus for those products.

Version 1

25) 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. This is because A) the customer’s disposable income is significantly higher than what the market demands. B) the customer captures some of that value in the form of a consumer surplus. C) regulatory mechanisms ensure that the customer is not overcharged for products/services. D) marketers implement psychological pricing tactics to ensure that customers perceive the prices to be low.

26) The value of a product to an average consumer is V; and the average price that the firm can charge a consumer for that product is P. Here, V – P can be termed as A) consumer surplus per unit. B) producer surplus per unit. C) profit growth. D) profit per unit sold.

27)

A consumer surplus can be best described as A) what the consumer has “left over” after a purchase. B) how much extra a consumer has to pay for a product. C) value for the money. D) the premium charged for a quality product.

28) A manufacturer of electric stand mixers wants to better compete in this highly competitive market. It decides to offer its mixer in over 50 different colors so customers will be able to match the appliance to their kitchen décor. What type of value creation strategy does this represent?

Version 1

A) differentiation B) low cost C) standardization D) localization

29)

The efficiency frontier has a convex shape because of A) consumer surplus. B) diminishing returns. C) profitability. D) differentiation strategy.

30) __________ 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. A) Efficiency matrixes B) Diminishing returns C) Cost plus curves D) Strategy convex curves

31)

The basic strategy paradigm suggests that to maximize its profitability, a firm should

A) choose, according to strategy, any position on the efficiency frontier as all positions are viable. B) pick a position on the efficiency frontier that is viable in the sense that there is a low product demand anticipated. C) configure its external operations so that they support the position of diminishing returns. D) make sure that the right organization structure is in place to execute its strategy.

Version 1

32) __________ activities are basically concerned with creating the product, marketing and delivering the product to buyers, and providing support and after-sales service. A) Support B) Subordinate C) Ancillary D) Primary

33)

Which is an example of a primary activity in a firm’s value chain? A) information systems B) marketing and sales C) logistics D) human relations

34)

Which is an example of a support activity in a firm’s value chain? A) research and development B) customer service C) human resources D) marketing and sales

35) __________ activities of the value chain provide inputs that allow the primary activities to occur. A) Complementary B) Basic C) Core D) Support

Version 1

36)

Michael Porter argues that

A) those firms that create superior value will achieve superior profitability. B) standardization of product is a basic strategy for attaining a competitive advantage in an industry. C) it is necessary for a firm to have the lowest cost structure or create the most valuable product. D) it is important that the gap between value and the cost of production be smaller than that of competitors.

37) The term __________ refers to skills within the firm that competitors cannot easily match or imitate and that may exist in the firm’s value creation activities. A) experience curves B) core competence C) economies of scale D) learning effects

38) Trendy Wear for Teens is choosing to set up its new production facility in Indonesia in order to take advantage of low labor costs. Additionally, the Indonesian government will offer the company tax incentives if it locates its facility in Indonesia. By pursuing such a strategy, Trendy Wear for Teens hopes to realize A) diminishing returns. B) universal needs. C) location economies. D) demographic advantages.

39) The __________ refers to systematic reductions in production costs that have been observed to occur over the life of a product.

Version 1

A) economies of scale B) value creation C) location economies D) experience curve

40)

______ are most likely to discourage global expansion of businesses. A) Factor endowments B) Economies of scale C) Location economies D) Trade barriers

41) __________ 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. A) Core competencies B) Global standardization strategies C) Operations D) Location economies

42) Economies that arise from performing a value creation activity in the optimal location are known as A) international strategies. B) location economies. C) localization strategies. D) economies of scale.

43)

Cost savings that come from learning by doing are known as

Version 1

A) learning curves. B) economies of scale. C) learning effects. D) experience curves.

44)

Learning effects tend to be A) the same regardless of whether a task is simple or complex. B) more significant when a technologically simple task is repeated. C) less significant when a technologically complex task is repeated. D) more significant when a technologically complex task is repeated.

45) __________ allows a firm to reduce its cost of creating value and increase its profitability. A) Moving down the experience curve B) Moving up the experience curve C) Moving down the learning effect curve D) Moving up the learning effect curve

46) A firm benefits 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 A) differentiation. B) location economies. C) vertical integration. D) horizontal integration.

Version 1

47) Economies that arise from performing a value creation activity in the optimal place for that activity are referred to as A) factor economies. B) production economies. C) location economies. D) value creation economies.

48) When companies disperse different stages of the value chain to those locations around the world where perceived value is maximized or where the costs of value creation are minimized, companies create A) a differentiated organization. B) a location economy curve. C) economies of scale. D) a global web of value creation activities.

49) Lenovo’s ThinkPad laptop computers are designed in the United States; the case, keyboard, and hard drive are made in Thailand; the display screen and memory in South Korea; the built-in wireless card in Malaysia; and the microprocessor in the United States. In each case, these components are manufactured and sourced from the optimal location given current factor costs. In this example, Lenovo has A) vertical integration advantages. B) a global web of value creation activities. C) learning effects. D) high local responsiveness.

50) When Washington Widgets first started out, it used to cost the company $87.50 to manufacture its premier product. Now, the same product costs just $48 to manufacture. This reduction in production costs demonstrates the effects of

Version 1

A) the experience curve. B) the efficiency frontier. C) location economies. D) a global web.

51) It has been observed that a product’s production costs decline by some quantity about each time cumulative output A) increases by 25 percent. B) quadruples. C) doubles. D) triples.

52) When Nolan first began working at Midway Metals, it took him 3 hours to assemble a motorcycle chassis. But as time went on, he discovered that by rearranging the order of the tasks, he can assemble the chassis in just over 2 hours. The improvement in his productivity is a result of A) location economies. B) factor endowments. C) economies of scale. D) learning effects.

53)

Learning effects

A) tend to be less significant when a technologically complex task is repeated. B) will be less significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps. C) typically disappear after a while, despite the complexity of the task. D) are more significant after two or three years of the introduction of a new process.

Version 1

54) It has been suggested that learning effects are important only during the start-up period of a new process and that they cease after two or three years. Any decline in the experience curve after such a point is due to A) reduction in fixed costs. B) higher depreciation costs. C) economies of scale. D) obsolescence.

55)

Economies of scale arise from which source? A) increasing fixed costs by limiting them to small volumes B) serving domestic and international markets from the same production facilities C) serving only domestic markets D) bargaining with distributors to drive up the product costs

56) What is one of the two types of competitive pressure that affects the ability of multinational enterprises to compete in the global marketplace? A) pressure for cost increases B) pressure for local responsiveness C) pressure for value creation D) pressure for increased profitability

57) A multinational enterprise doing business in Nigeria decided to change the labeling on its product to conform to local customs and preferences. What type of competitive pressure did this company experience?

Version 1

A) pressure for cost increases B) pressure for local responsiveness C) pressure for value creation D) pressure for increased profitability

58)

Which statement is true of firms that compete in the global marketplace?

A) They must employ a transnational policy in order to have a competitive edge. B) Because differentiation across countries can involve significant duplication and a lack of product standardization, it may raise costs. C) They must employ a domestic policy in order to have a competitive edge. D) Because differentiation across countries can involve significant duplication and a lack of product standardization, it may reduce costs.

59)

Universal needs exist when

A) the tastes and preferences of consumers in different nations are similar if not identical. B) conventional commodity products requested in one country are different than those requested in another country. C) the tastes and preferences of consumers in the same nation are similar if not identical. D) consumers are willing to pay a high price for a product regardless of what country they reside in.

60)

Pressures for cost reduction are intense in industries where A) major competitors are based in high-cost locations. B) consumers are weak and face high switching costs. C) there is persistent excess capacity. D) the company is located in a low-cost location.

Version 1

61)

A multinational firm may need to delegate marketing functions to national subsidiaries to A) fully implement the firm’s localization strategy. B) employ economies of scale. C) meet the requirements for a global standardization strategy. D) be responsive to local differences in distribution channels.

62)

Firms usually respond to pressures for cost reduction by trying to A) lower the costs of value creation. B) be locally responsive. C) undertake product differentiation. D) diversify product lines.

63) Responding to pressure for __________ requires that a firm differentiate its products and marketing strategy from country to country, even though it may raise costs. A) cost reductions B) experience effects C) lowering the costs of value creation D) being locally responsive

64) Commodity products such as bulk chemicals, petroleum, steel, and/or sugar do not require much differentiation because the taste and preference for these products are similar all around the world. These products are called A) universal needs. B) traditional products. C) basic needs. D) global products.

Version 1

65) When Casio sells its calculators in countries across the world, it doesn’t need to worry too much about customizing the product to local needs and preferences because calculators are a __________ need. A) universal B) homogenous C) basic D) single-user

66) Pressures for __________ imply that it may not be possible for a firm to realize the full benefits from economies of scale, learning effects, and location economies. A) local responsiveness B) profitability C) value creation D) global standardization

67) When a firm focuses on increasing profitability by customizing the product or service so that it provides a good match to tastes and preferences in different national markets, the firm is following __________ strategy. A) a transnational B) a localization C) an international D) a global standardization

68) When the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness, the ideal strategy to follow is the __________ strategy.

Version 1

A) global standardization B) localization C) transnational D) international

69) __________ strategy makes most sense when demands for local responsiveness are high, but cost pressures are moderate or low. A) A global standardization B) A transnational C) An international D) A localization

70) The distinguishing feature of many firms that pursue __________ strategy is that they are selling a product that serves universal needs, but they do not face significant competitors. A) an international B) a localization C) a transnational D) a global standardization

71) According to researchers Bartlett and Ghoshal, for transnational enterprises to be successful, they must focus on A) selling a product that serves universal needs. B) leveraging subsidiary skills. C) 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. D) ensuring that the flow of skills from the home country to the foreign subsidiaries is one way and uninterrupted.

Version 1

72) When a firm has a strategic goal of pursuing a low-cost strategy on a worldwide scale, the firm should follow __________ strategy. A) a global standardization B) a localization C) an international D) a customization

73)

What is associated with firms following the global standardization strategy? A) high pressures for local responsiveness B) cost advantage used to support aggressive pricing in world markets C) low pressures for cost reductions D) product offering and marketing strategy customized to local conditions

74) __________ strategy is most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense. A) Localization B) Transnational C) Global standardization D) International

75) What strategy focuses on increasing profitability by customizing the firm’s goods or services so they provide a good match to tastes and preferences in different national markets?

Version 1

A) global standardization strategy B) transnational strategy C) localization strategy D) international strategy

76)

What is a disadvantage of the localization strategy? A) a decrease in the value of the product in the local market B) some duplication of functions C) an inability to accommodate varying tastes and preferences in different markets D) reduced customization

77) A firm that is facing both strong cost pressures and strong pressures for local responsiveness should follow __________ strategy. A) a localization B) a global standardization C) an international D) a transnational

78) A firm that is pursuing __________ strategy is simultaneously trying to achieve low costs through location economies, economies of scale, and learning effects; and trying to differentiate its product offering across geographic markets. A) a global customization B) an international C) a localization D) a transnational

Version 1

79) 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 _________ strategy. A) a global standardization B) a localization C) an international D) a transnational

80) For firms selling a product that serves universal needs but not facing significant competition, __________ strategy makes sense. A) a localization B) an international C) a transnational D) a global standardization

81)

Which statement is true of an international strategy? A) Product development tends to be highly decentralized. B) Manufacturing and marketing are typically located in the headquarters location. C) Extensive production customization is common. D) The strategy is not viable in the long term.

82) An international strategy is unique in that companies are selling a product that serves universal needs, but they do not A) sell the product outside the domestic market. B) understand local needs. C) centralize any business function, such as R&D. D) have significant competition.

Version 1

83) A firm’s strategy can be defined as the actions that managers take to attain the goals of the firm. ⊚ true ⊚ false

84) The preeminent strategic goal for most firms is to maximize the firm’s presence in the global marketplace. ⊚ true ⊚ false

85) A firm is not a monopoly supplier. Because of this, it charges a lower price than the value of the good because it knows the customer captures some of the value as a consumer surplus. ⊚ true ⊚ false

86) According to Porter, 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. ⊚ true ⊚ false

87)

For a firm, all positions on the efficiency frontier are viable. ⊚ true ⊚ false

88) Support activities are always less important than the primary activities in achieving a competitive advantage. ⊚ true ⊚ false Version 1

89) The success of many multinational corporations 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. ⊚ true ⊚ false

90) The skills within the firm that a competitor cannot easily match or imitate are known as the core knowledge base. ⊚ true ⊚ false

91) Systematic increases in sales that have been observed to occur over the life of the product are referred to as the experience curve. ⊚ true ⊚ false

92) One of the sources of economies of scale is the ability to spread fixed costs over a small volume. ⊚ true ⊚ false

93)

Establishing a low-cost position is a way a firm can ward off new competition. ⊚ true ⊚ false

94) In a multinational enterprise, skills are primarily generated at the home location and are then dispersed to the rest of the organization.

Version 1

⊚ ⊚

true false

95) To leverage subsidiary skills, companies should establish incentive systems that encourage local employees to acquire new skills. ⊚ true ⊚ false

96) Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical. ⊚ true ⊚ false

97) When consumer tastes and preferences differ significantly between countries, there is low pressure for local responsiveness. ⊚ true ⊚ false

98) Threats of protectionism, economic nationalism, and local content rules dictate that international businesses manufacture locally. ⊚ true ⊚ false

99) Pursuing a global standardization strategy is appropriate when a firm is facing low pressures for cost reduction but high pressure for local responsiveness. ⊚ true ⊚ false

Version 1

100) As competition intensifies, global standardization strategies and transnational strategies tend to become less viable, and managers need to direct their companies toward either an international strategy or a localization strategy. ⊚ true ⊚ false

101) Research has shown that in the modern multinational enterprise, core competencies and skills typically reside in the home country. ⊚ true ⊚ false

102) A dislocating event, such as the 2020 global pandemic, increases the attractiveness of a localization strategy. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 13_14th Edition 15) A 16) B 17) C 18) D 19) A 20) B 21) C 22) A 23) D 24) B 25) B 26) A 27) C 28) A 29) B 30) B 31) D 32) D 33) B 34) C 35) D 36) A 37) B 38) C 39) D 40) D Version 1

41) A 42) B 43) C 44) D 45) A 46) B 47) C 48) D 49) B 50) A 51) C 52) D 53) C 54) C 55) B 56) B 57) B 58) B 59) A 60) C 61) D 62) A 63) D 64) A 65) A 66) A 67) B 68) C 69) D 70) A Version 1

71) B 72) A 73) B 74) A 75) C 76) B 77) D 78) D 79) C 80) B 81) D 82) D 83) TRUE 84) TRUE 85) TRUE 86) TRUE 87) FALSE 88) FALSE 89) TRUE 90) FALSE 91) FALSE 92) FALSE 93) TRUE 94) FALSE 95) TRUE 96) TRUE 97) FALSE 98) TRUE 99) FALSE 100) FALSE Version 1

101) FALSE 102) FALSE

Version 1

CHAPTER 14 1)

Explain organizational structure.

What are the arguments in favor of a firm centralizing its decision making?

Explain the five arguments why a firm should decentralize its decision making.

4) Describe the situation where an international division makes sense. How common is this structure? What are the disadvantages of the structure?

What are the main strengths and weaknesses of the worldwide product division structure?

Version 1

What is a knowledge network? What is the advantage of such a system?

7) Consider the use of personal controls in international firms. In which type of firm is this control most common?

Discuss the characteristics of a firm that is pursuing an international strategy.

Discuss the sources of inertia in organizations. Is it easy to make organizational changes?

Version 1

10)

What are the basic principles for successful organizational change?

11)

Discuss the issues involved in unfreezing an organization.

12)

Discuss the issues involved in refreezing an organization.

13)

A firm’s organizational culture refers to the

Version 1

A) norms and value systems that are shared among the employees of an organization. B) formal organizational structure of the company. C) control systems and incentives in place. D) human resources component.

14) Worldwide Travel Agency promotes “No Boring Trips Here” to its customers. The company employs agents who go the extra mile to make sure customers have fun-filled, exciting vacations. Worldwide hires employees who are service-minded and fun-loving. In return, the company rewards hard work and celebrates employee achievements. All these attributes refer to Worldwide Travel’s A) organizational culture. B) organizational architecture. C) control systems. D) process and incentive system.

15) Which term refers to the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits? A) key processes B) control systems C) knowledge networks D) job evaluations

16) A company measures the performance of national operating subsidiary companies according to profitability. In this example, profitability is A) a control system. B) a process. C) an integrating mechanism. D) an incentive.

Version 1

17) The manner in which decisions are made and work is performed within the organization is known as the firm’s A) organizational culture. B) incentives. C) control systems. D) processes.

18) The norms and values systems that are shared among the employees of a company are referred to as A) processes. B) control systems. C) incentives. D) organizational culture.

19) __________ are the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits. A) Cultural controls B) Control systems C) Output controls D) Incentives

20) A firm’s __________ determines where in its hierarchy the decision-making power is concentrated.

Version 1

A) organizational architecture B) vertical differentiation C) organizational structure D) horizontal differentiation

21)

By centralizing decision making, a firm

A) allows managers to respond to environmental changes more quickly. B) runs the risk of not being able to respond to environmental changes quickly. C) can avoid the duplication of activities that occurs when similar activities are carried on by various subunits within the organization. D) often has issues with duplication of activities that occurs when similar activities are carried on by various subunits within the organization.

22) A small U.S. manufacturing firm wants to expand internationally by investing in a production facility in Mexico. This move will require hiring a management team and employees to staff the operation. What type of control is best suited for this type of decision making? A) personal control B) decentralization C) bureaucratic control D) centralization

23) A firm pursuing __________ will have a strong incentive to decentralize decision making. A) a localization strategy B) a transnational strategy C) a global standardization strategy D) an international strategy

Version 1

24) In firms pursuing __________, some operating decisions are relatively centralized, while others are relatively decentralized. A) a global standardization strategy B) a transnational strategy C) a localization strategy D) an international strategy

25)

Regardless of a firm’s domestic structure, its international division tends to be A) organized on economy. B) decentralized. C) organized on geography. D) centralized.

26) The __________ tends to be favored by firms with a low level of diversification whose domestic structures are based on functions. A) global matrix structure B) worldwide product division structure C) performance structure D) worldwide area structure

27) A __________ tends to be adopted by firms that are reasonably diversified and originally had domestic structures based on product divisions. A) worldwide product division structure B) global matrix structure C) worldwide area structure D) performance structure

Version 1

28) In a __________, individual managers belong to two hierarchies (a divisional hierarchy and an area hierarchy) and have two bosses (a divisional boss and an area boss). A) worldwide product division structure B) classic matrix structure C) worldwide area structure D) performance structure

29)

The need for coordination is greatest in A) firms trying to pursue localization strategies. B) international firms. C) firms trying to profit from location and experience curve economies. D) domestic corporations.

30)

In a __________, all roles are viewed as integrating roles. A) worldwide area structure B) process structure C) worldwide product division structure D) global matrix structure

31)

__________ control is a type of control that tends to be most widely used in small firms. A) Personal B) Output C) Bureaucratic D) Cultural

Version 1

32) Janna works as an accountant for a large accounting firm. She knows the tasks that she must complete each day and organizes her workday to make sure the tasks get done. As such, Janna does not need to be directly supervised. What type of control is used in this firm? A) bureaucratic controls B) cultural controls C) personal controls D) output controls

33) __________ can be defined as the amount of time top management must devote to monitoring and evaluating subunits’ performance. A) Performance ambiguity B) The formal matrix C) The costs of control D) Differentiation

34) Firms pursuing a global standardization strategy must cope with a higher level of __________, and this raises their costs of control. A) vertical differentiation B) cultural division C) horizontal differentiation D) performance ambiguity

35)

Which activity is most difficult for a leader?

Version 1

A) changing an established organizational culture B) importing an organizational culture into a new venture C) creating an organizational culture from scratch in a new venture D) exporting an organizational culture

36) A firm’s __________ determines where in its hierarchy the decision-making power is concentrated. A) integrating mechanism B) vertical differentiation C) knowledge network D) horizontal differentiation

37)

Horizontal differentiation can be described as the A) mechanisms that enable each subunit to operate independently. B) formal division of the organization into subunits. C) location of decision-making responsibilities within a structure. D) mechanisms for coordinating subunits.

38)

Integration mechanisms are the A) formal division of the organization into subunits. B) mechanisms that enable each subunit to operate independently. C) mechanisms for coordinating subunits. D) location of decision-making responsibilities within a structure.

39)

What is one of the four main arguments favoring centralization?

Version 1

A) It permits greater flexibility. B) Motivational research favors it. C) It can avoid the duplication of activities. D) It gives top management time to focus on critical issues by delegating routine issues to lower-level managers.

40)

What is one of the five main arguments favoring decentralization?

A) It can facilitate coordination. B) It can help ensure that decisions are consistent with organizational objectives. C) It can give top-level managers the means to bring about needed major organizational changes. D) It permits greater flexibility.

41)

Which statement is accurate regarding the use of centralization?

A) It gives top management time to focus on critical issues by delegating more routine issues to lower-level managers. B) It can give top-level managers the means to bring about needed major organizational changes by concentrating power and authority in one individual or a management team. C) It permits greater flexibility because decisions do not have to be “referred up the hierarchy” unless they are exceptional in nature. D) It can be used to establish relatively autonomous, self-contained subunits within an organization.

42)

A firm that needs greater flexibility should choose __________ for its decision making. A) horizontal differentiation B) decentralization C) localization strategy D) control systems

Version 1

43)

Centralization and decentralization differ because centralization

A) hinders coordination, while decentralization facilitates coordination. B) prevents top-level managers from making required organizational changes, while decentralization gives top-level managers greater power to make organizational changes. C) ensures that decisions are consistent with organizational objectives, while decentralization can result in decisions at variance with organizational goals. D) promotes flexibility, while decentralization reduces flexibility.

44)

Which type of decision is typically centralized at a firm’s headquarters? A) production decisions B) human resource management C) marketing decisions D) overall firm strategy

45) The emphasis on local responsiveness in firms pursuing a localization strategy creates strong pressures for A) centralizing all decisions regarding marketing, R&D, and human resource management. B) decentralizing operating decisions to foreign subsidiaries. C) centralizing all operating decisions. D) global learning.

46) Global learning based on the multidirectional transfer of skills between subsidiaries and the corporate center is a central feature of a firm pursuing __________ strategy.

Version 1

A) a localization B) a global standardization C) a transnational D) an international

47) What would be a typical responsibility of a product division in a worldwide product divisional structure? A) operating decisions B) overall strategic development of the firm C) financial control of the various divisions D) decisions regarding legal issues

48) A large manufacturing firm is organized based on personal care products, home care products, and weight loss products. What type of structure does this represent? A) worldwide area structure B) global matrix structure C) product divisional structure D) centralized hierarchy

49) on

Regardless of a firm’s domestic structure, its international division tends to be organized

A) product. B) geography. C) people. D) economy.

Version 1

50)

Which statement reflects a problem that arises due to an international division structure?

A) In an international division structure, a firm’s international division tends to be organized on products. B) The heads of domestic functions are presumed to be able to represent the interests of all countries to headquarters. C) The heads of foreign subsidiaries are not given as much voice in the organization as the heads of domestic functions or divisions. D) The dual-hierarchy structure can lead to conflict and perpetual power struggles between the areas and the product divisions.

51) In which organizational structures are the domestic operations and foreign operations isolated from each other leading to coordination problems? A) global matrix structure B) international division structure C) worldwide product division structure D) worldwide area structure

52)

Which statement is true regarding a worldwide area structure? A) It tends to be favored by firms with a high degree of diversification. B) It inhibits local responsiveness. C) It tends to be favored by firms with a domestic structure based on functions. D) Decision-making responsibilities are centralized.

53) A __________ encourages fragmentation of the organization into highly autonomous entities.

Version 1

A) worldwide area structure B) global matrix structure C) worldwide product structure D) global network structure

54)

__________ tends to be adopted by firms that are reasonably diversified. A) A worldwide area structure B) An international division structure C) A worldwide product division structure D) A global matrix structure

55)

The worldwide product division structure A) is weak in local responsiveness. B) inhibits the realization of location economies. C) inhibits the realization of experience curve economies. D) limits the transfer of core competencies between areas.

56) In the classic global matrix structure, horizontal differentiation proceeds along two dimensions. These dimensions are A) hierarchy and overall strategy. B) target returns and sales potential. C) marketing strategy and sales potential. D) product division and geographic area.

Version 1

57) Aaron manages a sales team for a global electronics company. He reports to both the product division manager and the geographical area manager. Oftentimes, Aaron receives differing instructions from each manager and is caught in the middle, trying to navigate the power struggles between his two managers. This scenario is most prevalent in which organizational structure? A) worldwide area structure B) worldwide product divisional structure C) performance structure D) global matrix structure

58)

The need for coordination between subunits is lowest in firms pursuing A) a localization strategy. B) an international strategy. C) a global strategy. D) a transnational strategy.

59)

The need for coordination between subunits is greatest in firms pursuing A) a localization strategy. B) an international strategy. C) a global strategy. D) a transnational strategy.

60) __________ refers to giving a person in each subunit responsibility for coordinating with another subunit on a regular basis. A) Global learning B) Liaison roles C) Knowledge network D) Matrix structures

Version 1

61) __________ is valuable because it can be used as a nonbureaucratic conduit for information flows within a multinational enterprise. A) A liaison network B) A matrix structure C) An organizational structure D) A knowledge network

62)

Which control system is most widely used by small firms? A) personal B) output C) bureaucratic D) cultural

63) The production department in charge of assembling water filtration systems is given a goal related to product quality—for each production run of 1,000 units, there can be no more than 2 defective or improperly assembled units. The performance of the department is based on this goal. This is an example of ______ control. A) personal B) output C) bureaucratic D) cultural

64) There is low interdependence, performance ambiguity, and costs of control in firms pursuing

Version 1

A) a localization strategy. B) an international strategy. C) a transnational strategy. D) a global strategy.

65)

Which statement is true of a strong corporate culture?

A) Almost all managers share a relatively consistent set of values and norms that have a clear impact on the way work is performed. B) A strong culture leads to high performance. C) Outsiders see firms with a strong culture as being autocratic and inflexible. D) A strong culture is always a good culture.

66)

__________ refers to the location of decision-making responsibilities within a structure. A) Vertical differentiation B) Integrating mechanisms C) Horizontal integration D) Horizontal differentiation

67) What type of control system achieves control through a system of rules and procedures that directs the actions of subunits? A) personal controls B) bureaucratic controls C) cultural controls D) output controls

68)

A potential drawback of the worldwide area structure is that this structure

Version 1

A) discourages division of the organization into autonomous entities. B) makes it difficult to decentralize decisions regarding operations authority. C) makes it difficult to realize location and experience curve economies. D) reduces local responsiveness.

69)

The establishment of integrating mechanisms that coordinate subunits is a dimension of A) horizontal differentiation. B) organizational culture. C) vertical differentiation. D) organizational structure.

70) In Firm A, each division is a self-contained, largely autonomous entity with full responsibility for its own value creation activities. What type of structure does Firm A employ? A) worldwide product division structure B) global matrix structure C) worldwide area structure D) knowledge network structure

71) In the __________, the philosophy is that responsibility for operating decisions pertaining to a particular product should be shared by the product division and the various areas of the firm. A) worldwide product division structure B) classic global matrix structure C) worldwide area structure D) knowledge network structure

Version 1

72)

When the need to integrate subunits is very high and complex, firms may

A) use direct contact between subunit managers. B) give a person in each subunit responsibility for coordinating with another subunit on a regular basis. C) institute a matrix structure, in which all roles are viewed as integrating roles. D) use temporary or permanent teams composed of individuals from the subunits that need to achieve coordination.

73) __________ is achieved by comparing actual performance against targets and intervening selectively to take corrective action. A) Personal control B) Cultural control C) Bureaucratic control D) Output control

74)

__________ exists when the causes of a subunit's poor performance are not clear. A) Performance ambiguity B) Vertical differentiation C) Output controls D) Horizontal differentiation

75)

What is a disadvantage of a worldwide area structure? A) Firms that use this structure tend to have a high degree of diversification. B) Decision making is centralized and subsidiaries cannot customize to local marketing

needs. C) The structure encourages fragmentation of the organization into highly autonomous entities. D) It does not facilitate local responsiveness.

Version 1

76) In a ______ strategy, the need for coordination between subunits is low and headquarters can manage foreign operations by relying primarily on output and bureaucratic controls and a policy of management by exception. A) localization B) domestic C) transnational D) global

77) Firms pursuing __________ attempt to create value by transferring core competencies from home to foreign subsidiaries. A) a localization strategy B) an international strategy C) a transnational strategy D) a global strategy

78) A firm that operates with matrix-type structures in which both product divisions and geographic areas have significant influence would use which strategy? A) international strategy B) transnational strategy C) global strategy D) localization strategy

79)

Firms pursuing a transnational strategy

Version 1

A) have a low need for coordination. B) require very few integrating mechanisms. C) need to cultivate a strong culture. D) operate with a worldwide product division structure.

80)

Firms pursuing __________ strategy have a low need for coordination between subunits. A) a global standardization B) a localization C) a transnational D) an international

81) Firms pursuing __________ strategy are more centralized than enterprises pursuing a localization or international strategy. A) a localization B) an international C) a global standardization D) a transnational

82)

Which is a required step for implementing organizational change? A) Physically move the organization to a new state. B) Keep the organizational structure. C) Refreeze the organizational structure. D) Slowly, through incremental changes, rearrange the organizational structure.

83)

Because of inertia forces, __________ is often no change.

Version 1

A) big bang change B) cultural change C) shock therapy change D) incremental change

84)

To unfreeze the established culture of an organization, the company

A) must take bold steps such as shaking up the management structure in order to implement change. B) is best served by taking incremental steps. C) should employ the existing structural organization to integrate changes. D) should implement a rewards or incentive program.

85)

Organizational structure refers to the totality of a firm’s organization. ⊚ true ⊚ false

86) A manager receives a bonus because the national operating subsidiary that she is in charge of exceeds its performance target. This is an example of an incentive. ⊚ true ⊚ false

87) In a decentralized organization, decision-making is inefficient and typically results in slow decision-making and poor decisions. ⊚ true ⊚ false

88)

The choice between centralization and decentralization is absolute.

Version 1

⊚ ⊚

true false

89) Beyond the initial functional division of the organization, further horizontal differentiation may be required if the firm significantly diversifies its product offering, which takes the firm into different business areas. ⊚ true ⊚ false

90) In a worldwide area structure, each area tends to be a self-contained, largely autonomous entity with its own set of value creation activities. ⊚ true ⊚ false

91) A worldwide area structure works best for firms that have a high degree of diversification and a product divisional structure. ⊚ true ⊚ false

92)

The worldwide product division structure may create a lack of local responsiveness. ⊚ true ⊚ false

93)

It is difficult to ascertain accountability in the global matrix structure. ⊚ true ⊚ false

Version 1

94) The need for coordination between units is greatest in firms pursuing a localization strategy. ⊚ true ⊚ false

95)

Direct contact between subunit managers is the most complex integrating mechanism. ⊚ true ⊚ false

96) A knowledge network is a network for transmitting information within an organization that is based on formal organizational structure. ⊚ true ⊚ false

97) Stuart works in a factory assembling new cars. He is responsible for installing doors into the car frame. While he may not be able to control the output of the entire assembly process, he can control the rate at which he installs the doors. If the company bases Stuart’s pay on his output, it is using an incentive system. ⊚ true ⊚ false

98)

Performance ambiguity lowers the cost of control. ⊚ true ⊚ false

99) New processes that might lead to a competitive advantage can be developed anywhere within the organization’s global network of operations. ⊚ true ⊚ false

Version 1

100)

Norms are abstract ideas about what a group believes to be good, right, and desirable. ⊚ true ⊚ false

101)

It is always good for an organization to have a strong culture. ⊚ true ⊚ false

102) Custom Metal Works is pursuing a localization strategy that is focused on local responsiveness. Therefore, the need for integration and coordination between self-contained country subsidiaries is low. ⊚ true ⊚ false

103) Firms pursuing a localization strategy tend to operate with an array of formal and informal integrating mechanisms. ⊚ true ⊚ false

104)

A firm’s organizational architecture must be consistent with its strategy. ⊚ true ⊚ false

105) It is important to realize that organizational change will occur regardless of the commitment of senior managers to it. ⊚ true ⊚ false Version 1

Version 1

Answer Key Test name: Chap 14_14th Edition 13) A 14) A 15) B 16) A 17) D 18) D 19) B 20) B 21) C 22) D 23) A 24) B 25) C 26) D 27) A 28) B 29) C 30) D 31) A 32) B 33) C 34) D 35) A 36) B 37) B 38) C Version 1

39) C 40) D 41) B 42) B 43) C 44) D 45) B 46) C 47) A 48) C 49) B 50) C 51) B 52) C 53) A 54) C 55) A 56) D 57) D 58) A 59) D 60) B 61) D 62) A 63) B 64) A 65) A 66) A 67) B 68) C Version 1

69) D 70) A 71) B 72) C 73) D 74) A 75) C 76) B 77) B 78) B 79) C 80) B 81) C 82) C 83) D 84) A 85) FALSE 86) TRUE 87) FALSE 88) FALSE 89) TRUE 90) TRUE 91) FALSE 92) TRUE 93) TRUE 94) FALSE 95) FALSE 96) FALSE 97) TRUE 98) FALSE Version 1

99) TRUE 100) FALSE 101) FALSE 102) TRUE 103) FALSE 104) TRUE 105) FALSE

Version 1

CHAPTER 15 1)

What are first-mover advantages? Discuss these advantages.

Explain the relationship between first-mover disadvantages and pioneering costs.

Discuss the trade-offs associated with large-scale entry versus small-scale entry.

4) Explain the idea of a turnkey project. Why should a firm use this arrangement to expand internationally? In what industries are turnkey arrangements most common?

Why should a firm be cautious about entering a licensing agreement?

Version 1

Compare and contrast licensing agreements and franchising agreements.

7) What is a joint venture? What type of joint venture is most common? Provide an example of a joint venture.

8) Imagine that you are meeting with your superiors to discuss entering a foreign market. Your boss has asked you to analyze a joint venture prospect. Why might you tell your boss that the joint venture is not a good idea?

9) What are the two methods of entering foreign marketing using a wholly owned subsidiary?

Version 1

10) Consider why a firm should enter a market via a wholly owned subsidiary. What are the advantages and disadvantages of this type of strategy?

11)

Discuss the three advantages of acquiring an enterprise in a target market.

12)

Discuss the advantages of establishing a greenfield venture in a foreign country.

13)

Discuss the three primary characteristics of a good ally.

Version 1

14)

How can a firm increase the probability of selecting a good partner?

15) Explain the term relational capital and the importance this concept plays in managing an effective business alliance.

16) According to Bartlett and Ghoshal, how should firms from developing countries approach international expansion? A) They suggest joint ventures to improve the firm’s presence in the country while also growing the business opportunities for companies in the developing country. B) They suggest that franchising should be used in order to minimize risk and allow for the maximum expansion in the quickest amount of time. C) They suggest turnkey operations that allow for a rapid startup. D) They suggest that companies should use the entry of foreign multinationals as an opportunity to learn from these competitors by benchmarking their operations and performance against them.

Version 1

17)

The costs and risks associated with doing business in a foreign country are typically A) low in an economically advanced nation. B) low in the countries of the European Union. C) high in an economically advanced nation. D) high in a politically stable democratic nation.

18) A company has developed a new, innovative product. If it is quick to enter a new market, it will have the ability to preempt rivals and capture demand by establishing a strong brand name and customer satisfaction. In other words, this company will have captured A) pioneering advantages. B) first-mover advantages. C) initial competencies. D) late-mover advantages.

19)

Costs that an early entrant has to bear that a later entrant can avoid are known as A) first-mover costs. B) late-mover disadvantages. C) pioneering costs. D) licensing fees.

20)

Large-scale strategic commitments may A) have many benefits and few to no risks. B) increase strategic flexibility. C) have many risks and few to no benefits. D) limit strategic flexibility.

Version 1

21) A __________ is more likely to capture first-mover advantages associated with demand preemption, scale economies, and switching costs. A) large-scale entrant B) joint venture C) small-scale entrant D) turnkey contract

22)

Other things being equal, the benefit-cost-risk trade-off is likely to be most favorable in

A) politically unstable developing nations that operate with a mixed or command economy. B) nations where there is a dramatic upsurge in either inflation rates or private-sector debt. C) politically stable developed and developing nations that have free market systems. D) developing nations where speculative financial bubbles have led to excess borrowing.

23) Early entrants to a market that are able to create switching costs that tie customers into their products or services are capitalizing on A) first-mover advantages. B) pioneering costs. C) economies of scale. D) late-mover advantages.

24)

Which item represents a first-mover advantage?

Version 1

A) lower research and development costs and marketing costs than other firms B) ability to preempt rivals and capture demand by establishing a strong brand name C) ability to capitalize on the work done by other firms D) creation of innovative products at lower costs than other firms

25)

Switching costs may A) drive early entrants out of the market. B) make it easy for later entrants to win business. C) make it difficult for later entrants to win business. D) give later entrants a cost advantage over early entrants.

26) Home Solutions Inc. is spending significant money educating customers on the value of its tankless water heaters 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) opportunity costs. C) pioneering costs. D) licensing fees.

27) A large-scale entrant is more likely than a small-scale entrant to be able to capture firstmover advantages associated with A) scale economies. B) diseconomies of scale. C) pioneering costs. D) diseconomies of scope.

Version 1

28)

Which statement regarding small-scale entry is true?

A) The commitment associated with a small-scale entry makes it possible for the smallscale entrant to capture first-mover advantages. B) Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale. C) By giving a firm time to collect information, small-scale entry increases the risks associated with a subsequent large-scale entry. D) Small-scale entry limits a firm’s ability to learn about a foreign market thereby also limiting the firm’s exposure to that market.

29) Super Safe Sunscreen products is based in the United States and is looking to distribute its products in South America. Rather than build and maintain a manufacturing facility in Brazil, the company decides to ship its products directly from its location in California. What type of entry mode does this represent? A) licensing B) exporting C) franchising D) a turnkey contract

30) In __________, the contractor agrees to handle every detail of the project for a foreign client. A) a joint venture B) an exporting agreement C) a turnkey project D) a licensing agreement

31) A disadvantage of __________ is that the firm that enters into such an arrangement usually will have no long-term interest in the foreign country.

Version 1

A) wholly owned subsidiaries B) exporting C) licensing D) turnkey projects

32) By its very nature, __________ limits a firm’s ability to coordinate strategic moves across countries. A) licensing B) turnkey contracting C) franchising D) exporting

33) An advantage of __________ with a local partner is the knowledge of the local environment that the local partner contributes to the venture. A) turnkey contracts B) licensing contracts C) joint ventures D) wholly owned subsidiary contracts

34) A company wants to expand internationally and is weighing the pros and cons of various entry modes. What rationale would you use to show the advantage of exporting as a mode of entry? A) It avoids the often substantial costs of establishing manufacturing operations in the host country. B) It is the best choice if lower-cost manufacturing locations are available abroad. C) Exporting allows the firm to have access to local partner’s knowledge and expertise. D) Tariff barriers may make exporting the most attractive option.

Version 1

35)

Which statement is true of licensing?

A) Licensing is used when a firm possesses some tangible property but does not want to pursue a potential application itself. B) The firm does not have to bear the development costs and risks associated with opening a foreign market. C) It is an attractive option when a firm is interested in pursuing a foreign market and is ready to commit substantial resources to a foreign market. D) It is an attractive option for firms that have the capital to open overseas markets.

36) __________ agreements enable firms to hold each other “hostage,” thereby reducing the risk they will behave in an opportunistic manner toward each other. A) Turnkey B) Franchising C) Cross-licensing D) Integrated licensing

37)

There are several disadvantages of franchising as an entry mode. Which is one of them?

A) There is little incentive for the franchisee to build a profitable operation as quickly as possible. B) The firm incurs many of the costs and risks of opening a foreign market on its own. C) Franchising may inhibit the firm’s ability to use the profits obtained to open additional businesses in the same country. D) Franchising may inhibit the firm’s ability to take profits out of one country to support competitive attacks in another.

38) In many countries, political considerations make __________ the only feasible entry mode.

Version 1

A) joint ventures B) franchises C) licensing agreements D) wholly owned subsidiaries

39)

How can a firm protect its proprietary information in a joint venture?

A) Share only the technology that is central to the core competence of the firm. B) Hold majority ownership in the venture so that the firm has greater control over the technology. C) Share only the technology of the firm, not the patents and copyrighted information. D) Hold minority ownership in the venture so that the firm does not have to give over control of the technology.

40) Firms entering a market via a __________ must bear all the costs and risks associated with the venture. A) licensing contract B) joint venture C) turnkey contract D) wholly owned subsidiary

41)

If a firm can realize location economies by moving production elsewhere, it should avoid A) exporting. B) turnkey contracts. C) licensing. D) wholly owned subsidiaries.

Version 1

42) When an exporting firm finds that its local agent is also carrying competitors’ products, the firm may switch to a __________ to handle local marketing, sales, and service. A) wholly owned subsidiary B) franchising arrangement C) turnkey operation D) licensing agreement

43) In ________, the contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel. A) exporting B) licensing C) franchising D) turnkey projects

44)

Turnkey projects are most common in which industries? A) fresh fruit, grain, and meat products B) chemical, pharmaceutical, and metal refining C) consumer durables, computer peripherals, and automotive parts D) apparel, shoes, and leather products

45)

Which statement is true of turnkey projects?

A) Turnkey projects are most common in industries that use simple, inexpensive production technologies. B) A turnkey strategy can be more risky than conventional FDI, particularly in unstable political environments. C) A turnkey strategy is particularly useful where FDI is limited by host-government regulations. D) Firms that enter into a turnkey deal have a long-term interest in the foreign country.

Version 1

46) Many American firms that sold oil-refining technology to firms in the Gulf now find themselves competing with these firms in the world oil market. This is an example of A) a firm entering into a turnkey project with a foreign enterprise, inadvertently creating a competitor. B) a firm entering into a turnkey deal having no long-term interest in the foreign country. C) a country subsequently proving to be a major market for the output of the process that has been exported. D) a firm selling its process technology through franchisees in different countries.

47) Booze Brothers developed an alcohol-flavored additive that can be added to water to mimic the taste of a margarita, but without the alcohol. The company granted the right to use this technology to a major bottled water manufacturer. The water manufacturer produced a line of water bottles with the flavored additive and Booze Brothers receives a $1.00 royalty for every “margarita” water bottle that is sold. This is an example of A) a turnkey project. B) licensing. C) franchising. D) an acquisition.

48)

What is a distinct advantage of exporting?

A) It avoids the threat of tariff barriers by the host-country government. B) Firms benefit from a local partner’s knowledge of the host country’s competitive conditions. C) It avoids the often substantial costs of establishing manufacturing operations in the host country. D) It is appropriate if lower-cost locations for manufacturing the product can be found abroad.

Version 1

49) Patents, inventions, formulas, processes, designs, copyrights, and trademarks are all forms of A) licensing agreements. B) franchising agreements. C) intangible property. D) tangible property.

50)

What is the primary advantage of licensing?

A) It helps a firm avoid the development costs and risks associated with opening a foreign market. B) It gives a firm the tight control over manufacturing, marketing, and strategy. C) It helps a firm achieve experience curve and location economies. D) It increases a firm’s ability to utilize a coordinated strategy.

51)

What is a drawback of licensing as a mode of entry into foreign markets?

A) It does not help firms that lack capital to develop operations overseas. B) It does not give a firm the tight control over strategy that is required for realizing experience curve and location economies. C) It cannot be used when a firm possesses some intangible property that might have business applications. D) The firm has to bear the development costs and risks associated with opening a foreign market.

52) Under __________ 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.

Version 1

A) an integrated licensing B) a chartering C) a franchising D) a cross-licensing

53)

Cross-licensing agreements are increasingly common in which industry? A) transportation B) high technology C) construction D) consumer durables

54) __________ is pursued primarily by manufacturing firms and __________ is employed primarily by service firms. A) Licensing; franchising B) Franchising; licensing C) Franchising; exporting D) Exporting; licensing

55) If a service firm wants to build a global presence quickly and at a relatively low cost and risk, it should employ A) chartering. B) exporting. C) a turnkey strategy. D) franchising.

Version 1

56) Charlie wants to open a Domino’s Pizza restaurant in Singapore and has an agreement with the pizza chain in which he can use the trademark, but he must also follow a strict set of guidelines detailing how the business should operate. Domino’s will receive a percentage of Charlie’s revenues from his restaurant. What type of entry mode does this represent? A) wholly owned subsidiary B) turnkey operation C) franchising D) licensing

57)

What is an advantage of franchising? A) A firm takes profits out of one country to support competitive attacks in another. B) A firm is relieved of many of the costs and risks of opening a foreign market on its

own. C) It guarantees consistent product quality and achieves experience curve and location economies. D) It improves the firm’s ability to take profits out of one country to support competitive attacks in another.

58) Firms engaging in a __________ with a local company can benefit from a local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems, and business systems. A) turnkey project B) joint venture C) greenfield investment D) licensing arrangement

59)

The most typical joint venture is a __________ venture.

Version 1

A) 50–50 B) 60–40 C) 75–25 D) 10–90

60)

What is one way a wholly owned subsidiary can be established in a foreign market? A) by exporting directly to the market B) by setting up a greenfield venture C) through a turnkey project with a local partner D) through a franchising agreement

61) Which entry mode into a foreign market best serves a high-tech firm because it reduces the risk of losing that competence? A) franchising B) joint ventures C) wholly owned subsidiaries D) turnkey projects

62)

A wholly owned subsidiary is appropriate when the firm wants A) to share the cost and risk of developing a foreign market. B) 100 percent of the profits generated in a foreign market. C) a plant that is ready to operate. D) to test a market.

63) A __________ entails establishing a firm that is owned together by two or more otherwise independent firms. Version 1

A) joint venture B) licensing agreement C) franchisee D) turnkey contract

64)

An advantage of exporting products to another country is that it A) minimizes exchange rate risks. B) provides the ability to achieve experience curve and location economies. C) faces less trade barriers. D) gives firms access to local knowledge.

65) When technological know-how constitutes a firm’s core competence, which entry mode is the optimal choice? A) foreign franchises controlled by joint ventures B) licensing agreements C) wholly owned subsidiaries D) turnkey contracts

66) Firms pursuing global standardization or transnational strategies tend to prefer __________ arrangements. A) wholly owned subsidiary B) franchising C) joint-venture D) licensing

Version 1

67) If a firm’s core competency is based on control over proprietary technological know-how, __________ and __________ arrangements should be avoided if possible to minimize the risk of losing control over that technology. A) licensing; joint venture B) wholly owned subsidiary; exporting C) turnkey contracts; exporting D) exporting; joint venture

68) Why do firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries? A) It has the lowest costs and least risks associated with establishing a foreign market. B) It gives the firm the best chance of realizing location and experience curve economies. 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.

69) The valuable asset of firms, whose competitive advantage is based on management know-how, is their A) executive strategy. B) human capital. C) advertisements. D) brand name.

70) Most service firms have found that __________ with local partners work best for the primary controlling subsidiaries.

Version 1

A) joint ventures B) licensing agreements C) greenfield investments D) turnkey projects

71) A firm can establish a wholly owned subsidiary in a country by building a subsidiary from the ground up, called the A) joint venture. B) turnkey strategy. C) licensing agreement. D) greenfield strategy.

72)

What is true of acquisitions?

A) It is a time-consuming process. B) Managers view them as more risky than greenfield ventures. C) They give the firm a much greater ability to build the kind of subsidiary company that it wants. D) In many cases, firms make acquisitions to preempt their competitors.

73) According to the __________, top managers typically overestimate their ability to create value from an acquisition. A) misvaluation theory B) performance extrapolation hypothesis C) market timing theory D) hubris hypothesis

Version 1

74)

To increase the potential for a successful acquisition, a firm should

A) always bid low to allow for partial failure. B) try to acquire a firm with a very different corporate culture so there is no forced overlap. C) rush to beat out other competitors. D) screen the foreign enterprise to be acquired.

75) Firms entering markets where there are no incumbent competitors to be acquired should choose A) greenfield investments. B) joint ventures. C) acquisitions. D) takeovers.

76)

__________ allow a firm to rapidly build its presence in the target foreign market. A) Joint ventures B) Acquisitions C) Subsidiaries D) Turnkey contracts

77) The main advantage of __________ is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. A) an acquisition B) strategic alliances C) greenfield investment D) franchising

Version 1

78) If a firm is trying to enter a market where there are already well-established companies, and where global competitors are also interested in establishing a presence, the firm should choose A) a franchise. B) a greenfield investment. C) a joint venture. D) an acquisition.

79)

Which statement is true of establishing a greenfield venture in a foreign country?

A) Greenfield investments are less risky than acquiring an existing company in a foreign market. B) A degree of uncertainty is associated with a greenfield venture because of future revenue and profit prospects. C) Greenfield investments virtually eliminate the possibility of a more aggressive global competitor entering the market via acquisitions. D) Greenfield investments are quick to establish.

80)

__________ refer to cooperative agreements between potential or actual competitors. A) Greenfield investments B) Strategic alliances C) Takeovers D) Licensing agreements

81)

Which statement is true of strategic alliances?

Version 1

A) The fixed costs and associated risks of developing new products or processes are borne by the alliance partner. B) They are a way to bring together complementary skills and assets that both companies develop. C) They limit the entry of firms into foreign markets. D) A firm risks giving away technological know-how and market access to its alliance partner.

82) Managing an alliance successfully requires building interpersonal relationships between the firms’ managers. This is sometimes referred to as A) relational capital. B) relational assets. C) operational assets. D) venture capital.

83)

An advantage of forming a strategic alliance is that it helps firms A) protect their procedures and technologies. B) reduce the level of conflicts that occur within an organization. C) share the risks of developing new products or processes. D) increase the cultural similarities between employees.

84)

Which statement is true of strategic alliances?

Version 1

A) Strategic alliances can make entry into a foreign market difficult. B) Strategic alliances, while they have many benefits, do not allow firms to share the fixed costs of developing new products or processes. C) Strategic alliances allow firms to bring together complementary skills and assets that neither company could easily develop on its own. D) Strategic alliances, while beneficial to firms, make the establishment of technological standards for an industry difficult.

85) __________ is a way to bring together complementary skills and assets that neither company could easily develop on its own. A) An alliance B) A turnkey contract C) A wholly owned subsidiary D) A licensing agreement

86) __________ can be used to formalize arrangements to swap skills and technology in a strategic alliance. A) Modularization B) Cross-licensing agreements C) Structured transfer agreements D) Contractual safeguards

87) __________ refers to the building of interpersonal relationships between the firms’ managers in a strategic alliance. A) Alliance partnerships B) Joint management C) Relational capital D) Team building

Version 1

88) The choice of which international markets to enter should be driven by an assessment of absolute short-run growth and profit potential. ⊚ true ⊚ false

89) The attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. ⊚ true ⊚ false

90) When determining the value of a foreign market, an international firm must consider both its products and the competition. ⊚ true ⊚ false

91) A manufacturer of organic pet food is thinking about expanding into a foreign market. By getting into the market early, before competitors, the company can avoid the pioneering costs that come with entering a market late. ⊚ true ⊚ false

92) will.

A strategic commitment can usually be successfully reversed by the top management at ⊚ ⊚

true false

93) Widgets, Inc., wants to enter a foreign market on a small scale. This will allow the company to learn about the market while limiting the firm’s exposure to that market.

Version 1

⊚ ⊚

true false

94) For a small firm looking to expand globally, exporting is the easiest option since it has no drawbacks and can be implemented easily. ⊚ true ⊚ false

95)

Tangible property includes patents, designs, copyrights, and trademarks. ⊚ true ⊚ false

96)

Licensing limits a firm’s ability to realize experience curve and location economies. ⊚ true ⊚ false

97)

Franchising enables a firm to quickly build a global presence. ⊚ true ⊚ false

98) The most typical joint venture is a 60–40 venture, in which one party holds most of the ownership stake. ⊚ true ⊚ false

99) 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. Version 1

⊚ ⊚

true false

100) If a firm’s core competence is proprietary technological knowledge, a joint venture is preferable. ⊚ true ⊚ false

101) Brand names such as Starbucks and Subway are well protected by international laws pertaining to trademarks. ⊚ true ⊚ false

102) A joint venture is often politically more acceptable than a wholly owned subsidiary and brings a degree of local knowledge to the subsidiary. ⊚ true ⊚ false

103) The greater the pressures for cost reductions, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries. ⊚ true ⊚ false

104) Acquisitions generally take a long time to execute and, for this reason, are not favored by most firms. ⊚ true ⊚ false

Version 1

105)

Overpayment for assets of an acquired firm is one reason acquisitions fail. ⊚ true ⊚ false

106) Tanveer’s firm is considering entering a country where there are no incumbent competitors to be acquired. Its best option is likely to be a greenfield venture. ⊚ true ⊚ false

107) Unlike joint ventures, strategic alliances require the firm to bear all the costs and risks of foreign expansion. ⊚ true ⊚ false

108) A good ally will expropriate the firm’s technological know-how while giving away little in return. ⊚ true ⊚ false

109) Contractual safeguards cannot be written into an alliance agreement to guard against the risk of opportunism by a partner. ⊚ true ⊚ false

110) The “hubris hypothesis” of why acquisitions fail is based on firms overpaying for the assets of the acquired firm. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 15_14th Edition 16) D 17) A 18) B 19) C 20) D 21) A 22) C 23) A 24) B 25) C 26) C 27) A 28) B 29) B 30) C 31) D 32) A 33) C 34) A 35) B 36) C 37) D 38) A 39) B 40) D 41) A Version 1

42) A 43) D 44) B 45) C 46) A 47) B 48) C 49) C 50) A 51) B 52) D 53) B 54) A 55) D 56) C 57) B 58) B 59) A 60) B 61) C 62) B 63) A 64) B 65) C 66) A 67) A 68) C 69) D 70) A 71) D Version 1

72) D 73) D 74) D 75) A 76) B 77) C 78) D 79) B 80) B 81) D 82) A 83) C 84) C 85) A 86) B 87) C 88) FALSE 89) TRUE 90) TRUE 91) FALSE 92) FALSE 93) TRUE 94) FALSE 95) FALSE 96) TRUE 97) TRUE 98) FALSE 99) TRUE 100) FALSE 101) TRUE Version 1

102) TRUE 103) TRUE 104) FALSE 105) TRUE 106) TRUE 107) FALSE 108) FALSE 109) FALSE 110) TRUE

Version 1

CHAPTER 16 1) Why do so many firms take a reactive approach to exporting rather than a proactive approach?

What problems do novice exporters typically face when trying to export?

3) Compare and contrast the export assistance provided to German and Japanese companies with that given to American companies. Discuss the implications of the differences between the countries.

4) Describe the information sources that are available to American companies to learn about export opportunities.

Version 1

5) Explain 3M’s main export principles that have made the company’s exporting business so successful.

Why is there a problem of trust that persists in international business?

7) Describe the process involved in financing imports and exports using a letter of credit. Why has this system developed? What is the advantage of using this system?

Compare and contrast time drafts and sight drafts.

Version 1

Discuss the importance of the Export-Import Bank, its goals, and its operations.

10)

What is the Foreign Credit Insurance Association?

11)

Explain why barter is viewed as the most restrictive countertrade arrangement.

12) Compare and contrast counterpurchase agreements and offset arrangements. Why might an exporter prefer an offset to a counterpurchase deal?

Version 1

13) Discuss the idea of compensation or buybacks as they relate to countertrade. Provide an example of a buyback arrangement.

14)

What type of firm is most likely to engage in countertrade? Why?

15)

What is true of exporting?

A) A common pitfall of exporting is a poor understanding of competitive conditions in the foreign market. B) Securing financing is rarely a problem for exporters. C) A common pitfall of exporting is trying too hard to customize a product offering rather than “sticking with what you know.” D) Most exporters have a very good understanding of the competitive conditions in the foreign market.

16) Naomi, the product line manager for a small family business believes that it is time for the company to begin exporting its product to foreign markets. Her father, the owner, is skeptical. To convince her father, Naomi points out that

Version 1

A) firms that do not export are at a greater risk for economies of scale. B) exporting is easier because international markets are less complex than domestic markets. C) firms that do not export often lose out on significant opportunities for cost reduction. D) exporting will allow the company to avoid taxation requirements in the domestic market.

17)

The great promise of exporting is that A) large revenue opportunities are often found in foreign markets. B) it provides more opportunities to smaller firms than larger firms. C) international trade is protected against exchange risks. D) it reduces the need for insuring businesses against political risks.

18)

What is characteristic of reactive firms?

A) Reactive firms consider a variety of markets for selling their products and services. B) They consider exporting only after their domestic market is saturated. C) They systematically scan foreign markets for profitable export opportunities. D) They create excess productive capacity and actively hunt for opportunities in foreign markets.

19) What is a reason that firms take a reactive approach to exporting rather than a proactive approach?

Version 1

A) Most firms are familiar with the foreign market opportunities and therefore do not need to utilize proactive approaches. B) They are 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. C) Most firms already know the revenue potential of their product and are simply waiting for the most opportune time to market it. D) They are not intimidated by the complexities and mechanics of exporting to foreign countries and can, therefore, use the same reactive approaches that work in their home market.

20) What is a common difficulty that traders face when exporting goods or services to other countries? A) Small firms tend to be more aggressive than larger firms in global trade. B) Governments do not provide much assistance to exporters. C) Growth opportunities are often limited in global markets. D) Exporters often face voluminous paperwork and complex formalities.

21) Which service provider’s primary task is to combine smaller shipments into a single large shipment to minimize shipping costs? A) sogo shosha B) freight forwarder C) in-house shipping department D) export management company

22) For companies that have not previously exported products, an __________ can help new exporters handle all aspects of exporting and operate as the firm’s agent and distributor.

Version 1

A) MITI B) export-import bank C) in-house trading department D) export management company

23) __________ are export specialists that offer a full menu of services to handle all aspects of exporting, similar to having an internal exporting department within your own firm. A) Small business development centers (SBDCs) B) Centers for international business education and research (CIBERs) C) Export legal assistance networks (ELANs) D) Export management companies (EMCs)

24)

Which statement is true of export management companies (EMCs)? A) An EMC is a transportation company that engages in international business. B) EMCs are export-import banks that manage foreign exchanges. C) EMCs are export specialists that act on behalf of their client firms. D) An EMC is an intermediary that facilitates talks between two nations.

25)

The function of sogo shosha in japan in is to

A) proactively and continuously seek export opportunities for their affiliated companies. B) combine smaller shipments into a single large shipment to minimize shipping costs for their affiliate companies. C) handle all the voluminous paperwork associated with exporting goods into and out of Japan. D) act as a customer service center for firms who have problems exporting goods into Japan.

Version 1

26) In the __________ program organized by the U.S. Department of Commerce, department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers. A) best prospects B) SCORE C) capital assistance D) matchmaker

27)

Which statement is true about the Small Business Administration (SBA)?

A) It is the most comprehensive source of export opportunities information. B) The SBA is a private organization managed by leaders of large corporations. C) The SBA employs trade officers throughout the United States. D) The SBA offers help exclusively to small businesses that sell products within the United States.

28) Which organization is a nationwide group of international trade attorneys who provide free initial consultations to miniature businesses on export-related matters? A) ELAN B) EMC C) MITI D) SCORE

29) Through its __________ program, the SBA oversees about 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses.

Version 1

A) matchmaker B) SCORE C) ELAN D) trade fair

30)

Japan’s sogo shosha are a type of A) freight forwarder. B) trading house. C) legal assistance network. D) customer service center.

31) Dylan owns an epoxy company and is seeking information on export opportunities. What government resource will provide Dylan with the most comprehensive information about exporting? A) Better Business Bureau B) Small Business Administration C) Federal Trade Commission D) Department of Commerce

32)

Which is a successful exporting strategy used by 3M? A) Add additional products once exporting becomes successful. B) Enter many markets at one time to gain maximum exposure. C) Bring in expert marketing specialists to promote the firm’s products. D) Enter on a large scale to flood the market.

33)

In a letter of credit transaction, the importer secures the letter of credit

Version 1

A) before product shipment. B) after product shipment. C) from the exporter’s bank. D) after receiving the product.

34)

The exporter endorses the __________ so title to the goods is transferred to the bank. A) bill of lading B) letter of credit C) draft D) promissory note

35) A __________ states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. A) bill of exchange B) bill of lading C) letter of credit D) bank statement

36)

Bank charges on letters of credit will depend on the A) exporter’s creditworthiness. B) size of the transaction. C) exporter’s means of finance. D) time taken to approve the sale.

37)

A draft used in international transactions

Version 1

A) is a document requesting payment. B) explains the conditions of a contract. C) is the same as a letter of credit. D) gives a bank guarantee to an exporter.

38) Smith Brothers is exporting for the first time to France and has contracted with Miller Products in Brazil for an initial order valued at $55,000. Smith Brothers wants Miller Products to secure a document from a Brazilian bank that indicates the bank will pay Smith Brothers $50,000 upon presentation of specified documents by the exporter. What document is Smith Brothers asking for? A) bill of lading B) time draft C) bill of exchange D) letter of credit

39)

What is a major advantage of using a letter of credit? A) It gives the importer time to resell the merchandise before payment. B) It guarantees the exporter preexport financing. C) It helps international traders engage in trade with trust. D) It guarantees the importer extra funds for other purposes.

40)

What is a disadvantage of using a letter of credit (L/C)? A) A letter of credit does not give protection to the importer. B) A letter of credit does not give protection to the exporter. C) The exporter cannot avail pre-export financing when using a L/C. D) The importer must pay a bank fee for the letter of credit.

Version 1

41)

The person or business initiating a draft is known as the A) beneficiary. B) drawee. C) maker. D) trustee.

42) West Coast Lumbers, based in Oregon, has contracted with a company in Italy to export 1 ton of lumber. West Coast Lumbers has written an order requesting that the Italian company pay $20,000 by August 1 prior to the shipping date. This order is called a A) letter of credit. B) bill of lading. C) draft. D) banker’s letter.

43)

A __________ is payable on presentation to the drawee. A) bill of lading B) time draft C) sight draft D) letter of credit

44) When First-Rate Fasteners, Inc. exported fasteners and other small parts to a company in Poland, it allowed the company 60 days to pay for the parts. This is an example of a A) bill of lading. B) time draft. C) sight draft. D) letter of credit.

Version 1

45)

A banker’s acceptance A) is payable to the drawee immediately on presentation in a bank. B) is a time draft that has been drawn on and accepted by a bank. C) is a sight draft that can be used as a negotiable instrument in banks. D) allows a buyer possession of the merchandise without signing any formal documents.

46) A __________ is issued to the exporter by the common carrier transporting the merchandise. A) bill of lading B) sight draft C) time draft D) letter of credit

47)

As a receipt, the bill of lading indicates that the carrier A) provides a written promise of payment before releasing the merchandise. B) has obtained the merchandise described on the face of the document. C) receives payment from a third party such as a bank or trading house. D) is obligated to provide a transportation service in return for a certain charge.

48)

In a typical international trade transaction, the A) exporter should obtain a letter of credit to initiate transactions. B) importer and exporter maintain an account with the same bank. C) importer’s bank sends a letter of credit to the exporter’s bank. D) importer’s bank sends the draft and bill of lading to the exporter’s bank.

Version 1

49)

Firms commonly employ __________ as a third party in international transactions. A) a reputable bank B) a stock exchange C) an export management company D) a customs broker

50) A __________ is the instrument normally used in international commerce to effect payment. A) bill of lading B) letter of credit C) draft D) countertrade

51)

A __________ allows for a delay in payment—normally 30, 60, 90, or 120 days. A) bill of lading B) sight draft C) bill of exchange D) time draft

52)

A __________ serves as a receipt, a contract, and a document of title. A) letter of credit B) bill of lading C) draft D) bill of exchange

Version 1

53)

When a time draft is drawn on and accepted by a business firm it is called a A) banker’s acceptance. B) bill of lading. C) trade acceptance. D) bill of exchange.

54) As a document of title, a __________ can be used to obtain payment or a written promise of payment before the merchandise is released to the importer. A) bill of lading B) letter of credit C) bill of exchange D) draft

55)

The Export-Import Bank

A) is an international financial institution that provides loans for capital programs. B) provides finance to facilitate cross-border trade between the United States and other countries. C) is an independent agency of the United Nations. D) focuses on policies that have an impact on the exchange rate and the balance of payments.

56)

Which statement is true of export credit insurance?

Version 1

A) Exporters will require more insurance if a letter of credit is used in transactions. B) The Foreign Credit Insurance Association provides coverage against commercial risks and political risks. C) Private associations cannot offer export insurance in the United States. D) Organizations do not receive coverage against political risks of global trade.

57) 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) World Bank. C) Foreign Credit Insurance Association. D) EXIM Bank.

58)

A U.S. company would invest in export credit insurance when it A) is dealing in a country with nonconvertible currency. B) has received a letter of credit from the importer’s bank. C) is unable to obtain any pre-export financing. D) is exposed to the risk that an importer may default on payment.

59) __________ is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent. A) Barter B) Offset C) Countertrade D) Buyback

Version 1

60)

Countertrade is a form of A) dumping. B) licensing. C) franchising. D) bartering.

61)

__________ is viewed as the most restrictive countertrade arrangement. A) Barter B) Offset C) Buyback D) Switch trading

62) __________ is primarily used for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy. A) Counterpurchase B) Barter C) Offset D) Buyback

63) __________ occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. A) Barter B) Offset C) Counterpurchase D) Buyback

Version 1

64) __________ occurs when a firm supplies technology, equipment, training, or other services in a country and agrees to take a certain percentage of the resultant output as partial payment for the contract. A) A counterpurchase B) An offset C) A barter D) A buyback

65) The main attraction of __________ is that it can give a firm a way to finance an export deal when there are no other means available. A) a countertrade B) a buyback C) a counterpurchase D) an offset

66) __________ is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent. A) Floating exchange system B) Countertrade C) Letter of credit trade D) Fixed exchange system

67) During the 1960s, the old Soviet Union and the then-communist states of eastern Europe used countertrade to purchase imports because A) their currencies were generally nonconvertible. B) licensing options had diminished. C) their currencies traded higher than all other currencies. D) switch trading had become too cumbersome as a means of trade.

Version 1

68)

Which statement is true of countertrade?

A) Countertrade reduces the profitability of competing firms and is considered an unethical practice. B) Countertrade is a conventional means to pay exporters. C) Smaller organizations commonly use countertrade in international transactions. D) Countertrade occurs when goods and services are traded for other goods and services.

69) If India traded textiles with the United States in exchange for corn products, this would be an example of which form of countertrade? A) buyback B) barter C) offset D) switch trading

70) __________ is viewed as the most restrictive countertrade arrangement, in part, because firms engaged in this type of countertrade run the risk of having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable price. A) Switch trading B) Offset C) Barter D) Buyback

71) __________ is a reciprocal buying agreement and occurs when a firm agrees to buy a certain amount of materials back from a country to which a sale is made.

Version 1

A) Counterpurchase B) Barter C) Offset D) Switch trading

72) In __________, one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale, and this party can fulfill the obligation with any firm in the country to which the sale is being made. A) a switch trade B) an offset C) a barter D) a buyback

73) Which term refers to the use of a specialized third-party trading house in a countertrade arrangement? A) counterpurchase B) barter C) offset D) switch trading

74) Midway Machinery builds a plant in Mexico and agrees to take a certain percentage of the plant’s output as partial payment for the contract. This type of countertrade is known as A) a buyback. B) a barter. C) an offset. D) a switch trade.

Version 1

75)

An advantage of countertrade is that it A) uses instruments such as time drafts and sight drafts. B) is an effective way of doing business with developing nations. C) provides exporters an opportunity to obtain direct revenue. D) prevents the exchange of unusable or poor-quality goods.

76)

What is a major drawback of engaging in countertrade? A) Countertrade is not useful when trading with developing nations. B) Financing is difficult when engaging in a countertrade. C) It is not attractive to small organizations. D) Countertrade may involve the exchange of unusable goods.

77)

Countertrade is A) most attractive to small, primarily domestic enterprises. B) least attractive to small, primarily domestic enterprises. C) most attractive to large, diverse multinational enterprises. D) least attractive to large, diverse multinational enterprises.

78) __________ can be used when a government restricts 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. A) A buyback B) Countertrade C) An offset D) Switch trading

Version 1

79) __________ 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) Countertrading B) Offsetting C) Switch trading D) Bartering

80)

What is a disadvantage of countertrade?

A) Countertrade contracts may involve the exchange of unusable or poor-quality goods. B) Countertrade requires the firm to use an out-of-house trading company to which much of the profit will go. C) Countertrade contracts often involve high-quality, expensive goods that the firm cannot move enough of to be profitable. D) Countertrade requires employing lawyers who specialize in these unique types of contracts.

81)

Proactive firms do not consider exporting until their domestic market is saturated. ⊚ true ⊚ false

82)

Ignorance of the potential opportunities is a huge barrier to exporting. ⊚ true ⊚ false

83) The ease in which smaller firms can enter foreign markets through exporting is why smaller firms represent the largest share of exporters.

Version 1

⊚ ⊚

true false

84) Hiring an export management company (EMC) will help a novice exporter identify opportunities and navigate the paperwork involved in exporting. ⊚ true ⊚ false

85) One of the biggest impediments to a company becoming a successful exporter is the lack of available markets in which to expand. ⊚ true ⊚ false

86) The Japanese sogo shosha have offices all over Japan, and companies wishing to trade with Japan must go through them. ⊚ true ⊚ false

87) The most comprehensive source of information for U.S. firms on exporting opportunities is the Small Business Administration. ⊚ true ⊚ false

88) Darlene is thinking about exporting her products to a foreign market. Since she isn’t sure how to make contacts or where to begin, she would find it useful to attend an international trade fair and visit the exhibition put on by the Department of Commerce. ⊚ true ⊚ false

Version 1

89) An export packer can advise companies who are unfamiliar with exporting on appropriate design and materials for the packaging of their items. ⊚ true ⊚ false

90) Nearly every state in the United States maintains active trade commissions to promote exports. ⊚ true ⊚ false

91) A letter of credit states that an exporter has available credit from the bank to manufacture goods. ⊚ true ⊚ false

92) The bank promises to pay on behalf of the importer when a bank is used as a third party in international transactions. ⊚ true ⊚ false

93) A draft is simply an order written by an exporter instructing an importer to pay a specified amount of money at a specified time. ⊚ true ⊚ false

94)

A sight draft allows for a delay in payment.

Version 1

⊚ ⊚

true false

95) When a time draft is drawn on and accepted by a business firm, it is called a trade acceptance. ⊚ true ⊚ false

96) Time drafts are negotiable instruments, which means the payment date of the draft is flexible and can be changed. ⊚ true ⊚ false

97)

A bill of lading serves as a receipt, a contract, and a document of title. ⊚ true ⊚ false

98) The bill of lading can function as collateral against which funds may be advanced to the exporter by its local bank. ⊚ true ⊚ false

99)

U.S. organizations can get financing aid from the Export-Import Bank. ⊚ true ⊚ false

100) Ex-Im Bank has a direct lending operation under which it lends dollars to foreign borrowers.

Version 1

⊚ ⊚

true false

101) The Foreign Credit Insurance Association is part of the U.S Department of Commerce and guides the activities of the Export-Import Bank. ⊚ true ⊚ false

102) Countertrade denotes a whole range of barter-like agreements that involve trading goods and services when they cannot be traded for money. ⊚ true ⊚ false

103) Barter is a reciprocal buying agreement that occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. ⊚ true ⊚ false

104)

A counterpurchase gives exporters more flexibility than an offset. ⊚ true ⊚ false

105) The term switch trading refers to the use of a specialized third-party trading house in a countertrade arrangement. ⊚ true ⊚ false

106)

Countertrade is least attractive to large, diverse multinational enterprises.

Version 1

⊚ ⊚

Version 1

true false

Answer Key Test name: Chap 16_14th Edition 15) A 16) C 17) A 18) B 19) B 20) D 21) B 22) D 23) D 24) C 25) A 26) D 27) C 28) A 29) B 30) B 31) D 32) A 33) A 34) A 35) C 36) B 37) A 38) D 39) C 40) D Version 1

41) C 42) C 43) C 44) B 45) B 46) A 47) B 48) C 49) A 50) C 51) D 52) B 53) C 54) A 55) B 56) B 57) D 58) D 59) C 60) D 61) A 62) B 63) C 64) D 65) A 66) B 67) A 68) D 69) B 70) C Version 1

71) A 72) B 73) D 74) A 75) B 76) D 77) C 78) B 79) C 80) A 81) FALSE 82) TRUE 83) FALSE 84) TRUE 85) FALSE 86) FALSE 87) FALSE 88) TRUE 89) TRUE 90) TRUE 91) FALSE 92) TRUE 93) TRUE 94) FALSE 95) TRUE 96) FALSE 97) TRUE 98) TRUE 99) TRUE 100) TRUE Version 1

101) FALSE 102) TRUE 103) FALSE 104) FALSE 105) TRUE 106) FALSE

Version 1

CHAPTER 17 1) Define the term supply chain management. How is supply chain management linked with production?

2) Discuss the strategic objectives of the production and supply chain management functions of an international firm.

Describe the major arguments put forth by W. Edwards Deming.

Briefly describe the Six Sigma methodology.

Version 1

What are the three main factors that affect the decision of where to locate production?

Discuss the effect of country factors on the decision of where to locate production.

7) How does the type of technology a firm uses affect its decision of where to locate production?

Explain how fixed costs impact the decision to where to locate a plant.

9) Describe the concept of minimum efficient scale of output. What are the implications of minimum efficient scale?

Version 1

10) Explain how the concept of production efficiency has changed with the rise of flexible manufacturing technologies.

11) How do product factors affect the decision of where to locate production? Where will you locate your firm’s production plant if your firm produces refined sugar?

12)

When does concentration of production make sense?

13)

Explain the strategic roles of foreign factories.

Version 1

14) Explain make-or-buy decisions by giving an example of an international business that must decide whether to outsource an activity.

15) Define just-in-time inventory. Explain why a firm might adopt the just-in-time system. Why might a firm choose a different inventory system?

16) Nate works for a major appliance manufacturer. It is his job to plan, implement, and control how the raw materials and component parts flow through the manufacturing process. As it relates to supply chain management, Nate works in A) logistics. B) purchasing. C) transportation. D) offshoring.

Version 1

17) What part of the supply chain includes the worldwide buying of raw material, component parts, and products used in manufacturing of the company’s products and services? A) logistics B) purchasing C) production D) inventory management

18)

The Six Sigma methodology A) is used to compare and benchmark the performances of competing firms. B) gives more importance to productivity than product quality. C) is a direct descendant of the total quality management philosophy. D) says that at six sigmas, there would be only 0.6 defects per million units.

19)

Deming argued that to keep pace with changes in the workplace A) work standards should be defined only as quotas and numbers. B) supervision is not essential for quality improvements. C) management should train employees in new skills. D) products should be certified with standards such as ISO 9000.

20) An important objective shared by both production and logistics functions of an international firm is to A) increase profits by lowering quality. B) lower costs by dispersing production activities. C) decrease inventory turnover. D) increase the amount of inventory on hand.

Version 1

21)

At six sigmas, a production process would be highly accurate and create just A) 3.4 defects per hundred thousand units. B) 6.8 defects per million units. C) 3.4 defects per million units. D) 6.8 defects per hundred thousand units.

22) __________ is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. A) Six Sigma B) ISO9000 C) Minimum efficient scale D) Flexible manufacturing

23)

Which statement is true of the country factors that govern international business?

A) Relative factor costs should be considered when selecting a country for production. B) Centralized production is the most suitable method of doing international business. C) Exchange rates are not a significant factor that determines the selection of a country. D) Decentralized manufacturing is the most suitable method of doing international business.

24)

Which factor transforms a low-cost location to a high-cost location? A) appreciation of local currency B) use of fixed exchange rates C) use of pegged exchange rates D) implementation of free trade regime

Version 1

25) Which characteristic of manufacturing technology can be pivotal in deciding where to locate an international business? A) exchange rates that govern the business B) relative factors cost in the locality C) availability of a skilled labor pool D) fixed costs of setting up a production plant

26)

Which factor makes being dependent on one location particularly risky? A) governmental intervention in exchange rates B) floating exchange rates C) fixed exchange rates D) preferential treatment of domestic industries

27)

According to the concept of economies of scale, as plant output expands A) productivity declines. B) total costs decrease. C) unit costs decrease. D) utilization of capital declines.

28)

Identify an advantage of adopting a low minimum efficient scale. A) It helps companies reduce the level of initial capital required for business. B) It allows the firm to accommodate demands for local responsiveness. C) It allows firms to discount political risks and other global capital risks. D) A minimum efficient scale of a plant allows decentralization of production.

Version 1

29) Central to the concept of economies of scale is the idea that the best way to achieve high efficiency, and hence low unit costs, is through the A) customization of products for each individual market. B) mass production of a standardized output. C) production of goods that vary from one another. D) production of small volumes of high-quality products.

30)

Flexible manufacturing technology is also known as A) Six Sigma production. B) line production. C) standardization. D) lean production.

31)

What is a desired outcome of flexible manufacturing technology? A) minimizing the utilization of individual machines B) reducing setup times for complex equipment C) standardizing the output of a system D) implementing specialized equipment in production

32) __________ allows 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. A) Standardization B) Just-in-time production C) Six Sigma D) Lean production

Version 1

33) The term __________ has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile the goals of low cost and product personalization. A) assembly-line production B) product standardization C) mass customization D) Six Sigma production

34) __________ is a grouping of various types of machinery, a common materials handler, and a centralized cell controller. A) A flexible machine cell B) A Six Sigma C) An assembly line D) A minimum efficient scale

35)

Small electronic components have a high value-to-weight ratio, which means that A) their transportation costs account for a large percentage of total costs. B) they are relatively inexpensive and weigh a lot. C) they are usually produced in multiple locations close to major markets. D) they weigh very little but are expensive.

36)

Which products will most likely have high value-to-weight ratios? A) pharmaceuticals B) refined sugar C) bulk chemicals D) petroleum products

Version 1

37)

When a company’s product has a low value-to-weight ratio, the company should A) acquire a shipping company and manufacture nearby. B) manufacture products from a centralized location. C) ignore transportation costs as they would only be a minor part. D) produce the product in multiple locations close to major markets.

38)

Which products will have low value-to-weight ratios? A) pharmaceuticals B) refined sugar C) microprocessors D) electronic items

39)

Concentration of production is appropriate when A) the product serves universal needs. B) the product does not serve universal needs. C) the product’s value-to-weight ratio is low. D) volatility in important exchange rates is expected.

40) The level of output at which most plant-level scale economies are exhausted is referred to as the A) minimum efficient scale of output. B) downstream supply chain. C) maximum load output. D) upstream supply chain.

41)

An advantage of a __________ allows a firm to hedge against currency risks.

Version 1

A) low TQM B) low minimum efficient scale C) high TQM D) high minimum efficient scale

42) __________ covers a range of manufacturing technologies designed to reduce setup times for complex equipment. A) ISO 9000 B) TQM C) Lean production D) JIT

43)

A flexible machine cell is

A) a component of a source factory. B) used to perform a standardized operation. C) a component of a lead factory. D) a grouping of various types of machinery, a common materials handler, and a centralized cell controller.

44)

Products such as refined sugar, certain bulk chemicals, paint, and petroleum products A) cannot travel through a global supply chain. B) have low value-to-weight ratios. C) come from offshore factories. D) have high value-to-weight ratios.

Version 1

45) Last year it took Southland Foods $2.85 to produce one box of its best-selling cereal. Demand for the product has increased, so the company has increased production output as well. As a result, it now only costs $2.25 to produce the same box of cereal. This result exemplifies which concept? A) Six Sigma B) minimum efficient scale C) economies of scale D) lean production

46) __________ implies that a firm may be able to customize its product range to suit the needs of different customer groups without bearing a significant cost penalty. A) Assembly-line production B) Mass customization C) Six Sigma production D) Product standardization

47) The typical __________ is dedicated to the production of a family of parts or products through the use of four to six machines capable of performing various operations. A) minimum efficient scale B) flexible machine cell C) just-in-time machine D) assembly line

48)

Decentralization of production is appropriate when A) a product’s value-to-weight ratio is high. B) the product serves universal needs. C) barriers to trade are low. D) volatility in key exchange rates is expected.

Version 1

49)

Which is a hidden cost associated with basing production in a foreign location? A) cost of labor within the location B) high employee turnover C) transportation costs D) differences in the value of currency

50) The idea that valuable knowledge does not reside just in a firm’s domestic operations but can also be found in its foreign subsidiaries is called A) global learning. B) global production processes. C) global economics. D) global factors.

51) __________ makes the most sense when differences among countries in factor costs have a substantial impact on the costs of manufacturing in various countries. A) Decentralized production B) Just in time (JIT) C) Concentration of production D) Total quality management (TQM)

52)

Decentralization of production is appropriate when A) the product’s value-to-weight ratio is high. B) location externalities are important. C) the product serves universal needs. D) volatility in important exchange rates is expected.

Version 1

53) 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. A) contributor factory B) source factory C) lead factory D) server factory

54) __________ 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. A) An outpost factory B) A source factory C) A contributor factory D) A lead factory

55) Built Rite Manufacturing is looking to utilize robotic technology in a new plant that it will be building. It decides to build its new plant in the Silicon Valley since this area is known for technological innovation. What type of facility is Built Rite looking to build? A) source factory B) lead factory C) contributor factory D) outpost factory

56)

For which reason would lead a firm to choose a concentration of production?

Version 1

A) Trade barriers are high. B) Location externalities are not important. C) Important exchange rates are expected to remain relatively stable. D) The product’s value-to-weight ratio is low.

57)

Which situation would lead a firm to choose to decentralize production?

A) The product serves universal needs. B) The production technology has high fixed costs and high minimum efficient scale relative to global demand or flexible manufacturing technology exists. C) Trade barriers are low. D) The production technology has low fixed costs and low minimum efficient scale, and flexible manufacturing technology is not available.

58) Speedy Wheels is a motorized skateboard manufacturing company. What is a make-orbuy decision that the company will have to make? A) Should the company increase its responsiveness toward the retailers? B) What are the products that the company should manufacture? C) Should the company outsource production to a low-cost vendor? D) What should be the pricing strategy for the company’s product?

59)

Make-or-buy decisions are decisions about A) the components to be used in the manufacturing process. B) whether to procure raw materials locally or abroad. C) procuring the capital equipment for production. D) whether or not to produce a product in-house or buy it from an outside supplier.

Version 1

60)

An advantage of engaging in in-house production of products and components is that A) the firm will have fewer subunits to control by making products in-house. B) it will help the firm capture more orders from other countries. C) it enables a firm to protect the proprietary technologies that it has. D) firms can make better use of the location advantages of certain countries.

61) An advantage of buying component parts, or even an entire product, from independent suppliers is that A) it can make planning, coordination, and scheduling of adjacent processes easier for the firm. B) the firm can strategically manage inventory. C) the firm will be able to maintain strict control over its proprietary technology. D) the firm will have access to superior quality raw materials and will deliver highquality products.

62) Cost and __________ are the two main drivers behind make-or-buy choices made by global companies when they engage in global supply chains. A) production capacity B) assurance of continual supply C) quality control D) control

63) __________ can be viewed as the decision-making process regarding the raw materials, work-in-process (component parts), and finished goods inventory for a multinational corporation. A) Global supply chain management B) Global inventory management C) Global corporate management D) Global sourcing arrangements

Version 1

64) As the inventory control manager for a chain of athletic equipment stores, Teisha calls Supply Line Warehouse when she needs to restock any of the store’s product lines since she keeps all of the company’s products there. Supply Line Warehouse functions as a A) logistics center. B) lead factory. C) global distribution center. D) source factory.

65) __________ 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. A) Primary packaging B) Performance packaging C) Secondary packaging D) Unit-load packaging

66) Packaging, which comes in all shapes, sizes, forms, and uses, can be divided into three different types: A) primary, secondary, and transit. B) customer, retailer, and distributor. C) primary, secondary, and tertiary. D) simple, bulk, and combination.

67) __________ refers to the movement of raw material, component parts, and finished goods throughout the global supply chain.

Version 1

A) Distribution B) Transportation C) Sourcing D) Logistics

68) 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 is called A) transportation. B) distribution. C) reverse logistics. D) global sourcing.

69) Packaging is intended to achieve a set of multilayered functions, which can be grouped into (1) perform, (2) protect, and (3) inform. What is one of the functions of the “perform” group? A) the package’s ability to preserve the products to maintain their freshness or newness B) the package’s ability to provide the necessary security and safety to ensure that the products reach their end destination in their intended shape C) the package’s ability to contain the products properly D) the ability of the product in the package to handle being transported between nodes in the global supply chain

70) There are five strategic levels for global purchasing that can be undertaken by a global company. At which level do companies engage in international purchasing activities as part of the firm’s overall supply chain management strategy?

Version 1

A) Level I B) Level II C) Level III D) Level IV

71) There are five strategic levels for global purchasing that can be undertaken by a global company. At which level do companies engage in global purchasing activities that are integrated across worldwide locations and functional groups? A) Level II B) Level III C) Level IV D) Level V

72) When a multinational corporation buys products or services from one of its suppliers that produces them somewhere else, whether domestically or globally, it is referred to as A) offshoring. B) insourcing. C) outsourcing. D) co-sourcing.

73) A multinational corporation uses both its own employees from inside the firm and an external supplier to perform certain tasks, often in concert with each other. A) insourcing B) offshore outsourcing C) nearshoring D) co-sourcing

Version 1

74)

The major cost saving associated with JIT systems comes from A) early delivery of raw materials to production. B) decentralization of manufacturing. C) speeding up inventory turnover. D) reduced spending on CRM activities.

75)

Just-in-time inventory systems A) are used when procurement is not organized. B) require large warehouses for storage. C) economize on inventory holding costs. D) maintain large buffer for inventory.

76)

What is a drawback of a just-in-time system? A) Transport costs are high when using a just-in-time system. B) It leaves a firm without a buffer stock of inventory. C) It increases the warranty costs associated with products. D) It leaves a firm with high scrap costs associated with defective products.

77) Which facet of information technology refers to the electronic interchange of data between two or more companies? A) ERP B) JIT C) VMI D) EDI

Version 1

78) Tile and More does not keep excess stock of its various wall and floor tiles. When orders are received, Tile and More brings in the needed materials to the plant in order to manufacture and fulfill the order. This is an example of a(n) ______ system. A) just-in-time inventory B) vendor managed inventory C) enterprise resource planning D) materials requirements planning

79) __________ refers to shared decision-making opportunities and operational collaboration of key global supply chain activities. A) Global supply chain coordination B) Make-or-buy decision C) Reverse logistics D) Global sourcing

80) Because it is only concerned with physical goods, the term production does not apply to services. ⊚ true ⊚ false

81)

Logistics includes the buying of raw materials and component parts. ⊚ true ⊚ false

82) The upstream portion of the global supply chain includes all of the organizations and resources in the supply chain.

Version 1

⊚ ⊚

true false

83) When applying Six Sigma to quality control, the higher the number of “sigmas,” the smaller the number of errors. ⊚ true ⊚ false

84) Other things being equal, a firm should locate its various manufacturing activities where the relative factor costs are conducive to the performance of those activities. ⊚ true ⊚ false

85) The argument for centralizing production will be greater if the minimum efficient scale of a plant relative to total global demand is low. ⊚ true ⊚ false

86)

Mass customization facilitates product customization at low costs. ⊚ true ⊚ false

87) Flexible manufacturing technologies enable companies to customize products to the demands of small consumer groups. ⊚ true ⊚ false

Version 1

88) Products such as electronic components and pharmaceuticals have low value-to-weight ratios. ⊚ true ⊚ false

89) Organizations are under pressure to produce products in the optimal location and to serve the world market from there if their products have low value-to-weight ratios. ⊚ true ⊚ false

90)

Modern consumer products such as personal computers serve universal needs. ⊚ true ⊚ false

91) Poor product quality and low productivity are hidden costs associated with basing production in a foreign location. ⊚ true ⊚ false

92) Concentration of production should be avoided when important exchange rates are expected to remain relatively stable. ⊚ true ⊚ false

93) Decentralization of production is appropriate when the product does not serve universal needs. ⊚ true ⊚ false

Version 1

94) Managers of a source factory operate in essentially the same way that managers in an offshore factory operate. They have very little say in purchasing or logistics decisions. ⊚ true ⊚ false

95) Global learning refers to the idea that valuable knowledge does not reside just in a firm’s domestic operations. ⊚ true ⊚ false

96) Make-or-buy decisions are decisions that concern the components to be used in a production process. ⊚ true ⊚ false

97) A “buy” decision is favored when there is any chance that supply cannot be guaranteed if the firm moves production overseas. ⊚ true ⊚ false

98) Buying a product from external vendors is highly appropriate when a firm intends to protect proprietary technology. ⊚ true ⊚ false

99)

The term distribution center is rarely used today in a global context.

Version 1

⊚ ⊚

true false

100) For a tube of toothpaste, the box in which the toothpaste is shipped to the store from the warehouse is the primary packaging. ⊚ true ⊚ false

101)

In global purchasing, Level I involves domestic purchasing activities only. ⊚ true ⊚ false

102) Just-in-time systems are used 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. ⊚ true ⊚ false

103)

Just-in-time systems reduce product quality although it brings about huge cost savings. ⊚ true ⊚ false

104) One way to reduce risks associated with a JIT global supply chain is to source inputs from several suppliers located in different countries. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 17_14th Edition 16) A 17) B 18) C 19) C 20) B 21) C 22) A 23) A 24) A 25) D 26) B 27) C 28) B 29) B 30) D 31) B 32) D 33) C 34) A 35) D 36) A 37) D 38) B 39) A 40) A 41) B Version 1

42) C 43) D 44) B 45) C 46) B 47) B 48) D 49) B 50) A 51) C 52) D 53) D 54) A 55) B 56) C 57) D 58) C 59) D 60) C 61) B 62) A 63) B 64) C 65) D 66) A 67) B 68) C 69) D 70) C 71) D Version 1

72) C 73) D 74) C 75) C 76) B 77) D 78) A 79) A 80) FALSE 81) FALSE 82) TRUE 83) TRUE 84) TRUE 85) FALSE 86) TRUE 87) TRUE 88) FALSE 89) FALSE 90) TRUE 91) TRUE 92) FALSE 93) TRUE 94) FALSE 95) TRUE 96) FALSE 97) FALSE 98) FALSE 99) FALSE 100) FALSE 101) TRUE Version 1

102) TRUE 103) FALSE 104) TRUE

Version 1

CHAPTER 18 1)

What is Theodore Levitt’s contribution to international business?

2) What are the two main issues that managers must be aware of when considering market segmentation in foreign countries?

3) How do levels of economic development affect consumer behavior? What are the implications for marketing strategy?

What are the four main differences between distribution systems across countries?

Version 1

5) What are the three factors that contribute to the trend toward greater retail concentration in developed countries? How have these factors promoted retail concentration?

What factors can jeopardize the success of a firm’s international communications?

Compare and contrast push strategies and pull strategies.

What are the arguments for standardized advertising across international markets?

Explain the concept of price elasticity of demand. What are its determining factors?

Version 1

10)

Differentiate between multipoint pricing and experience curve pricing strategies.

11)

Explain briefly the regulatory influences on pricing.

12)

What factors affect the rate of new-product development in countries?

13) Discuss the role of technology in new-product development, including the concept of “creative destruction.”

Version 1

14) Discuss the notion of cross-functional teams and their role in cross-functional integration. What are the attributes that make a product development team successful?

15)

The set of choices the firm offers to its targeted market is known as the A) marketing mix. B) marketing concept. C) marketing strategy. D) market promotion.

16)

According to Levitt, which statement is true? A) Technology drives the world toward a converging commonalty. B) There are accustomed differences in national preferences. C) The multinational corporation operates in a number of countries at low relative costs. D) The global corporation operates with resolute consistency at high relative costs.

17) The continuing persistence of __________ differences between nations acts as a major brake on any trend toward global consumer tastes and preferences.

Version 1

A) technological and industrial B) institutional and political C) cultural and economic D) GNP level and growth rate

18) The identification of distinct groups of consumers whose purchasing behavior differs from others in important ways is known as A) market segmentation. B) market penetration. C) diversification strategy. D) differentiation.

19) Marriott owns many brands of hotels, such as W Hotels, which is a luxury brand; Westin hotels, which is an upscale brand; and Fairfield Inns, which are midscale. Marriott is marketing its hotels based on A) market segmentation. B) market penetration. C) diversification strategy. D) differentiation.

20)

If market segments transcend national borders

A) the company should develop unique products for each national market. B) the company can view the global market as a single entity and pursue a global strategy. C) a localization strategy would be appropriate. D) consumers will have differing purchasing behavior in different nations.

Version 1

21) Leatherworks manufactures wallets specifically geared to young men between the ages of 18 to 25. The company markets its wallets both domestically and internationally believing its target market spans multiple countries, transcending national borders. The company’s target segment is a(n) ______ segment. A) uniform B) intermarket C) global D) structured

22) Lamar is a business analyst for a chain of coffee shops in the greater Chicago area. He has created a simple bar chart that shows the most popular coffee drinks customers ask for at various times of the day. Which application of business analytics does the bar chart represent? A) predictive B) prescriptive C) directive D) descriptive

23) After receiving all the data on customer purchased and supplier inventories, David’s job is to build a statistical model to help identify trends and relationships between sales and product demand. Which level of business analytics does this require? A) predictive B) prescriptive C) directive D) descriptive

24) Which level of business analytics can be defined as the use of applied mathematical techniques to guide a company in its endeavors to best use allocable resources?

Version 1

A) predictive B) prescriptive C) directive D) descriptive

25)

Consumers in the most developed countries are

A) typically most interested in products that have been developed with the lowest common denominator in mind. B) typically willing to sacrifice their preferred product attributes for lower prices. C) often prefer globally standardized products. D) often not willing to sacrifice their preferred attributes for lower prices.

26)

Differences in __________ constrain the globalization of markets. A) technical standards B) measurement systems C) manufacturing processes D) energy costs

27)

There is a tendency for greater retail concentration in A) rural areas. B) developed countries. C) urban areas. D) developing countries.

28)

The number of intermediaries between the producer and the consumer is known as the

Version 1

A) channel quality. B) marketing mix. C) channel length. D) experience curve.

29)

A channel is considered to be very short if the producer sells A) through an import agent. B) through a wholesaler. C) through a retailer. D) directly to the consumer.

30)

Countries with __________ retail systems tend to have long channels of distribution. A) fragmented B) intermarket C) concentrated D) exclusive

31)

__________ is one that is difficult for outsiders to access. A) A concentrated retail system B) An exclusive distribution channel C) A private distribution channel D) A fragmented retail system

32)

The means a firm chooses for delivering the product to the consumer is its

Version 1

A) communication strategy. B) segmentation strategy. C) product attributes. D) distribution strategy.

33) Anna, the international sales manager for Luxury Lighting, is trying to determine the channel length for France, 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) level of economic development of a country C) the level of technical difficulty of the product D) increase in car ownership in two-income households

34)

In a concentrated retail system A) there are many retailers who have a major share of the market. B) there are many retailers, none of which has a major share of the market. C) a few retailers supply a small segment of the market. D) a few retailers supply most of the market.

35) A country with high car ownership, a large number of households with refrigerators, and a large number of two-income families tends to have greater A) retail division. B) retail dispersion. C) retail concentration. D) retail fragmentation.

Version 1

36) A __________ retail system is one in which there are many retailers, none of which has a major share of the market. A) concentrated B) consolidated C) focused D) fragmented

37) Pure Water manufactures portable water filtration systems. It wants to market these products in underdeveloped nations where water quality is poor and people lack easy access to these systems. The company knows that to successfully enter a foreign market, the retailers will have to be educated on how these products work. What distribution factor does this represent? A) channel length B) channel quality C) channel exclusivity D) channel concentration

38) __________ refers to the number of intermediaries between the producer (or manufacturer) and the consumer. A) Channel length B) Channel exclusivity C) Channel quality D) Channel speed

39) Arcade Games sells its products through an import agent, a wholesaler, and a retailer. In this case,

Version 1

A) a long channel exists. B) the retail system must be concentrated. C) a short channel exists. D) there is no channel.

40)

Channel length is longer when a retail system is A) concentrated. B) fragmented. C) decentralized. D) globalized.

41)

Which statement about fragmented retail systems is true?

A) Countries with fragmented retail systems tend to have short channels of distribution. B) The more fragmented the retail system, the less expensive it is for a firm to make contact with each individual retailer. C) Fragmented retail systems tend to promote the growth of wholesalers to serve retailers. D) When the retail sector is very fragmented, it makes sense for the firm to deal directly with retailers.

42)

With a concentrated retail sector A) a relatively large sales force is required. B) the orders generated from each sales call can be large. C) there are long channels of distribution. D) it is expensive for the firm to make contact with each individual retailer.

Version 1

43)

When a channel is exclusive A) the firm sells and distributes only high-end products. B) it is controlled by market leaders or by firms who have a niche market. C) the firm’s products are focused only on elite, upper-class customers. D) it is often difficult for a new firm to get access to shelf space in supermarkets.

44) Channel __________ 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. A) exclusivity B) knowledge C) quality D) skill

45)

Which statement about the choice of distribution strategy is true?

A) The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product. B) If price is an important competitive weapon and if the firm does not want to see its profit margins squeezed, other things being equal, the firm would prefer to use a longer channel. C) The shorter a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product. D) An international business must use shorter channels in countries where the retail sector is fragmented and longer channels in countries where the retail sector is concentrated.

46) In the 1960s, the Swedish vacuum manufacturer Electrolux successfully marketed vacuums in the United Kingdom with the slogan “Nothing sucks like an Electrolux.” The informal United States meaning of the word sucks was well known in the United Kingdom at the time, and the company hoped the slogan, with its possible double entendre, would gain attention. When this slogan was used in the American market, it was a catastrophe. This is an example of

Version 1

A) cultural differences. B) religious differences. C) source effects. D) noise levels.

47)

To overcome cultural barriers, companies should A) develop products specifically for each market. B) focus on universal needs. C) focus only on international market segments. D) develop cross-cultural literacy.

48) When the receiver of a message evaluates a message based on the status or image of the sender, __________ are said to have occurred. A) sender effects B) noise effects C) source effects D) communication effects

49) as

The extent to which the place of manufacturing influences product evaluations is known

A) source effects. B) country of origin effects. C) noise effects. D) location effects.

Version 1

50) The “Swiss Made” label has leveraged several watchmakers (for example, TAG Heuer) for decades now. This is an example of a __________ effect. A) linguistic B) country of origin C) noise D) cultural

51)

The probability of effective communications is reduced by A) noise. B) location effects. C) country of origin effects. D) source effects.

52)

Which statement about barriers to international communication is true?

A) Source effects occur when the receiver of the message evaluates the message on the basis of the location of the sender. B) The best way for a firm to overcome cultural barriers is to use local input. C) Source effects and country of origin effects are always negative. D) Noise is extremely high in highly developed countries such as the United States.

53) When a firm emphasizes personal selling rather than mass media advertising in the promotional mix, the firm is using a __________ strategy. A) standardized B) pull C) push D) localized

Version 1

54)

Which statement regarding a firm’s communication strategy is true?

A) Firms in consumer goods industries that are trying to sell to a large segment of the market generally favor a push strategy. B) Mass communication is costlier for firms in consumer goods industries that are trying to sell to a large segment of the market. C) Direct selling may be the only way to reach consumers in poor nations with low literacy levels. D) Firms that sell industrial products or other complex products favor a pull strategy.

55) A firm that depends more on mass media advertising to communicate the marketing message to potential consumers is using a _________ strategy. A) pull B) push C) standardized D) localized

56)

A push strategy is appropriate when A) there are many choices of electronic media. B) the firm is selling consumer goods. C) distribution channels are long. D) the firm is selling complex new products.

57)

A pull strategy should be used when

Version 1

A) the firm is selling industrial products. B) the distribution channels are short. C) the distribution channels are long. D) few print or electronic media are available.

58)

Which argument would support the use of global advertising?

A) Standardized advertising lowers the costs of value creation by spreading the fixed costs of developing the advertisements over many countries. B) Because of concerns about the scarcity of creative talent, some feel that smaller efforts will produce better results than one large effort to develop a campaign. C) Even though there are cultural differences between nations, a single advertising theme that is effective worldwide can be easily developed. D) Standardized advertising may be implemented even in the face of advertising regulations.

59)

French wine, Italian clothes, and German luxury cars all benefit from A) source effects. B) noise levels. C) cultural preferences. D) cultural differences.

60) When a company emphasizes personal selling, the company is probably using a ________ strategy. A) standardized B) push C) localized D) pull

Version 1

61) A __________ strategy is generally favored by consumer goods firms that are trying to sell to a large segment of the market. A) push B) globalization C) pull D) localization

62)

A firm may be prevented from using __________ because of advertising regulations. A) corporate advertising B) culturally significant advertising C) marketing strategies D) standardized advertising

63) The use of price as a competitive weapon to drive weaker competitors out of a national market is known as A) experience curve pricing. B) predatory pricing. C) competitive pricing. D) multipoint pricing.

64)

When a company charges whatever the market will bear, the company is using A) strategic pricing. B) price discrimination. C) a push strategy. D) a pull strategy.

Version 1

65)

In order for price discrimination to be successful, A) there must be a strong case for arbitrage. B) national markets must be kept separate. C) demand must be very elastic. D) a large change in demand must be triggered by a small change in price.

66) __________ occurs when an individual or business capitalizes on a price differential for a firm’s product between two countries by buying the product in the country where the price is low and reselling it in the country where prices are higher. A) Arbitrage B) Strategic pricing C) Price discrimination D) Market pricing

67) as

A measure of the responsiveness of demand for a product to change in price is referred to

A) arbitrage demand. B) predatory pricing. C) price elasticity of demand. D) experience curve pricing.

68) If a __________ change in a price produces a __________ change in demand, then demand is said to be elastic.

Version 1

A) small; large B) small; small C) large; small D) large; large

69)

Which statement about price discrimination is true?

A) It exists whenever consumers in a country are charged different prices for the same product. B) A necessary condition for profitable price discrimination is different price elasticities of demand in different countries. C) It is the use of price as a competitive weapon to drive weaker competitors out of a national market. D) It makes economic sense to charge the same prices across countries.

70) What is one of the important factors in determining the elasticity of demand for a product in a given country? A) personal selling B) logistics C) operating revenue D) income level

71)

In a country where competition is limited, A) prices will be low. B) there will be low elasticity of demand. C) prices will be high. D) consumers’ bargaining power rises.

Version 1

72) __________ pricing is the use of price as a competitive weapon to drive weaker competitors out of a national market. A) Multipoint B) Value-based C) Experience curve D) Predatory

73) __________ 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. A) Multipoint B) Experience curve C) Predatory D) Competitive

74) Prestige Consulting is a large software service provider. The company has the largest market share in the industry. In order to restrain the smaller competitors in the market, the company sells some of its products at very low prices. This is an example of __________ pricing. A) penetration B) multipoint C) predatory D) experience curve

75)

Dumping occurs whenever a firm sells a product

Version 1

A) for a price that is less than the cost of producing it. B) without paying the necessary regulatory charges. C) for a price that is higher than the market rate. D) by including a premium for the R&D activities of the firm.

76) Many firms pursuing __________ 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. A) a multipoint B) an experience curve C) a predatory D) a competitive

77)

A country can bring antidumping actions against an importer under A) the United Nations. B) the World Bank. C) the IMF. D) GATT.

78) It costs a computer parts manufacturer $175.00 to produce its Model X CPU case. The company currently has excess inventory of the Model X so it is selling it to foreign companies for $80.00 per unit. This company is engaged in A) resale. B) plunging. C) bootlegging. D) dumping.

Version 1

79) The __________ industry is often thought of as one in which global standardization of the marketing mix is the norm. A) financial services B) IT C) telecommunication D) manufacturing

80) If a marketer asks, “Is the demand for the product among customers in the international market segments targeted similar to domestic demands?” then what element of the marketing mix is being addressed? A) product strategy B) pricing strategy C) distribution strategy D) communication strategy

81) __________ involves issues such as (1) translation of questionnaires and reports into appropriate foreign languages and (2) accounting for cultural and environmental differences in data collection. A) Product research B) Communication strategy C) International market research D) Product strategy

82) __________ is an international market research company based in London that works with more than half of the Fortune 500 companies.

Version 1

A) Ipsos B) Nielsen C) NPD Group D) Kantar

83) This step in international market research often relates to the cost of collecting primary data that can address the research problem and objectives directly versus using available secondary data. A) assessing the costs and benefits of the research B) collecting the data C) defining the research objectives D) determining the data sources

84) Other things being equal, the rate of new-product development seems to be greater in countries where A) less money is spent on basic and applied R&D. B) consumers are affluent. C) underlying demand is weak. D) competition is mild.

85) Tight cross-functional integration between R&D, production, and marketing can help a company to ensure that A) time to market is maximized. B) development costs are not a consideration in developing the best product. C) new products are designed for ease of manufacture. D) product development projects are driven by internal needs.

Version 1

86)

What is an advantage of establishing cross-functional product development teams? A) It reduces the need for collaboration within the development team. B) It helps firms reduce the status differences between employees. C) It facilitates integration between different functions in a firm. D) It is one way to achieve cross-functional integration.

87) The increasing pace of __________ has resulted in a dramatic shortening of product life cycles. A) manufacturing B) distribution C) market research D) technological change

88)

New-product development A) results in high returns about 50percent of the time. B) has a high failure rate. C) always earns enormous returns. D) has a low failure rate.

89)

Designing for manufacturing A) decreases product quality. B) increases costs. C) can increase product quality. D) not only increases costs, but also lowers product quality.

Version 1

90) The need to integrate R&D and marketing to adequately commercialize new technologies poses special problems in the international business because A) firms typically have all of their R&D centers in the home country. B) commercialization means that the same version of a new product needs to be produced for all countries. C) firms typically do not have their R&D centers in the same country as their production facilities. D) commercialization may require different versions of a new product to be produced for various countries.

91)

The set of choices the firm offers to its targeted markets is known as the production mix. ⊚ true ⊚ false

92)

Markets can be segmented in only one way—by sociocultural factors. ⊚ true ⊚ false

93)

The structure of market segments may differ significantly from country to country. ⊚ true ⊚ false

94) Firms based in less-developed nations tend to build a lot of extra performance attributes into their products. ⊚ true ⊚ false

Version 1

95) Consumers in the most developed countries are often willing to sacrifice their preferred product attributes for lower-priced products. ⊚ true ⊚ false

96) If a firm manufactures its product in a particular country, it can sell directly to the consumer, to the retailer, or to the wholesaler. The same options are not available to a firm that manufactures outside the country. ⊚ true ⊚ false

97) The four main differences between distribution systems worldwide are retail concentration, channel length, channel exclusivity, and channel quality. ⊚ true ⊚ false

98) In a concentrated retail system, there are many retailers, none of which has a significant share of the market. ⊚ true ⊚ false

99) The more fragmented the retail system, the more expensive it is for a firm to make contact with each individual retailer. ⊚ true ⊚ false

100) The entry of large discount superstores such as Tesco, Carrefour, and Walmart has shortened channel length in some countries. ⊚ true ⊚ false

Version 1

101)

Import agents are typically limited to independent trading houses. ⊚ true ⊚ false

102) Source effects occur when the receiver of the message evaluates the message based on the context of the message. ⊚ true ⊚ false

103) A company that depends on personal selling advertising to communicate its marketing message to potential consumers is using a push strategy. ⊚ true ⊚ false

104)

A push strategy makes sense when distribution channels are short. ⊚ true ⊚ false

105)

In highly developed countries, in the context of communication, noise tends to be low. ⊚ true ⊚ false

106) The longer the distribution channel, the more intermediaries there are that must be persuaded to carry the product for it to reach the consumer. ⊚ true ⊚ false

Version 1

107) In a competitive market, prices have to be higher than in a market where the firm has a monopoly. ⊚ true ⊚ false

108) Elasticity of demand for a product in a given country is determined by income level and competitive conditions. ⊚ true ⊚ false

109) Predatory 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. ⊚ true ⊚ false

110) A multipoint pricing strategy is a competitive weapon used to drive weaker competitors out of a national market. ⊚ true ⊚ false

111) Differences in product and technical standards from country to country would be a reason a business might vary aspects of its marketing mix. ⊚ true ⊚ false

112) “Creative destruction” makes it important for companies to stay on the leading edge of technology. Version 1

⊚ ⊚

true false

113) The rate of new-product development seems to be lesser in countries where more money is spent on basic and applied research and development. ⊚ true ⊚ false

114) Tight cross-functional integration among R&D, production, and marketing maximizes the time to market. ⊚ true ⊚ false

115) For a product development team to function effectively and meet all its development milestones, the team should be composed of at least one member from each key function. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 18_14th Edition 15) A 16) A 17) C 18) A 19) A 20) B 21) B 22) D 23) A 24) B 25) D 26) A 27) B 28) C 29) D 30) A 31) B 32) D 33) A 34) D 35) C 36) D 37) B 38) A 39) A 40) B Version 1

41) C 42) B 43) D 44) C 45) A 46) A 47) D 48) C 49) B 50) B 51) A 52) D 53) C 54) C 55) A 56) D 57) C 58) A 59) A 60) B 61) C 62) D 63) B 64) B 65) B 66) A 67) C 68) A 69) B 70) D Version 1

71) C 72) D 73) A 74) C 75) A 76) B 77) D 78) D 79) A 80) B 81) C 82) D 83) A 84) B 85) C 86) D 87) D 88) B 89) C 90) D 91) FALSE 92) FALSE 93) TRUE 94) FALSE 95) FALSE 96) FALSE 97) TRUE 98) FALSE 99) TRUE 100) TRUE Version 1

101) FALSE 102) FALSE 103) TRUE 104) TRUE 105) FALSE 106) TRUE 107) FALSE 108) TRUE 109) FALSE 110) FALSE 111) TRUE 112) TRUE 113) FALSE 114) FALSE 115) TRUE

Version 1

CHAPTER 19 1)

What is human resource management? Why is HRM an important strategic component?

2) What are the three types of staffing policies in international business? Briefly describe each one. Which is the most attractive approach and why?

3) Why should a firm pursue an ethnocentric approach to staffing? What are the disadvantages of this approach?

Discuss the advantages and disadvantages of a polycentric approach to staffing.

Version 1

5) How can the polycentric approach to staffing result in the creation of a “federation” within the firm? Why is this a disadvantage for the firm?

Discuss the reasons expatriate managers fail to complete their foreign assignment.

7) Discuss Mendenhall and Oddou’s assertion that an executive who performs well in a domestic setting may not adapt to a different cultural setting.

Discuss why the repatriation process is so difficult for so many expatriates.

9) Describe the notion of management development programs as a tool for increasing the overall skill levels of managers. What is the goal of this type of program?

Version 1

10)

How can firms reduce the bias in performance appraisals of expatriate managers?

11) Should a firm pay executives in different countries according to the prevailing standards in each country, or should it equalize pay on a global basis? Defend your answer.

12) What is the most common approach to expatriate pay? Explain this form of compensation. What is the advantage of this approach?

13) Discuss some of the reasons why a diverse workforce will improve performance of a company.

Version 1

14)

Discuss the concerns of organized labor.

15) What are the three actions taken by organized labor to respond to the increased bargaining power of multinationals? How successful have these efforts been?

16) Explain how the wide variation in union structure around the world has been an impediment to cooperation between international companies and various unions.

17) A strong __________, the organization’s norms and value systems, can help a firm to implement its strategy.

Version 1

A) corporate culture B) human resources division C) mission statement D) beliefs systems

18)

What is an advantage of the geocentric staffing policy?

A) It enables the firm to grow its human resources department. B) It enables the firm to build a cadre of international executives who feel at home working in a number of cultures. C) It enables the firm to build a cadre of home-country executives. D) Firms may be better able to create value despite adverse experience curves and poor location economies.

19) Lorelle works in the human resource department for her firm. She is responsible for selecting individuals who have the skills required to do a particular job. Lorelle’s job is part of the firm’s A) retention policy. B) staffing policy. C) deployment policy. D) development policy.

20) A Canadian firm prefers expatriate Canadian managers to head its foreign operations because these managers have been socialized into the firm while employed in Canada. This indicates that the firm

Version 1

A) believes that such managers cannot progress beyond middle-manager positions in their parent company. B) follows an ethnocentric staffing policy to maintain a unified corporate culture. C) is trying to create value by transferring core competencies to a foreign operation. D) requires host-country nationals to be recruited to manage subsidiaries.

21)

In an ethnocentric staffing policy,

A) all key management positions are filled by host-country nationals. B) host-country nationals are recruited to manage subsidiaries. C) all key management positions are filled by parent-country nationals. D) the best people are recruited for key jobs throughout the organization, regardless of nationality.

22)

Cultural myopia refers to a firm’s failure to A) adapt to certain ethnocentric cultures. B) act confidently in host countries. C) understand host-country cultural differences. D) prevent gender discrimination within the firm.

23)

What is the difference between an ethnocentric and a polycentric staffing approach?

A) An ethnocentric staffing approach alleviates cultural myopia, while a polycentric staffing approach can lead to cultural myopia. B) An ethnocentric staffing approach may be more expensive compared to a polycentric staffing approach. C) An ethnocentric staffing approach seeks host-country nationals for all key positions, while a polycentric staffing approach seeks the best people for key jobs regardless of nationality. D) An ethnocentric staffing approach is now used in most international businesses, while the polycentric staffing approach is on the wane.

Version 1

24) If a company recruits host-country nationals to manage subsidiaries while parent-country nationals occupy key positions at corporate headquarters, the firm is following __________ staffing policy. A) a polycentric B) an ethnocentric C) a geocentric D) an internal

25)

What is a drawback of the polycentric approach to staffing?

A) Firms are likely to suffer from cultural myopia. B) Host-country nationals are vulnerable to cultural misunderstandings. C) This approach increases the cost of value creation. D) Host-country nationals have limited opportunities for advancement beyond senior positions in their subsidiary.

26) __________ staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. A) A polycentric B) An ethnocentric C) A geocentric D) A uniform

27)

A polycentric approach may be effective for firms pursuing

Version 1

A) an international strategy. B) a localization strategy. C) a transnational strategy. D) a global standardization strategy.

28)

A firm using a polycentric staffing policy will

A) be less likely to suffer from cultural myopia. B) seek the best people for key jobs throughout the organization, regardless of nationality. C) most likely follow an ethnocentric strategy. D) be likely to have improved communication between host-country managers and parent-country managers.

29)

What is the most important advantage of using a geocentric staffing policy?

A) It enables the firm to build a cadre of international executives who feel at home working in a number of cultures. B) It may be less expensive to implement than other policies, reducing the costs of value creation. C) The higher pay managers on an international fast track enjoy is a source of inspiration within a firm. D) It reduces the need for futile and time-consuming documentation.

30)

An ethnocentric approach to staffing is appropriate for firms that are pursuing A) a localization strategy. B) an international strategy. C) a global standardization strategy. D) a transnational strategy.

Version 1

31) Which staffing approach will be most effective for a firm that is pursuing a transnational strategy? A) a polycentric staffing policy B) an ethnocentric staffing policy C) a geocentric staffing policy D) an internal staffing policy

32)

A geocentric staffing policy

A) requires host-country nationals to be recruited to manage subsidiaries, while parentcountry nationals occupy key positions at corporate headquarters. B) leads to ineffective use of human resources. C) requires extensive documentation. D) is compatible with both international and localization strategy.

33)

An organization’s norms and value systems are known as its A) corporate culture. B) mission statement. C) human resources. D) organizational structure.

34) London Luggage is a British multinational company with operations in 120 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?

Version 1

A) geocentric B) ethnocentric C) eurocentric D) polycentric

35) Novelty Goods, 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 Chicago, Illinois, headquarters, it recruits locals to manage subsidiaries in each country into which Novelty expands. Novelty Goods’ staffing policy is A) geocentric B) eurocentric C) polycentric D) ethnocentric

36) Presser Auto Works, a German auto parts 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 Presser Auto Works’ approach? A) ethnocentric B) polycentric C) eurocentric D) geocentric

37) __________ staffing policy can be expensive to implement because training and relocation costs increase when transferring managers from one country to another. A) A geocentric B) A eurocentric C) A polycentric D) An ethnocentric

Version 1

38)

A polycentric approach to staffing is one in which

A) host-country nationals are recruited to manage subsidiaries while parent-company nationals occupy key positions at corporate headquarters. B) standard psychological tests are used to assess perceptual ability and cultural toughness, when selecting a manager for foreign posting. C) all key management positions are filled by parent-company nationals. D) the best people, regardless of nationality, are recruited to fill key positions throughout the organization.

39)

Broadly speaking, a geocentric approach is compatible with A) an international strategy. B) both global standardization and transnational strategies. C) a localization strategy. D) both an international and a localization strategy.

40)

The ability to understand why people of other countries behave the way they do is A) self-orientation. B) others-orientation. C) perceptual ability. D) cultural toughness.

41) Expatriate managers who lack __________ tend to treat foreign nationals as if they were home-country nationals.

Version 1

A) self-orientation B) cultural toughness C) others-orientation D) perceptual ability

42)

A citizen of Milan who moves to the United States to work at Amazon is A) a host-country national. B) a local. C) an inpatriate. D) an acquired citizen.

43)

Expatriate failure refers to

A) expatriates who follow host-country norms instead of their home-country norms. B) the inability of expatriate managers to treat foreign nationals as if they were homecountry nationals. C) the premature return of an expatriate manager to his or her home country. D) the ethical drawbacks of the ethnocentric staffing approach.

44) In a seminal study, Rosalie Tung found that among American multinationals, the biggest impediment to expatriate success was the A) inability of the partner to adjust. B) manager’s inability to adjust. C) manager’s inability to cope with larger overseas responsibilities. D) lack of adequate technical training.

Version 1

45) In a seminal study, Rosalie Tung found that for Japanese multinationals, the biggest impediment to expatriate success was A) the inability of the partner to adjust. B) inadequate compensation. C) the inability to cope with larger overseas responsibilities. D) the lack of adequate technical training.

46) Mendenhall and Oddou’s “others-orientation” dimension, in their study on what predicts success in foreign jobs postings, refers to the A) expatriate’s self-esteem, self-confidence, and mental well-being. B) expatriate’s ability to interact effectively with host-country nationals. C) expatriate’s ability to understand why people of other countries behave the way they do. D) relationship between the country of the assignment and how well an expatriate adjusts to a particular posting.

47) Which dimension of Mendenhall and Oddou’s study suggests that an expatriate with high self-esteem, self-confidence, and mental well-being is likely to succeed in a foreign job posing? A) self-orientation B) others-orientation C) cultural toughness D) perceptual ability

48) Verlissa was promoted to the international post because she had the ability to empathize with others and understand why people in other countries behave the way they do. Which of Mendenhall and Oddou’s dimensions does Verlissa display?

Version 1

A) others-orientation B) cultural myopia C) perceptual ability D) cultural toughness

49) Mendenhall and Oddou identified cultural toughness as one of the dimensions in their study on dimensions that predict success in foreign jobs postings. This dimension refers to the A) expatriate’s self-esteem, self-confidence, and mental well-being. B) expatriate’s ability to interact effectively with host-country nationals. C) expatriate’s ability to understand why people of other countries behave the way they do. D) relationship between the country of the assignment and how well an expatriate adjusts to a particular posting.

50) In a seminal study, Rosalie Tung found that for managers of European firms, the biggest impediment to expatriate success was the A) manager’s inability to cope with larger overseas responsibilities. B) lack of adequate technical training. C) inability of the partner to adjust. D) manager’s inability to adjust.

51)

Which issue was not addressed by Mendenhall and Oddou’s study? A) expatriate failure due to a partner’s inability to adjust B) expatriate failure due to a manager’s lack of self-esteem C) expatriate failure due to lack of relationship development D) expatriate failure due to a manager’s inability to empathize

Version 1

52)

The premature return of an expatriate manager to his or her home country is known as A) repatriation. B) inpatriation. C) expatriate failure. D) outpatriation.

53)

What is one of the factors that impacts a partner adjusting to expatriation?

A) the inability of the partner to get a job in the foreign country due to poor training and education B) laws against partners freely coming and going from their home in the foreign country C) partners not being welcomed into the expatriate community D) language differences making it difficult for a them to make new friends

54) Abby, 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 Abby demonstrate? A) cultural toughness B) self-orientation C) perceptual ability D) others-orientation

55)

Historically, most international businesses have been

Version 1

A) more concerned with training than with management development. B) focused on smoothly transitioning their home-country nationals back from foreign postings to home postings. C) more concerned with management development than with training. D) less focused on training their home-country nationals for foreign postings than with training home-country managers.

56)

__________ is considered the language of world business. A) Chinese B) English C) Spanish D) Hindi

57) Training can help a manager and partner cope with issues of adjusting to the foreign environment. __________ is aimed at helping the expatriate manager and family ease themselves into day-to-day life in the host country. A) Language training B) Practical training C) Others-orientation training D) Cultural training

58) Firms pursuing __________ strategy increasingly are using management development as a strategic tool. A) a localization B) a global standardization C) a transnational D) an international

Version 1

59) Bringing managers together in one location for extended periods and rotating them through different jobs in several countries helps the firm build A) an expatriate community. B) a formal management network. C) an inpatriate community. D) an informal management network.

60)

Which statement is true regarding management development?

A) Historically, most international businesses have been more concerned with management development than with training. B) Management development facilitates the creation of an informal network for sharing knowledge within the multinational enterprise. C) Management development refers to specific training efforts to prepare home-country nationals for foreign postings. D) Typically, management development programs use standard psychological tests to select managers for specific foreign postings.

61) Edwin accepted a position his firm offered him to move and work in China. The firm provided Edwin and his family information on how to enroll their children in school, where to shop for groceries, and referrals for medical and dental care. What kind of training did they receive? A) cognitive B) cultural C) language D) practical

62)

Management development programs aim to

Version 1

A) facilitate an ethnocentric approach to staffing. B) reduce job rotations of managers. C) build a formal management network. D) build a unifying corporate culture.

63) Bringing managers together in one location for extended periods and rotating them through different jobs in several countries is a part of A) the ethnocentric approach. B) the global standardization strategy. C) cultural toughness programs. D) management development programs.

64) __________ makes it difficult to evaluate the performance of expatriate managers objectively. A) Unintentional bias B) Lack of proximity C) Intentional bias D) Inadequate hard data

65)

When evaluating expatriates, home-country managers usually rely on A) the manager’s ability to develop cross-cultural awareness. B) hard data such as market share. C) the ability of the expatriate to work with local managers. D) a set of subjective criteria such as interpersonal skills.

Version 1

66) What should be done in order to reduce bias in the performance appraisal process for expatriates? A) More weight should be given to an off-site manager’s appraisal than to an on-site manager’s appraisal. B) The on-site manager should be of a different nationality than the expatriate manager. C) Home-office managers should be consulted before an on-site manager completes a formal termination evaluation. D) A former expatriate who served in the same location as a current expatriate should not be allowed to participate in the appraisal.

67) If a firm is serious about building an __________, it may have to pay its international executives the same basic salary irrespective of their country of origin or assignment. A) expatriate community B) international cadre C) inpatriate community D) international corps

68)

An expatriate’s base salary typically A) varies from the base salary for a similar position in the home country. B) is paid half in the home-country currency and half in the local currency. C) is in the same range as the base salary for a similar position in the home country. D) is paid in Eurocurrency.

69)

When a reciprocal tax treaty is not in force, the firm typically

Version 1

A) pays the difference the higher income tax rate makes on the expatriates’ take-home pay into a 401k plan. B) pays the expatriate’s income tax in the home country. C) reduces the expatriate’s take-home pay to cover the difference in tax rates. D) pays the expatriate’s income tax in the host country.

70)

What is the most common approach to expatriate pay? A) balance sheet approach B) net-to-net approach C) host-country approach D) cost-based approach

71)

A foreign service premium is A) paid when the expatriate is being sent to a difficult location. B) the extra pay that an expatriate receives for working outside his or her country of

origin. C) normally given to ensure that the expatriate can afford the same quality of housing in the foreign country as at home. D) paid to ensure that the expatriate enjoys the same standard of living in the foreign posting as at home.

72)

A hardship allowance is paid

Version 1

A) when the expatriate is being sent to a location where basic amenities are grossly deficient by the standards of the expatriate’s home country. B) to ensure that an expatriate’s children receive adequate schooling (by home-country standards). C) to ensure that the expatriate will enjoy the same standard of living in the foreign posting as at home. D) to ensure that the expatriate can afford the same quality of housing in the foreign country as at home.

73) A __________ may be paid to ensure that the expatriate enjoys the same standard of living in the foreign location as at home. A) housing allowance B) hardship allowance C) cost-of-living allowance D) differential allowance

74) A __________ may be paid to ensure that the expatriate can afford the same quality of housing in the foreign country as in the home country. A) cost-of-living allowance B) hardship allowance C) housing allowance D) differential allowance

75)

What is a concern of organized labor regarding multinational firms?

Version 1

A) A company can counter a union’s bargaining power with the power to move production to another country. B) An international business will keep low-skilled tasks in its home country and farm out only highly skilled tasks to foreign plants. C) An international business can attempt to import employment practices and contractual agreements from its host country. D) A multinational company is more likely to receive government support in the case of hostile labor relations.

76) An action taken by organized labor to respond to the increased bargaining power of multinational corporations is to A) try to establish international labor organizations. B) increase competition between national unions. C) lobby the European Union for legislation to restrict multinationals. D) try to achieve international regulations on multinationals through such organizations as the United Nations.

77)

What was the long-term goal of international trade secretariats (ITSs)? A) to increase the competition between national unions B) to be able to bargain transnationally with multinational firms C) to accommodate wide variation in union structure D) to be able to regulate multinationals with regard to labor policies

78) The international trade secretariats (ITSs) have had virtually no real success. Which is a cause of the ITSs’ ineffectiveness?

Version 1

A) National unions compete with each other to attract investment from international businesses. B) The structure and ideology of unions tend to be very similar from country to country. C) Organized labor has had overwhelming success in its efforts to get national and international bodies to regulate multinationals. D) The codes of conduct developed by International Labor Organization and the Organization for Economic Cooperation and Development prevented the ITSs from exercising absolute power.

79)

Which statement is true regarding approaches to labor relations?

A) International businesses use mostly similar approaches to international labor relations. B) The trend is toward greater decentralized control of international labor relations. C) Historically, most international businesses have centralized the labor relations function. D) Many firms are now using the threat to move production to another country in their negotiations with unions.

80)

Unions’ bargaining power is A) largely derived from their ability to threaten to disrupt production. B) rooted in their government backing. C) largely derived from their ability to control corporate managers. D) rooted in their financial resources.

81)

Trade unions around the world A) developed simultaneously and in coordination with each other. B) are widely varied in their structure. C) have virtually the same ideology. D) employ the same union structure.

Version 1

82) From a strategic perspective, the key issue in international labor relations is the degree to which organized labor can A) improve the profitability of the company. B) enhance the choices of an international business. C) increase the integration and consolidation of global operations. D) limit the choices of an international business.

83) An expatriate manager is a citizen of one country who is working abroad in one of the firm’s subsidiaries. ⊚ true ⊚ false

84)

HRM professionals have a critically important strategic role. ⊚ true ⊚ false

85)

The most attractive staffing policy is the geocentric approach. ⊚ true ⊚ false

86) Cultural myopia refers to a firm’s failure to understand host-country cultural differences that require different approaches to marketing and management. ⊚ true ⊚ false

Version 1

87) In the case of an ethnocentric approach, it is possible that managers may make decisions that are ethically suspect because they do not understand the culture in which they are managing. ⊚ true ⊚ false

88) A firm that adopts a polycentric approach to staffing is likely to suffer from cultural myopia. ⊚ true ⊚ false

89) Firms may choose an ethnocentric approach to staffing as opposed to a polycentric approach because of the cost savings it promotes. ⊚ true ⊚ false

90)

A geocentric approach tends to weaken local responsiveness. ⊚ true ⊚ false

91) The geocentric approach is the most popular because it is the least expensive to implement. ⊚ true ⊚ false

92) A citizen of Taiwan who moves to the United States to work at Google would be classified as an inpatriate. ⊚ true ⊚ false

Version 1

93) Expatriate failure refers to the premature return of an expatriate manager to the home country. ⊚ true ⊚ false

94) In a seminal study, Rosalie Tung revealed that for European firms, the top reason for expatriate failure was the inability of the manager to cope with larger overseas responsibilities. ⊚ true ⊚ false

95) If an executive performs well in a domestic setting, then the executive will be able to easily adapt to managing in a different cultural setting. ⊚ true ⊚ false

96)

An expatriate needs to have language fluency to show willingness to communicate. ⊚ true ⊚ false

97) According to Mendenhall and Oddou, poorly adjusted expatriates tend to be nonjudgmental and nonevaluative in interpreting the behavior of host-country nationals. ⊚ true ⊚ false

98) Cultural toughness refers to the relationship between the country of assignment and how well an expatriate adjusts to a particular posting.

Version 1

⊚ ⊚

true false

99) A manager might be sent on several foreign postings over a number of years to build his or her cross-cultural sensitivity and experience as part of a management development program. ⊚ true ⊚ false

100)

Selection is the first step in matching a manager with a job. ⊚ true ⊚ false

101) Historically, most international businesses have been more concerned with training than with management development, focusing on preparing home-country nationals for foreign postings. ⊚ true ⊚ false

102) Most managers believe that knowledge of a foreign language is necessary to succeed in an international posting. ⊚ true ⊚ false

103) Where an expatriate community exists, firms often devote less effort to ensuring that the new expatriate family is quickly integrated into that group. ⊚ true ⊚ false

Version 1

104)

A firm’s performance appraisal systems are an important element of its control systems. ⊚ true ⊚ false

105) Most expatriates believe that more weight should be given to an off-site manager’s appraisal than to an on-site manager’s appraisal. ⊚ true ⊚ false

106) In polycentric firms, the lack of managers’ mobility among national operations implies that pay can and should be kept country specific. ⊚ true ⊚ false

107)

Base pay in most firms is set with regard to global market conditions. ⊚ true ⊚ false

108) 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. ⊚ true ⊚ false

109) Labor unions generally prefer it if an international business keeps highly skilled tasks in its home country and farms out only low-skilled tasks to foreign plants. ⊚ true ⊚ false

Version 1

110) Union influence in the auto industry is increasing in part due to Japanese carmakers building autos in the United States. ⊚ true ⊚ false

111) The international trade secretariats, established in the 1960s, have had tremendous success. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 19_14th Edition 17) A 18) B 19) B 20) B 21) C 22) C 23) B 24) A 25) D 26) C 27) B 28) A 29) A 30) B 31) C 32) C 33) A 34) B 35) C 36) D 37) A 38) A 39) B 40) C 41) D 42) C Version 1

43) C 44) A 45) C 46) B 47) A 48) C 49) D 50) C 51) A 52) C 53) D 54) A 55) A 56) B 57) B 58) C 59) D 60) B 61) D 62) D 63) D 64) A 65) B 66) C 67) B 68) C 69) D 70) A 71) B 72) A Version 1

73) C 74) C 75) A 76) A 77) B 78) A 79) D 80) A 81) B 82) D 83) TRUE 84) TRUE 85) FALSE 86) TRUE 87) TRUE 88) FALSE 89) FALSE 90) FALSE 91) FALSE 92) TRUE 93) TRUE 94) FALSE 95) FALSE 96) FALSE 97) FALSE 98) TRUE 99) TRUE 100) TRUE 101) TRUE 102) FALSE Version 1

103) FALSE 104) TRUE 105) FALSE 106) TRUE 107) FALSE 108) TRUE 109) FALSE 110) FALSE 111) FALSE

Version 1

CHAPTER 20 1)

Describe the importance of accounting information in business.

2) Identify a key accounting problem that international businesses are confronted with but that does not confront purely domestic businesses. Substantiate with a suitable example.

3) How is a country’s accounting system affected by the providers of capital? Explain with the help of suitable examples.

Briefly differentiate accounting standards and auditing standards.

Version 1

What are the shortcomings of IASB?

What are the main steps in the control process of a typical firm?

7) Describe the three exchange rates that can be used to translate foreign currencies into the corporate currency in setting budgets and in the subsequent tracking of performance that Lessard and Lorange pointed out.

Explain the concept of transfer pricing.

9) Explain why the evaluation of a subsidiary should be kept separate from the evaluation of its manager.

Version 1

10)

Describe three factors that complicate the process of an international business.

11)

Describe the problem of blocked earnings.

12)

What are the considerations when seeking external financing for international business?

13)

Define tax credit and tax treaty.

Version 1

14)

What are the advantages of using royalties and fees to move money across borders?

15) What term describes the means by which firms use information to communicate their financial position to the providers of capital, enabling them to assess the value of their investments and make decisions about future resource allocations? A) accounting B) finance C) investment D) reporting

16)

What is an accounting problem that only international businesses face? A) lack of consistency in the accounting standards B) inaccurate filing of profit-and-loss statements C) false reporting of income to the government D) lack of a dedicated accounting function within the firm

17) In countries such as the United States and the United Kingdom, firms typically raised capital by

Version 1

A) obtaining funding from the government. B) borrowing money from national banks. C) issuing stock or bonds to investors. D) borrowing money from international banks.

18)

Historically, financial reports prepared by firms in Germany A) reveal less information than reports of British or U.S. firms. B) contain detailed information required by individual investors. C) overvalued assets and undervalued liabilities. D) made more public disclosures compared to firms in other countries.

19)

In which country did banks emerge as the main providers of capital to enterprises? A) the United States B) the United Kingdom C) the Philippines D) Switzerland

20)

Accounting standards are A) rules for preparing financial statements. B) the levels of tax payments needed. C) the rules for performing an audit. D) the technical process of balancing accounts.

21) Namrata is gathering evidence to determine if the firm’s financial accounts conform to required accounting standards. In what activity is Namrata engaged?

Version 1

A) banking B) auditing C) reporting D) finance

22) Transnational financing occurs when a firm based in one country enters another country to raise capital A) by borrowing from financial institutions. B) from the sale of stocks or bonds. C) by borrowing from banks. D) through exchange policies of governments.

23) Three sets of related decisions are involved in financial management in an international business. Which of these involves making decisions about how to fund the chosen activities? A) investment decisions B) financing decisions C) bilateral decisions D) money management decisions

24) Peeta is a financial manager for her firm. She is responsible for making decisions about how to manage the firm’s financial resources most efficiently. Peeta is involved in A) multilateral decisions. B) financing decisions. C) investment decisions. D) money management decisions.

Version 1

25) A Romanian firm raising capital by selling stock through the Luxembourg Stock Exchange is an example of A) transnational financing. B) service exporting. C) indirect financing. D) transnational investment.

26) Financial management in an international business includes three sets of related decisions. Which of these involves making decisions about what activities to finance? A) investment decisions B) money management decisions C) multilateral decisions D) financing decisions

27) Which agency was formed in March 2001 to replace the International Accounting Standards Committee (IASC)? A) U.S. Securities and Exchange Commission B) International Accounting Standards Board C) Office of Economic Analysis D) Financial Accounting Standards Board

28) The __________ has 13 board members who are responsible for the formulation of new international financial reporting standards. A) U.S. Securities and Exchange Commission B) International Accounting Standards Board C) Office of Economic Analysis D) Financial Accounting Standards Board

Version 1

29)

Compliance to IASB standards is A) mandatory for countries that want to engage in international trade. B) enforced through the World Trade Organization. C) voluntary. D) enforced through the United Nations.

30)

The International Accounting Standards Board A) can issue a new accounting standard if the majority of the board members agree. B) was formed to replace the Financial Accounting Standards Board. C) develops standards but has no power to enforce the standards. D) was formed to supervise the accounting practices that U.S. firms follow.

31) The __________ writes the generally accepted accounting principles (GAAP) that govern the preparation of U.S. firms’ financial statements. A) U.S. Securities and Exchange Commission B) Office of Economic Analysis C) International Accounting Standards Board D) Financial Accounting Standards Board

32)

The __________ is the main instrument of financial control in an organization. A) chief financial officer B) corporate accounting C) audit D) budget

Version 1

33)

A Denmark subsidiary of a U.S. firm will usually prepare its budgets in A) U.S. dollars. B) euros. C) a third-party currency. D) Deutsche marks.

34) The projected rate will typically be the __________ as determined by the foreign exchange market when firms use the projected spot exchange rate to translate both the budget and performance figures into the corporate currency. A) transfer price B) forward exchange rate C) carrying cost D) foreign exchange rate

35) The price at which goods and services are transferred between subsidiary companies in a multinational firm is referred to as A) minimum retail price. B) deferral price. C) transfer price. D) transaction price.

36) Most international businesses require all budgets and performance data within the firm to be expressed in the “corporate currency,” which is normally

Version 1

A) a common currency such as the U.S. dollar. B) the home currency. C) a foreign currency. D) the currency of the country where products are sold.

37) According to Lessard and Lorange, the __________ rate refers to the spot exchange rate when the budget is adopted. A) ending B) initial C) ideal D) projected

38) According to Lessard and Lorange, the __________ rate is the spot exchange rate forecast for the end of the budget period. A) projected B) initial C) ideal D) ending

39)

According to Lessard and Lorange, the ending rate is the spot exchange rate A) forecast for the end of the budget period. B) when the budget is adopted. C) when no formal exchange rate exists. D) when the budget and performance are being compared.

Version 1

40) Of the five combinations, Lessard and Lorange recommend that firms use the __________ spot exchange rate to translate both the budget and performance figures into the corporate currency. A) ending B) initial C) final D) projected

41) When using the projected spot exchange rate to translate both the budget and performance figures into the corporate currency, the projected rate in such cases will typically be the A) forward exchange rate as determined by the foreign exchange market. B) exchange rate that exists at the start of a project. C) exchange rate when the budget was prepared. D) transfer price that a firm will offer to one or more of its subsidiaries.

42) Lessard and Lorange refer to the company-generated forecast of future spot rates as the __________ rate. A) forward exchange B) internal forward C) initial exchange D) ending exchange

43)

Transfer price refers to the A) price at which goods and services are transferred to a subsidiary. B) price at which the title of products is transferred to a customer. C) price at which a supplier provides raw materials to a firm. D) cost incurred when goods or services are transferred from one place to another.

Version 1

44) What is a disadvantage of comparing managers in different countries only on the basis of return on investment (ROI)? A) The managers are not responsible for increasing the ROI of an organization. B) Managerial actions do not have a significant impact on firms’ profitability. C) Return on investment is not a valid indicator of organizational profitability. D) Environmental factors also contribute to ROI of firms and these factors differ.

45)

Capital budgeting for a foreign project A) begins with an audit of the current cash flows. B) is vastly different from domestic capital budgeting. C) begins with converting all cash flow to Eurocurrency. D) uses the same theoretical framework that domestic capital budgeting uses.

46)

Political risk tends to be A) greater in countries experiencing social unrest or disorder. B) negligible for large multinational companies. C) less in countries experiencing social unrest or disorder. D) a consideration only for companies operating in third world countries.

47)

Extensive empirical studies have shown that

Version 1

A) there is only a short-run relationship between a country’s relative inflation rates and changes in exchange rates; no long-run relationship exists. B) there is a long-run relationship between a country’s relative inflation rates and changes in exchange rates. C) there exists both short-run and long-run relationships between a country’s relative inflation rates and changes in exchange rates. D) a country’s relative inflation rates and changes in exchange rates are not related to each other.

48) U.S.-based Welton Machinery is deciding whether to build its new plant in the United States or engage in foreign direct investment and build the plant in Mexico. To help make a sound decision, the firm will use __________ to quantify the benefits, costs, and risks of such an investment. A) capital budgeting B) an external audit C) transfer pricing D) control system analysis

49)

Which statement is true of the capital budgeting used in international businesses?

A) Capital budgeting does not provide a connection between cash flows to the parent and subsidiaries. B) Its basic framework is vastly different from the framework of domestic capital budgeting. C) Capital budgeting does not consider the cash flows between subsidiaries of a firm. D) It enables top managers to compare different investment alternatives in an objective fashion.

50)

The problem of blocked earnings is not as serious now as it once was because

Version 1

A) fixed exchange rates have become more common. B) governmental intervention in earnings is more frequent. C) there is greater acceptance of free market economics. D) political risk within the economy is very low in modern times.

51)

Critics of adjusting discount rates to reflect a location’s riskiness argue that it A) does not penalize either distant or early cash flows enough. B) penalizes distant cash flows too heavily. C) does not penalize early cash flows enough. D) penalizes early cash flows too heavily.

52)

Which is an observation about the cost of capital? A) The cost of capital is typically higher in the global capital market. B) Domestic capital markets have more liquidity than global markets. C) Local debt financing raises the cost of capital if liquidity is limited. D) A local sale of equity is preferred to global sale by international firms.

53)

Money management decisions attempt to manage the firm’s __________ most efficiently. A) cash flow B) corporate expenses C) working capital D) corporate revenues

54)

Pooling the cash of all the subsidiaries centrally

Version 1

A) lowers the interest rate earned. B) reduces the earning potential for firms. C) increases the interest rate paid. D) increases the earning potential for firms.

55)

Every time a firm changes cash from one currency into another currency it must bear A) a transaction cost. B) a tax. C) a transfer fee. D) an audit.

56) A __________ allows an entity to reduce the taxes paid to the home government by the amount of taxes paid to the foreign government. A) tax amnesty B) tax credit C) waiver D) tax treaty

57) A __________ specifies that parent companies are not taxed on foreign source income until they actually receive a dividend. A) bilateral agreement B) tax credit C) deferral principle D) tax treaty

58)

Money management decisions attempt to manage a firm’s __________ most efficiently.

Version 1

A) equity capital B) fixed costs C) working capital D) equipment costs

59)

By pooling cash resources centrally, firms can A) better handle short-term cash needs of subsidiaries. B) increase liquidity of independent subsidiaries. C) reduce the total size of the cash pool it must hold in liquid accounts. D) avoid government-imposed restrictions on capital flows.

60)

Multilateral netting is used primarily to A) reduce transaction costs between subsidiaries. B) avail tax credit from governments. C) establish a tax treaty among multiple countries. D) reduce the fixed costs of establishing a subsidiary.

61) Suppose a U.S.-based firm has subsidiaries in France. The U.S. and France have set up an agreement stating that U.S. firms doing business in France need not pay tax in France on any earnings from its French subsidiary that are remitted to the United States in the form of dividends. This an example of a A) tax deferral agreement. B) fixed-rate treaty. C) tax treaty. D) free trade agreement.

Version 1

62) A deferral principle specifies that parent companies are not taxed on foreign source income until A) the subsidiary providing income makes some profit. B) they actually receive a dividend. C) they acquire a majority stake in the subsidiary. D) the subsidiary providing income is listed in the United States.

63)

A tax haven is a country A) where companies benefit from establishing fully operating subsidiaries. B) that does not charge local companies for importing products from other countries. C) that does not charge taxes on the purchase or sale of any items. D) with an exceptionally low, or even no, income tax.

64)

Which statement is true of tax havens? A) Firms that export to tax havens get special tax concessions from home governments. B) Firms would require huge capital investments to start business in tax havens. C) Nations such as the United States are widely regarded as tax havens. D) Firms can save taxes by establishing a nonoperating subsidiary in the tax haven.

65)

Most banks charge __________ for moving cash from one location to another. A) a transfer fee B) an internal forward rate C) an accounting service fee D) an audit fee

Version 1

66) __________ is the most common method by which firms transfer funds from foreign subsidiaries to the parent company. A) Issuance of long-term loans B) Payment of annual fee C) Issuance of bonds D) Payment of dividends

67) A __________ is compensation for professional services or expertise supplied to a foreign subsidiary by the parent company or another subsidiary. A) fronting loan B) fee C) royalty D) transfer price

68)

Part of the tax credit benefit that a parent company receives can be lost if the subsidiary’s A) combined tax rate is higher than the parent’s. B) local government views royalties as an expense. C) local tax rates on profits are extremely high. D) managers are controlled directly by the parent.

69) Funds can be moved out of a particular country in which a parent country has set up a subsidiary by A) setting high transfer prices for the goods supplied. B) removing royalties imposed on the subsidiary. C) charging a discounted fee on the subsidiary. D) issuing loans to the subsidiary at discounted rates.

Version 1

70)

What is a disadvantage of pursuing a transfer pricing policy? A) It is not useful in shifting earnings from a high-tax country to a low-tax one. B) Transfer pricing does not treat each subsidiary as a profit center. C) It is not effective when significant currency devaluation is expected. D) A transfer price policy cannot be used to move funds when dividends are restricted.

71) A U.S. firm wishes to loan funds to one of its foreign subsidiaries. To do so, the U.S. firm deposits $500,000 in a London bank. The London bank then lends that same $500,000 to the firm’s subsidiary located in Venice. This is an example of a(n) __________ loan. A) fronting B) equity C) bypass D) security

72)

Firms use fronting loans to A) avoid host-country restrictions on the remittance of funds from a foreign subsidiary. B) implement a cost-based and fair pricing policy across an international business. C) increase the profit center revenue of a subsidiary functioning in another country. D) implement a market-driven and fair pricing policy across an international business.

73) __________ is a term used to describe the mix of techniques used to transfer liquid funds from a foreign subsidiary to the parent company. A) Deferral principle B) Bilateral netting C) Unbundling D) Multilateral netting

Version 1

74)

The age of a foreign subsidiary A) has no influence on payment of dividends. B) indicates the number of capital investment needs; older subsidiaries have higher

needs. C) influences dividend policy in that younger subsidiaries tend to remit a higher proportion of their earnings in dividends to the parent company. D) influences dividend policy in that older subsidiaries tend to remit a higher proportion of their earnings in dividends to the parent company.

75) __________ represent the remuneration paid to the owners of technology, patents, or trade names for the use of the technology or the right to manufacture and/or sell products under patents or trade names. A) Royalties B) Transfer costs C) Fees D) Licensing costs

76) It is common for a parent company to charge its foreign subsidiaries __________ for the technology, patents, or trade names it has transferred to them. A) transfer fees B) royalties C) an internal forward rate D) usage fees

77) Royalties and fees have certain tax advantages over __________, particularly when the corporate tax rate is higher in the host country than in the parent’s home country.

Version 1

A) transaction costs B) deferrals C) dividends D) transfer fees

78)

One of the gains derived by adjusting transfer prices is that the firm can

A) reduce its tax liabilities by using transfer prices to shift earnings from a low-tax country to a high-tax one. B) use transfer prices to move funds out of a country where a significant currency appreciation is expected. C) use transfer prices to move funds from a parent company to the subsidiary (or a tax haven) when financial transfers in the form of dividends are restricted or blocked by host-country government policies. D) transfer prices to reduce the import duties it must pay when an ad valorem tariff is in force—a tariff assessed as a percentage of value.

79) Finance information is the means by which firms communicate their financial position to the providers of capital. ⊚ true ⊚ false

80)

Accounting is shaped by the environment in which it operates. ⊚ true ⊚ false

81)

Accounting standards are rules for preparing financial statements. ⊚ true ⊚ false

Version 1

82) Auditing standards are rules that define the accounting principles and monetary policy of a nation. ⊚ true ⊚ false

83) The standards of U.S. Financial Accounting Standards Board and IASB are vastly different. ⊚ true ⊚ false

84) The IASB is made up of 24 members, and to issue a new standard, 51 percent of them must agree. ⊚ true ⊚ false

85) The IASB has the power to enforce its standards, so it has considerable power in the industry. ⊚ true ⊚ false

86) Most international businesses require all budgets and performance data within the firm to be expressed in the currencies of the countries where its subunits are located. ⊚ true ⊚ false

87) The initial rate, in the Lessard-Lorange model, refers to the spot exchange rate when the budget is adopted.

Version 1

⊚ ⊚

true false

88) The ending rate, in the Lessard-Lorange model, refers to the spot exchange rate forecast for the end of the budget period. ⊚ true ⊚ false

89) Using the ending rate to translate the budget is a valid practice according to the LessardLorange model. ⊚ true ⊚ false

90) Lessard and Lorange recommend that firms use the projected spot exchange rate to translate both the budget and performance figures into the corporate currency, combination PP. ⊚ true ⊚ false

91) Performance of international subsidiaries depends on the transfer price set up by the corporation. ⊚ true ⊚ false

92)

Most subsidiaries of an international business operate in uniform environments. ⊚ true ⊚ false

93)

Evaluation of a subsidiary should be in conjunction with the evaluation of its manager.

Version 1

⊚ ⊚

true false

94) Capital budgeting is the technique financial managers use to try to quantify the benefits, costs, and risks of an investment. ⊚ true ⊚ false

95) The connection between cash flows to the parent and the source of financing must be recognized when performing capital budgeting for an international business. ⊚ true ⊚ false

96) The governments of some countries require or prefer foreign multinationals to finance projects in their country by local debt financing or local sales of equity. ⊚ true ⊚ false

97) By pooling its cash reserves, the firm can reduce the total size of the cash pool it must hold in highly liquid accounts. ⊚ true ⊚ false

98) A firm’s ability to establish a centralized depository that can serve short-term cash needs might be limited by government-imposed restrictions on capital flows across borders. ⊚ true ⊚ false

Version 1

99)

The principles of multilateral netting and bilateral netting are different. ⊚ true ⊚ false

100) A tax treaty between two countries is formed to fix the exchange rates between the two countries. ⊚ true ⊚ false

101) A tax haven is a country that gives income tax exemptions to firms that export all or part of its products. ⊚ true ⊚ false

102) Payment of dividends is an uncommon method of transferring funds from foreign subsidiaries to the parent company. ⊚ true ⊚ false

103) A fee is compensation for professional services or expertise supplied to a foreign subsidiary by the parent company or another subsidiary. ⊚ true ⊚ false

104) Firms cannot use transfer prices to move funds from a subsidiary to the parent company when financial transfers in the form of dividends are blocked by host-country government policies. ⊚ true ⊚ false

Version 1

105) A fronting loan is a loan between a parent and its subsidiary channeled through a financial intermediary. ⊚ true ⊚ false

Version 1

Answer Key Test name: Chap 20_14th Edition 15) A 16) A 17) C 18) A 19) D 20) A 21) B 22) B 23) B 24) D 25) A 26) A 27) B 28) B 29) C 30) C 31) D 32) D 33) A 34) B 35) C 36) B 37) B 38) A 39) D 40) D Version 1

41) A 42) B 43) A 44) D 45) D 46) A 47) B 48) A 49) D 50) C 51) D 52) C 53) C 54) D 55) A 56) B 57) C 58) C 59) C 60) A 61) C 62) B 63) D 64) D 65) A 66) D 67) B 68) A 69) A 70) B Version 1

71) A 72) A 73) C 74) D 75) A 76) B 77) C 78) D 79) FALSE 80) TRUE 81) TRUE 82) FALSE 83) FALSE 84) FALSE 85) FALSE 86) FALSE 87) TRUE 88) FALSE 89) FALSE 90) TRUE 91) TRUE 92) FALSE 93) FALSE 94) TRUE 95) TRUE 96) TRUE 97) TRUE 98) TRUE 99) FALSE 100) FALSE Version 1

101) FALSE 102) FALSE 103) TRUE 104) FALSE 105) TRUE

Version 1