CH 10-11 MGT4230 Simsek, CH12-13 MGT4230 Simsek
The gold standard was adopted by the world's major trading nations by the late _____.
1800s
In 2018, the IMF had ______ members, around ______ of which had some kind of IMF program in place.
189; 40
If the interest rate in country A is 8% and the interest rate in country B is 4%, the international Fisher effect predicts the value of country A's currency will depreciate by ______ against country B's currency.
4%
The most typical joint venture involves a ____ stake in ownership between two companies.
50-50
What three things should a company take into consideration when choosing a strategic alliance partner?
A good partner does not act opportunistically. A good partner helps the firm achieve its strategic goals. A good partner shares the firm's vision for the purpose of the alliance.
Derek told the board that he didn't feel Belleson Corp. would make a good strategic partner because that company had a reputation for confiscating software from partners without giving anything in return. Given this information, which characteristic of a good partner is Alliance Corp. missing?
A good partner is unlikely to try to opportunistically exploit the alliance for its own ends.
What are two ways a company can set up a wholly owned subsidiary in a foreign country?
A greenfield venture Acquire an established firm
Which two features of the IMF Articles of Agreement fostered flexibility in the Bretton Woods agreement?
Adjustable parities IMF lending facilities
What is hyperinflation?
An explosive and seemingly uncontrollable price inflation in which money loses value very rapidly
Which two characteristics help a company get the MOST out of a strategic alliance?
Applying knowledge from the alliance in your own firm Learning from partners
What are two disadvantages of operating a wholly owned subsidiary?
Bearing all the risk Bearing all the cost
Which three sales and marketing functions can help a firm create value?
Brand positioning Consumer assessments Advertising
In 1944, representatives from 44 countries met in ______ to create a new international monetary system.
Bretton Woods
What three activities are examples of processes within a company?
Budgeting Developing a marketing plan Yearly employee review
hat are three advantages of being a first-mover?
Building sales volume Preempting rivals Creating switching costs
Universal needs exist with which two categories of products?
Bulk chemicals, petroleum and steel Personal computers and hand held calculators
If the interest rate in Canada is 6.5% and the interest rate in the US is 4%, the international Fisher effect predicts that
Canada's currency will depreciate by 2.5% against the US dollar.
A firm should follow the transnational strategy when it experiences which two pressures?
Cost reduction Local responsiveness
PPP theory, according to research, seems to predict exchange rate movements best for countries in which two situations?
Countries with underdeveloped capital markets Countries with high inflation rates
What are two advantages of turnkey projects?
Earning greater returns from valuable assets Entering markets where FDI is limited by host government
Which is an example of a major strategic commitment by a company?
Entering a foreign market on a significant scale
Prior to introducing the euro, several member states in the EU operated with fixed exchange rates under the
European Monetary System
What are three ways becoming a multinational company can increase a firm's profitability?
Expand the market for their domestic product Realize location economies Realize greater cost economies
What are three methods companies use for entering foreign markets?
Franchising Joint Ventures Exports
If a service firm's core competency is managerial know-how, which two foreign entry modes make the most sense?
Franchising Joint ventures
What are three disadvantages of exporting?
High transportation can raise price of product Not taking advantage of location economies associated with manufacturing elsewhere Tariff barriers can make exporting uneconomical
Under what two conditions would the Bretton Woods system work?
If the US inflation rate remained low If the US did not have a balance-of-payments deficit
What causes inflation to occur in a country?
Inflation occurs when the money supply in a country out paces the level of production of goods and services.
The policy position of the ______ is that when this institution lends money to countries, it imposes a tight macroeconomic policy that is not always considered appropriate by critics.
International Monetary Fund
What are three ways the human resource function helps create value for a firm?
It can boost the competitive position of the firm. It ensures that people are adequately trained, motivated, and compensated. It ensures the company has the right mix of skilled people.
What are two reasons a business should follow an international strategy?
It does not face pressures to customize a product based on local preferences. It does not face cost pressures.
Imposing a fixed exchange rate affects countries in which two ways?
It imposes monetary discipline and curtails price inflation. It prevents competitive devaluations and brings stability to global trade.
What statement accurately describes the corporate-government relationship and the foreign exchange market?
It is in the best interests of international businesses to promote an international monetary system that minimizes volatile exchange rate movements.
The ______ Agreement revised the IMF's Articles of Agreement and addressed floating exchange rates.
Jamaica
If a firm's core competency is based on technological know-how, a firm generally should NOT use which two entry modes?
Joint venture Licensing
If a firm is determining which foreign entry strategy to use, but is concerned with maintaining control over its proprietary technology, which two entry modes should it AVOID?
Licensing Joint ventures
What are three disadvantages to licensing for the licensor?
Licensing limits the ability to coordinate strategic moves across several countries. A licensor does not have control over manufacturing, marketing and strategy. A licensor can lose control over its technology by licensing it.
Organizational structure incorporates what three things?
Location of decision-making responsibilities within the structure Integrating mechanisms to coordinate subunit activities Formal division of organization into subunits
The most important foreign exchange trading center is ______ with 37% of the activity.
London
The five most important foreign exchange trading centers in terms of level of activity are
London, New York, Zurich, Tokyo and Singapore.
What are three advantages of a joint venture?
Lowers risk of adverse government response Local partner's knowledge of the host country Shared development costs and risks
The unpredictability of exchange rate movements in the post-Bretton Woods era has resulted in which two issues?
Made international business planning difficult Added risk to exporting and importing
Most economic theories of exchange rate movements agree that three factors have an impact on future exchange rate movements in a country's currency. These factors include:
Market psychology The country's interest rate The country's price inflation
Identify the initiative under which the United States lent money directly to countries in Europe to rebuild after World War II.
Marshall Plan
What are two disadvantages of joint ventures?
Not having tight control over a local partner to realize experience curve or location economies Giving up control of technology to the host country partner
What are two advantages of exporting?
Not having to establish manufacturing operations in host country Helps a firm achieve experience curve and location economies
Which three elements elements must all be consistent with each other for superior organizational performance to be attained?
Operations Strategy Market conditions
What three things are included in a company's infrastructure?
Organization structure Culture Control systems
The success of an alliance is a function of which three factors?
Partner selection Alliance management Alliance structure
What are three examples of intangible property?
Patents Designs Copyrights
According to the basic strategy paradigm, what three things must a firm do to maximize profitability?
Pick a position on the efficiency frontier where there is enough demand to support the choice. Make sure the firm has the right organization structure in place to execute its strategy. Configure internal operations so they support the position selected on the efficiency frontier.
What are two reasons a firm would choose NOT to enter a new market on a large scale?
Prefer to enter slowly so they can become more familiar with the market May not have the resources available to commit to a large scale
Which two functions are considered primary activities?
R&D Customer service
Which two functions are considered primary activities?
R&D customer service
What are three moderately decent predictors of long-term changes in exchange rates?
Relative inflation rates Nominal interest rate differentials Relative monetary growth
What are three disadvantages of greenfield ventures?
Risky to establish Preemption by other competitors Slower to establish
What are three ways a company can achieve economies of scale?
Serving global markets Spreading fixed costs over a large volume Bargaining purchasing costs
Which statement about customer tastes and preferences in the global marketplace is accurate?
Significant differences in consumer preferences still exist across nations and regions.
According to the text, which three characteristics are important to consider when determining the long-run economic benefits of doing business in another country?
Size of the market Future wealth of consumers Purchasing power of consumers
What are three advantages of a wholly owned subsidiary?
The firm has tight control over foreign operations. The firm may realize location and experience curve economies. The firm has tight control over foreign operations.
Which three statements are TRUE about franchising?
The franchisee commits to abiding by strict rules on how it does business. The franchiser typically receives a royalty payment. It is similar to a license but with a longer time commitment.
The balance of trade is the difference between the monetary value of a nation's exports and imports over a certain period. What occurs when a balance-of-trade equilibrium exists?
The income residents earn from exports equals the money its residents pay to other countries for imports.
What are considered the two most prominent features of the foreign exchange market?
The market never sleeps. The trading centers are integrated.
What three things must be in place to achieve superior performance within a company?
The organization's strategy must make sense given market conditions. The organization's architecture must match the operations and strategy of the firm. The operations of a firm must be configured to support the strategy of the firm.
Henry's company decided to introduce a line of winter clothing to its product mix available in South Africa. One year later, the line was removed, since it failed to sell. What was the MOST LIKELY reason this product failed to sell in South Africa?
The products were not suitable for the market
The three main disadvantages of turnkey projects include:
There is no long-term interest in the foreign country. They may lose the competitive advantage of their process technology. They may create competitors.
Firms engage in strategic alliances for what three reasons?
To share fixed costs of developing new products To bring together complementary skills To facilitate entry into a foreign market
What three factors help a company determine which entry mode is most appropriate?
Trade barriers Transportation costs Firm strategy
Under the currency board system used in Hong Kong, the country's currency must be fully backed by the ______ at the specified exchange rate.
US dollar
Which currency contributed to the collapse of the fixed rate exchange system established at Bretton Woods since it was the only one that could be converted into gold?
US dollar
What are two situations when a localization strategy is best utilized?
When cost pressures are not intense When there are large differences across nations in tastes and preferences
What three basic decisions must firms evaluate when considering foreign expansion?
When to enter markets Which markets to enter On what scale to enter markets
In the 1950s, the ______ concentrated on lending money for public sector projects in third world countries.
World Bank
What financial institution was tasked with assisting in rebuilding Europe after World War II, but ended up helping third-world countries with public sector projects?
World Bank
Which institution was established at Bretton Woods in order to promote general economic development?
World Bank
What two multinational institutions were established at Bretton Woods?
World Bank International Monetary Fund
Borrowing in a currency from a country with low interest rates and then investing in another currency where interest rates are high is called ______.
a carry trade
PPP theory predicts that changes in relative prices will result in
a change in exchange rates
In 1971, the OPEC oil crisis increased the inflation rate in the US, which led to negative effects on the country's trade position and
a decline in the value of the dollar
According to PPP theory, a country with a high inflation rate will see ______ in its currency exchange rate.
a depreciation
Production and marketing responsibilities are typically delegated to _____ when customer preferences create a strong pressure for local responsiveness.
a firm's foreign subsidiary
Harrison Freight Inc. felt it was important to release their newest product to the European market before everyone else so they could establish their brand before their competition did. The company wants to benefit from _____.
a first-mover advantage
When determining whether or not to engage in a business in a foreign country, analysts should consider that future economic growth rates within any country are a function of both ______ and ______.
a free market system a country's capacity for growth
A company that enters a country where there are no existing competitors may have to rely on ______ as the only mode of entry.
a greenfield venture
If a firm is highly concerned about choosing a politically acceptable entry mode, the firm should choose
a joint venture
An example of ______ is when banks lend too much money to over-extended companies, expecting bail-out help from their government.
a moral hazard
A currency crisis occurs when
a speculative attack on the currency exchange value creates a sharp depreciation in the value of currency
After developing a computer locking system, Caffrey Computer Corp. worked out a licensing deal with Chicago Desktop (a potential competitor) to sell the lock with every computer. This agreement is an example of _____.
a strategic alliance
What type of company is best-suited for contracting out manufacturing in an effort to reduce economic exposure as the result of exchange rate movements?
a textile firm
The foreign entry mode that is the most costly, with firms bearing the full capital costs and risks of operating overseas, is ______.
a wholly owned subsidiary
Because the IMF does NOT have oversight over its decisions, a criticism of this institution is that it lacks
accountability
Bob's Bicycle Company is planning to enter into foreign markets where there are already well-established incumbent enterprises and in which global competitors are also interested in establishing a presence. Based on these circumstances, Bob's Bicycle Company should enter the foreign markets via ______.
acquisition
Prior to purchasing a foreign company, it is imperative that the potential buyer screens the financial position and management culture of the foreign company and obtains a detailed audit of operations. These are all vital steps in the ______ strategy.
acquisition
When a company decides that it will take too long to establish a sizable presence in a country, it will likely use ______ to enter the country.
an acquisition
With a deteriorating balance-of-payments occurring between 1980 and 1985, the US dollar displayed _____.
an unexpected rise
If the demand for the yen outstrips its availability and if the supply of the dollar outweighs the demand, the yen will _____ against the dollar.
appreciate
A lag strategy occurs when a firm attempts to delay the collection of foreign currency receivables when a currency is expected to ______ and delay foreign currency payables when a currency is expected to ______.
appreciate; depreciate
Buying a currency low and immediately selling it high to make a profit from the price discrepancy is called _____.
arbitrage
The New York yen/dollar exchange rate was Y125=$1. Through ______, a dealer can make a profit on this currency transaction by buying it low and selling it high.
arbitrage
The totality of a firm's organization is referred to as organization _____.
architecture
Companies that follow a global standardization strategy
avoid customizing their products
The ______ equilibrium for all nations was achieved by the gold standard.
balance-of-trade
Expectations becoming a self-fulfilling prophecy when currency traders move in the same direction at the same time is called the ______ effect.
bandwagon
A ______ crisis occurs when businesses and people lose confidence in their financial institutions and withdraw their deposits.
banking
When news reports indicated a massive stock market crash, many individuals went directly to the bank and withdrew their savings because they weren't confident in the financial system. This response is an example of a(n) _____ crisis.
banking
According to the Fisher effect, if the real interest rate in country #1 is 8% and it is 5% in country #2, an investor would take advantage of this by
borrowing from #2 and investing in #1
Since the 1970s, developed countries like Great Britain and the US have tended to finance their deficits by
borrowing private money
Which statement regarding the gold standard is accurate?
by the start of World War II, the gold standard was dead
What are two disadvantages of small-scale entry?
difficult to capture first-mover advantages difficult to build market share
A currency can be determined by market forces, yet managed in the sense that -- if it depreciates too rapidly -- the government will step in. This is known as a ______ system.
dirty-float
When a government intervenes in the currency market to limit volatility of its currency, a(n) ______ system exists.
dirty-float
In a forward exchange transaction, $1 buys more lira with a spot exchange than with a 30-day forward exchange. When this occurred, it is said that the dollar is selling at a _____ on the 30-day forward market.
discount
When a dominant enterprise is able to set different prices in different markets to reflect varying demand conditions, it is practicing price ______.
discrimination
One way a company can successfully hedge against currency fluctuations is to
disperse production to different locations around the world
What is the key way a company can reduce economic exposure?
distribute production facilities and assets to various locations
In the fixed rate system that existed before 1973, the ______ was the key currency.
dollar
Most foreign exchange transactions involve the _____ on one side.
dollar
Rank the vehicle currencies based on their level of use. Place the currency with the greatest use at the top of the list and each subsequently-used currency below that.
dollar euro yen pound
If high inflation causes the devaluation of a country's currency, it may opt to abandon that currency and adopt US currency. This process is called _____.
dollarization
What policy did the country of Ecuador adopt in 2000 when hyperinflation caused the value of its currency to plummet?
dollarization
What is the term used for when one company enters markets before its competitors?
early entry
Company A is based in Europe and does a large amount of business in the US. The company fears that the euro will gain in strength against the dollar, so it sets up a local production facility in the United States. This is a way to reduce ______ exposure.
economic
The extent to which a firm's future international earning power will be affected by exchange rate changes is called ______ exposure.
economic
While many companies focus on reducing transaction and translation exposure when managing foreign exchange risk, very few companies pay attention to _____ exposure.
economic
If a business wants lower costs and less risk when doing business in a foreign country, it should consider those countries that are
economically advanced
When more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs,______ has/have been achieved.
economies of scale
Critics of strategic alliances argue that they
effectively "hollow out" firms leaving them without a competitive advantage.
The ______ is the name given to all of the different positions a firm can adopt regarding adding value and lowering the cost of a product.
efficiency frontier
An economist who believes that the foreign exchange market is effective at setting forward rates is a part of the _____ market school.
efficient
If the foreign exchange market is _____, forward exchange rates should be _____ predictors of future spot rates.
efficient; unbiased
In what two ways can location economies create value for a firm?
enabling the firm to differentiate its product lowering the cost of value creation and helping firms achieve a low-cost position
A tactic that reduces translation and economic exposure is
entering into forward exchange rate contracts
Exporting, licensing and joint ventures with a host-country firm are examples of ______ for serving global markets.
entry-mode
The rate at which the currency of one country can be converted into that of another country is called the _____ rate.
exchange
The rate of converting one form of currency into another country's usable currency is known as the _____ rate.
exchange
Rita knows that every euro she plans to purchase for her trip is worth 1.30 US dollars. What aspect of currency conversion is Rita considering?
exchange rate
The IMF was initially established to allow members to borrow short term to adjust their balance-of-payments position and maintain their ______.
exchange rate
The international monetary system establishes the rules and regulations that govern ______.
exchange rates
In recent years, the IMF's activities have ______.
expanded
A commodity's production costs tend to decline over time. This is referred to as the ______ curve.
experience
The ______ refers to systematic reductions in production costs that have been observed to occur over the life of a product.
experience curve
Not being able to take advantage of lower-cost locations for manufacturing, dealing with high transport costs, and facing tariff barriers are disadvantages of ______.
exporting
Quick Auto Parts does not want to establish a manufacturing facility in Mexico but does want to get component parts to the 75 dealers it has in that country. Which form of entry should it use?
exporting
As pressures for cost reductions increase, the two most appropriate foreign market entry modes would be
exporting. wholly owned subsidiary.
The extent to which income from individual transactions is affected by fluctuations in foreign exchange values is known as transaction ______.
exposure
A policy of ______ convertibility is in place in some countries and places restrictions on residents' ability to convert domestic currency into a foreign currency.
external
Tonya was surprised to learn that her country limited the amount of currency she could convert to US dollars when she went to America to visit her cousin. This limit is an example of a policy of
external convertibility
A(n) ______ convertible currency allows only nonresidents to convert it into a foreign currency without any limitations.
externally
When only nonresidents can convert a currency into a foreign currency with no limitations, the currency is considered
externally convertible
True or False: A commitment that is strategic has a short-term impact and is easy to reverse.
false
True or False: A localization strategy should be used when there are high pressures for cost reductions and demand for local responsiveness is low.
false
True or False: Distribution channels are consistent across the world and do NOT affect local responsiveness.
false
True or False: Organizational culture has little or no impact on a company's performance.
false
True or False: When foreign exchange traders see a currency that is depreciating, they are most likely to buy.
false
True or false: A balance-of-trade equilibrium exists when the income residents earn from exports exceeds the money residents pay to other countries for imports.
false
True or false: About 25% of IMF member countries have no separate legal tender of their own.
false
True or false: As the pressure to reduce costs increases, a firm will focus on location and experience curve economies. These firms would MOST LIKELY consider franchising and joint ventures entry modes.
false
True or false: Based on the basic strategy paradigm, In order to maximize its profitability, a firm can invest in any of the positions found on the efficiency frontier.
false
True or false: Businesses do not have the ability to influence government policy toward the international monetary system.
false
True or false: Government intervention in the foreign exchange markets does NOT affect the ability of PPP in predicting exchange rate movements.
false
True or false: Greenfield ventures are more risky than acquisitions because there is greater potential for unpleasant surprises.
false
True or false: Like transaction exposure, economic exposure is concerned with the effect of exchange rates changes on individual transactions, most of which are short-term situations.
false
True or false: More companies pay more attention to economic exposure than translation exposure when managing foreign exchange risk.
false
True or false: One argument in favor of a floating rate system, is that under a fixed system, a country's ability to expand or contract the money supply is unlimited.
false
Between 1985 and 1987, the U.S. dollar _____ in value against the Japanese yen and German deutsche mark.
fell
When a company enters a market early, it usually has a(n) _____ advantage.
first-mover
Kettle-Bright Corp. was the first company to introduce electric teapots in South America. The company had to establish production standards and educate customers about the benefits of the product which cost hundreds of thousands of dollars to do. These expenses are examples of _____.
first-mover disadvantages
Pioneering costs are associated with _____.
first-mover disadvantages
A ______ exchange rate is a country's exchange rate regime under which the values of a set of currencies are fixed against each other at some mutually agreed-on exchange rate.
fixed
The world's major industrial nations utilized the ______ exchange rate system after World War II.
fixed
When the values of a set of currencies are set against each other at some mutually-agreed on exchange rate, a _____ exchange rate exists.
fixed
A currency board holds reserves of foreign currency equal to all of the domestic currency at a
fixed rate
A pegged exchange rate means the value of a currency is
fixed relative to a reference currency, such as the US dollar
A company that enters a foreign market on a large scale must consider the lack of _____ associated with significant commitments.
flexibility
A _____ exchange rate system is preferable in an economic crisis like the banking crisis that hit Iceland in 2008.
floating
South Korea's export-led economic recovery from its 1997 banking crisis was possible because of its ______ exchange rate system.
floating
______ exchange rates are determined by market forces; they vary against each other from one day to another.
floating
What are two elements of the Jamaica Agreement?
floating exchange rates were acceptable gold was abandoned as a reserve asset
A(n) _____ crisis occurs when a country cannot repay what they owe to private sector investors of other countries or other governments.
foreign debt
Greece's inability in 2010 to service its foreign debt obligations in either the private sector or government, resulted in a(n) ______ crisis.
foreign debt
Able Appliances needs to convert the pounds it earns from selling products in Great Britain to dollars. What mechanism allows the company to make this conversion?
foreign exchange market
A floating exchange rate exists when the ______ determine(s) the relative value of a currency.
foreign exchange markets
The volatile changes in exchange rates that can negatively affect a an international business are commonly referred to as
foreign exchange risk
In the 1990s, one of the reasons for the appreciation of the US dollar was
foreign investment in US stocks and bonds, which drove up the value of the dollar on foreign exchange.
When selecting a partner for a strategic alliance, a company should gather data from informed third parties such as _____ that dealt with this potential partner.
former employees
The efficient market school believes that the foreign exchange market is efficient at setting ______ exchange rates.
forward
What is the transaction called where two parties agree to exchange currency at some specific date in the future?
forward exchange
When competing globally, firms typically choose from ______ main strategic stances.
four
Who is typically responsible for the costs and risks in a franchise agreement?
franchisee
What are two disadvantages of franchising?
franchiser cannot take profits out of one country to support another lack of quality control
Quiet-Night Hotel Corp. has developments around the globe. Customers expect the same experience in every hotel but that has been a problem as not every hotel follows the expectations set down by the company. Quality control is a significant disadvantage of ______.
franchising
______ involves one firm selling intangible property to another firm and insisting that the receiver of the intangible property abides by strict rules on how it does business.
franchising
What are three different exchange rate policies in effect today around the world?
free float pegged fixed
Some country's governments do not put any limits on the purchase of foreign currency for residents and nonresidents. These country's have a _____ currency.
freely convertible
When a country allows both residents and nonresidents to purchase unlimited amounts of a foreign currency, the country's currency is
freely convertible
In an efficient market, prices are said to
fully reflect all available information
The method of forecasting that draws on economic theory to construct sophisticated models is called the ______ approach.
fundamental
Which approach to forecasting draws on economic theory to develop models that predict exchange rate movements?
fundamental
Forward exchange rates are exchange rates that govern _____ transactions.
future
Henri works for a company that makes pasta to be sold in grocery stores. The company prefers to market the same product worldwide in order to take advantage of economies of scale and learning effects. It also prices its pasta aggressively. Which strategy is this company using?
global standardization strategy
What are the main strategic postures that firms can use when competing globally?
global standardization strategy transnational strategy international strategy localization strategy
In-Touch Corp. develops cell phones. The case is made in the US, the processor in Japan, and the adapter in Cambodia. In-Touch Corp. disperses its value chain to locations around the world which is an example of the
global web
The ______ of value creation activities occurs when different stages of the value chain are preformed in a variety of world-wide locations, based on maximizing value and/or minimizing costs.
global web
In an effort to get all countries to simultaneously revalue against the dollar, President Nixon announced in 1971 that the dollar was no longer convertible into _____.
gold
Under the gold standard, the amount of currency needed to purchase one ounce of gold is referred to as the ______.
gold par value
The strength claimed for the _______ is that it allowed a balance-of-trade equilibrium for all countries.
gold standard
When a country pegs its currency to gold, it is using the _____.
gold standard
According to the text, what two things have been key in determining the value of the dollar since 1973?
government intervention market forces
A fixed rate system can ensure that ______ do not respond to political pressures by expanding the monetary system too quickly and causing inflation.
governments
As noted by Hamel and Prahalad's research, the main reason why Japanese partners gained more from their alliances with American firms was because of the
greater ability of the Japanese partner to learn from the American firm.
A(n) ______ is a form of foreign direct investment where a parent company builds its operations in a foreign country from the ground up. In addition to the construction of new production facilities, these projects can also include the building of new distribution hubs, offices and living quarters.
greenfield strategy
A company that gains entry into a foreign market through ______ has total control over the products or services manufactured or sold.
greenfield venture
Slim-Stuff Yogurt would like to enter into a foreign market and build a production facility. The company knows there are currently no competitors or similar companies currently in that market. Which entry mode would be most appropriate for the company to use?
greenfield venture
Starting a subsidiary from "scratch" where nothing is established is called a(n)
greenfield venture
Which entry mode's major advantage is that a firm has more control over the kind of subsidiary it wants in a foreign market?
greenfield venture
The chief financial officer of Linwell Corp. is concerned that since he can't predict changes in future exchange rates, there could be adverse consequences for the firm. One way the company can insure itself against this possibility is by engaging in _____.
hedging
Entering a large developing nation like China before most other international companies, and entering on a large scale, will be associated with _____ levels of risk.
high
The global standardization strategy is considered inappropriate when demands for local responsiveness remain _____.
high
International firms that strive to be locally responsive will most likely incur _____ costs.
higher
One way to control technology in a joint venture arrangement is for one company to
hold majority ownership
The decision by Bombardier to decentralize manufacturing of its rail cars in Europe is a result of
host-government demands
The ____ hypothesis is demonstrated when the management of an acquiring firm is too optimistic about the value that can be created via an acquisition and is thus willing to pay a significant premium over a target firm's market capitalization.
hubris
Which support function of a company adds value by identifying and recruiting skilled managers, regardless of nationality?
human resources
The start of the demise of the fixed exchange rate system was partly due to the US ______ more than ______.
importing; exporting
Smaller nations prefer pegged rates because these exchange rates
impose monetary discipline and lead to low inflation.
Parva receives a quarterly bonus if her store's sales exceed expectations. This bonus is considered a(n) ______.
incentive
To motivate managerial performance, an organization might use
incentives
The use of currency management instruments such as swaps and the forward market have ______ since 1973.
increased
______ might be one disadvantage on acquisitions.
increased debt
A company that elects to use a differentiation strategy would focus on
increasing the attractiveness of a product
The ______ market school believes that forward exchange rates are NOT the best predictors of future spot exchange rates.
inefficient
Which school of thought on exchange rate forecasting does NOT believe that forward exchange rates are the best predictors of future spot exchange rates?
inefficient
A(n) ______ is based on the theory that prices don't reveal all available information and more is needed to predict future spot exchange rates.
inefficient market
What are the two schools of thought regarding the prediction of future exchange rates?
inefficient market school efficient market school
In the context of the Fisher Effect, different interest rates between countries reflect differing expectations about ______ between those countries.
inflation
The fixed exchange rate is considered a way to control _____.
inflation
When a country's money supply grows faster than the output of goods and services, this causes
inflation
During the 1980s and 1990s, exchange rate movements were not strongly influenced relative to ______ which was contrary to the purchasing power parity theory.
inflation rates
In the context of the Fisher Effect, different interest rates between countries reflect differing expectations about ______ between those countries.
inflation rates
The Fisher effect predicts that there is a strong relationship between ______ and interest rates.
inflation rates
The failure to find a link between which two of the following conditions has been referred to as the purchasing power parity puzzle?
inflation rates exchange rates
A(n) ______ system is any organized electronic system for the collection, organization, storage and communication of information.
information
Tri-Lar Engineerings develops electronic systems for managing inventory and tracking sales. Which type of support activity do these systems provide?
information systems
The difference between the 110-volt electrical system used in North America and the 240-volt system used in some European countries is an example of how ______ differences create pressure for local responsiveness.
infrastructure
A swap deal is just like a conventional forward deal in that it
insures against foreign exchange risk
A business is using hedging when it
insures itself against foreign exchange risk
Something of worth that cannot be touched or held, such as a formula, is considered to be ______ property.
intangible
Which term accurately characterizes how the various components of a company's architecture relate to one another?
interdependent
According to the international Fisher effect, there is a relationship between spot exchange rates and _____ between countries.
interest rates
For many years, Xerox had a monopoly on photocopiers. It could sell world-wide with little customization. Xerox was able to use a(n) ______ strategy.
international
When a company takes a product produced for the domestic market and then makes very minor changes to customize the product for global markets, the company is following a(n) ______ strategy.
international
When a firm faces neither low cost pressures nor pressures for local responsiveness, it should follow the ______ strategy.
international
Under the IBRD scheme of lending money by the World Bank, money is raised through _____.
international bond sales
The ______ refers to the institutional arrangements that govern exchange rates.
international monetary system
The goal of Bretton Woods was to design a new ______ that would encourage growth after the war.
international monetary system
One main reason why the IFE is NOT good at explaining short-term exchange rate movements is the impact of ______ in determining the expectations of market traders.
investor psychology
An association of two or more companies engaged in a solitary business enterprise for profit without actual partnership or incorporation is called a(n) ______.
joint venture
At Jackson Electric, the company's core competence is based in the proprietary technology it has developed for kitchen appliances. Which foreign entry mode should Jackson Electric avoid in order to protect this technology?
joint venture
A shared business risk and shared resources and responsibility are both advantages of ______.
joint ventures
A(n) _____ strategy is when a firm attempts to delay the collection of foreign currency receivables when a currency is expected to appreciate and delay foreign currency payables when a currency is expected to depreciate.
lag
A company can achieve economies of scale by spreading fixed costs over a _____ volume.
large
A firm enters a market on a(n) ______ scale when it commits significant resources to this effort.
large
Higher risk and lack of flexibility are drawbacks of _____-scale entry into a foreign market.
large
When entering a global market using a(n) _____-scale entry strategy, a firm may be able to capture first-mover advantages associated with scale economies.
large
Conrad's US based company entered the European market long after its competitors had established themselves. This is known as ________ entry.
late
A(n) _____ strategy is when a firm attempts to collect foreign currency receivables early when a currency is expected to depreciate and pay foreign currency payables before they are due when a currency is expected to appreciate.
lead
Two strategies that can be used to reduce translation and transaction exposure are:
lead strategy lag strategy
As management understands how to more effectively manage an operation, production costs are likely to decrease. These decreased costs are the result of _____.
learning effects
______ refer(s) to the cost savings that result from increased production levels once efficiencies are in place.
learning effects
What two things help explain the experience curve?
learning effects economies of scale
Late entrants to a market can benefit from the pioneering costs associated with early entry. What are two of those benefits?
learning from the mistakes made by early entrants building on existing consumer education about the product
A turnkey project can be _____ risky than conventional foreign direct investment in a country with an unstable political climate.
less
In 1934, the US raised the dollar price of gold by nearly $15 an ounce, implying that the dollar was worth ______.
less
An unstable government in a foreign country would make a company _____ to move its production facilities to that country.
less likely
What are three advantages of acquisitions?
less risky than greenfield ventures preempt the competition quick to execute
McDonald's local franchises in France have begun to offer more elegant seating areas and an upscale menu. This was done in response to slow growth rates in the area. Impressed with the increased sales at these stores, McDonald's executives are considering making these changes elsewhere. In this instance, what aspect of creating value is BEST demonstrated?
leveraging subsidiary skills
Parul believes her company's newest technology product will be quickly imitated by others. When a company's competitive advantage is based on control of proprietary technological know-how, that company should AVOID a(n) ______ arrangement as it might lead to losing control of the technology.
licensing
The benefits of franchising are similar to the benefits of ______.
licensing
Company ABC is unwilling to commit the necessary capital to construct a facility in Malaysia. However, they have determined that they want to enter that market. One option for the company might be a
licensing agreement
Firms that do not have access to the capital necessary to develop overseas operations should engage in a(n)
licensing agreement
Companies that enter into the global marketplace typically face two forms of competitive pressure: cost reductions and _____.
local responsiveness
Marten Electronics Corp. knows it must customize its products for the different markets it serves to accommodate customer tastes and preferences. What type of strategy is this company using?
localization
The best strategy to use when there are substantial taste and preference differences across countries and cost pressures are NOT present is the ______ strategy.
localization
What strategy increases the value of a product in the local market through customization that allows for tastes and preferences in different national or regional markets?
localization
When firms customize their products to meet tastes and preferences for different national markets they are following a(n) ________ strategy.
localization
Which strategy's major disadvantage is not being able to capture cost reductions as a result of customizing the product based on national tastes and preferences?
localization
When competition intensifies, which two strategies because less viable to use?
localization international
Lowering the cost of value creation and allowing a firm to differentiate its products are effects of ______ economies that come from performing an activity in the optimal site.
location
Niagara Energy builds all of its energy plants near large water sources to take advantage of the lower costs associated with hydro-power. This company is using _____ to determine where to build its plants.
location economies
What is the term for the economies that result from a business undertaking a value creation activity in the optimal location?
location economies
Pressures for local responsiveness can impact a company's strategy by decreasing or eliminating the full benefits from what three things?
location economies economies of scale learning effects
Which company function controls the transmission of materials from raw goods to the distribution of the finished product?
logistics
Economic exposure is concerned with _____- term effect of changes in exchange rates on future prices, sales, and costs.
long
According to research, PPP theory is a relatively good predictor of ______ exchange rate movements, but is not as good a predictor of ______ movements.
long-run; short-run
When a country experiences hyperinflation, money _____ value very rapidly.
loses
Contracting out manufacturing in an effort to build strategic flexibility is best suited for _____ value-added manufacturing industries.
low
John's U.S.-based company is considering doing business in London, England. The costs and risks associated with doing business in London are considered _____ because it is economically advanced and politically stable.
low
In order to differentiate itself from the competition, IKEA focuses on increasing the attractiveness of products by lowering costs. This demonstrates IKEA's ______ strategy.
low-cost
What is a benefit of economies of scale?
lowers unit costs and increases profitability
The IMF lends money to nations experiencing financial crisis in return for
macroeconomic policy implementation
Select two ways a firm can create more value.
make product more attractive to consumer lower production costs
Cross-licensing agreements allow firms to do what two things?
make the partner accountable protect technological know-how
When a country does NOT adopt a formal pegged rate, but tries to keep its currency within some range of a reference currency, a(n) ______ system exists.
managed-float
In order to make sure that a foreign enterprise has organizational customs and behaviors that are NOT antagonistic to an acquiring enterprise, it is vital that the acquiring enterprise screen the
management culture
Many service firms base their competitive advantage on
management know-how
Production of physical products, such as refrigerators or trucks, is called
manufacturing
In Britain, pharmaceutical sales adopt a soft-sell approach, while a hard-sell approach is used in the United States. This demonstrates how a company has to adapt its ______ strategy to address the concerns of local responsiveness.
marketing
The advertising department at Shine Shape Products wants to create value for the new line of cleansers by showing customers how they can remove grease better than any other product on the market. Which primary activity function is involved in this scenario?
marketing and sales
A fixed exchange rate discourages competitive devaluations and imposes ______ discipline.
monetary
An argument against a fixed rate system is that this system limits countries' abilities to use ______ policy to expand or contract their economies.
monetary
One argument for a floating exchange rate system is that a country regains control of its ______ policy.
monetary
In response to the 2008-2009 global financial crisis, the IMF has begun to change its focus. It now cautions nations to adopt policies that include fiscal stimulus and
monetary easing
The text suggests that as a way to take control of exchange rate risk, firms should produce _____ foreign exchange reports.
monthly
What is the term used to define the situation where people act without due thought because they believe they will be rescued when things go wrong?
moral hazard
When customer preferences differ significantly between countries, there is _____ pressure for local responsiveness.
more
In 1971, many countries did NOT want to simultaneously revalue the dollar because it would make their products ______ relative to US products.
more expensive
If an American firm has a subsidiary in the EU and the value of the euro depreciates rapidly against the value of the dollar over a year, you would see a reduction in the dollar value of the euro profit made by the European subsidiary. This would result in _____ translation exposure.
negative
Profit growth is defined as the percentage increase in ______ over time.
net profits
A(n) ______ currency is one that neither residents nor nonresidents are allowed to convert into a foreign currency.
nonconvertible
Countertrade is a logical choice when a country's currency is
nonconvertible
When neither residents nor nonresidents are allowed to convert a currency to a foreign currency, the currency is considered
nonconvertible
Identical products sold in different countries must sell for the same price in competitive markets when their price is expressed in terms of the same currency. This is called the law of _____ _____.
one price
The law of ______ is the economic theory that the price of a given security, asset or commodity must have the same price when exchange rates are taken into consideration.
one price
A major criticism of the IMF is that it imposes tight macroeconomic policy on any country it lends money to. This is referred to as a(n) ______ approach.
one-size-fits-all
Which area of a firm includes production, marketing and sales, materials management, R&D, human resources, information systems, and the firm infrastructure?
operations
The theft of technology and/or markets are examples of
opportunistic behavior
In the context of the Fisher Effect, different interest rates between countries reflect differing expectations about ______ between those countries.
opposite
The international Fisher effect states that for any two countries, the spot exchange rate should change in an equal amount, in the _____ direction to the difference in nominal interest rates between the two countries.
opposite
What are two types of intangible property that can be associated with a licensing agreement?
patent trademark
Many smaller nations prefer ______ rates because these exchange rates lead to low inflation.
pegged
When the value of a currency is fixed relative to a reference currency, a ______ exchange rate exists.
pegged
In general, which industry is often subject to a high level of local responsiveness as a result of host government demands?
pharmaceuticals
Costs that companies entering a market early have to pay, but which firms late to the market do not have to bear, are called ______ costs.
pioneering
______ costs arise when the foreign business system is so different from that in the home market that the firm must devote considerable time, effort and expense to learning the rules of the game.
pioneering
As an early entrant into the German market, Jason's company made several significant and expensive mistakes. Jason underestimated the financial liability the company would face as a foreign firm. This liability is an example of
pioneering costs
A transnational strategy is NOT easy to pursue because it ________.
places conflicting demands on the company
If the spot exchange rate is $1 to 110 yen and the 90-day forward rate is $1 to 100 yen, then the yen is selling at a ______ to the dollar in the 90-day forward market.
premium
When $1 buys more lira with a forward exchange than with a spot exchange, it is said that the dollar is selling at a _____ on the 30-day forward market.
premium
What two types of competitive pressures do companies typically face when entering global markets which affect their ability to realize location economies and leverage products?
pressure to reduce costs pressure to be locally responsive
As the text explains, under a fixed exchange rate, if Great Britain rapidly increased its money supply by printing pounds, then this increase in the money supply would lead to ______.
price inflation
When the growth in a country's money supply is faster than the growth in its output of goods, ______ tends to increase.
price inflation
A company's _____ include(s) the design, creation, delivery of a product, and after-sale support and service.
primary activities
A business ______ is the manner in which decisions are made in a company.
process
What are three things included in an organization's architecture?
processes people structure
What are three examples of information systems used to support the value chain?
product pricing inventory management sales tracking
When discussing value creation, a low-cost strategy focuses primarily on lowering ______ costs.
production
Primary activities of the value chain can be divided into four functions, including which two of the following?
production marketing & sales
The rate of return that a business makes on its invested capital determines its ______.
profitability
What are the two main functions of the foreign exchange market?
provide insurance against foreign exchange risk currency conversion
Acquisitions are considered _____ to execute.
quick
______ is the expression of a common sense of identity that shapes collective action within a geographical region.
regionalism
Managing an alliance successfully requires building interpersonal relationships -- otherwise known as ______ -- between the firms' managers.
relational capital
When California Creamery entered into a strategic alliance with Wisconsin's Best, managers from both companies got together to discuss business matters while having an opportunity to get to know each other personally. Taking the time to build interpersonal relationships helps foster ______.
relational capital
The purchasing power parity puzzle is the name given to the failure to find a strong link between exchange rate movements and
relative inflation rates
Nova Industries has created a new product to hold television monitors for commercial applications such as restaurants and airports. Which primary activity would have been involved with this creative process?
research and development
Which primary activity is concerned with the design of products and production processes?
research and development
Profitability of a company can be found by measuring a firm's ______, which is determined by dividing net profits by total invested capital.
return-on-investments
A higher rate of profit growth means a higher rate of ______ for shareholders.
returns
Foreign exchange markets can provide some insurance against volatile changes in exchange rates, which is called foreign exchange _____.
risk
The adverse consequences of unpredictable changes in exchange rates is called foreign exchange _____.
risk
In a licensing deal, the licensor receives payment in the form of ____ from the licensee.
royalties
Critics of floating exchange rates argue that the external value of currency has no effect on the trade balance. They believe that the balance between ______ determines the trade deficit.
savings and investment
Jenner Auto Corp. supplies manufacturing equipment to three major automobile manufacturers. Jenner Auto promises that if its equipment breaks down, it will have the necessary parts to fix it shipped out within 24 hours. This is the core promise supporting its ______ activity which adds value to the company's product.
service
Keeley works for an online clothing retailer and in her role she answers customer inquiries about product shipments and returns. Which primary activity is Keeley involved with?
service
The forward market tends to cover _____ exchange rate changes.
short-term
The impact of psychological factors and investor expectations make it difficult for exchange rate theories to predict ______ changes in exchange rates.
short-term
By 2002, when foreign investors became less interested in US stocks and bonds, the inflow of money into the United States
slowed down
The drawbacks of a _____-sclae entry strategy include the inability to capture first-mover advantages
small
Using a(n) _____-scale entry strategy to enter global markets, a firm can take time to gather information to determine if it should enter the market should on a more significant scale.
small
The strategy that allows firms to take their time to acquire information about a prospective market so they can determine how best to enter the market is
small-scale entry
Advocates of a fixed exchange rate contend that a fixed system will limit the destabilizing effects of
speculation
Currency ______ involves buying, selling and holding currencies in order to make a profit from favorable fluctuations in exchange rates.
speculation
A(n) ______ exchange rate is the price to exchange one currency for another for immediate delivery.
spot
A cooperative agreement between potential or actual competitors is called a _____.
strategic alliance
_____ have been criticized based on the idea that they give competitors a low-cost route to new technology and markets.
strategic alliances
A company would analyze the efficiency frontier in order to determine its
strategic positioning
A(n) ______ is a method or plan a company uses to bring about a desired result, such as achievement of a goal or solution to a problem
strategy
Decisions and actions that managers take to meet the company's goals are known as ______.
strategy
The production divisions within a company, the location of a company's decision-making responsibilities, and the establishment of integrating mechanisms all make up the organizational ______ of a company.
structure
Information systems, a(n) ______ activity, can track sales and price products, thereby helping the firm to gain a more competitive advantage.
support
What are the two categories of operations within a company?
support activities primary activities
The worldwide acceptance of McDonald's hamburgers, Coca-Cola, and Apple iPhones ______ claims of increasing homogeneity in the global marketplace.
supports
An early strategic commitment to large scale entry may mean that a firm can benefit from what three things?
switching costs demand preemptions scale economies
Which approach to forecasting uses past trends of prices and volume data to predict the future?
technical
______ analysis is based on the premise that there are analyzable market trends and that these past trends can be used to predict future trends.
technical
One serious risk associated with licensing is the risk of losing competitive advantage because of licensing a company's _____.
technology
The Economists's version of the PPP uses ______ as a proxy for a "basket of goods."
the Big Mac
The rise of regionalism is particularly evident in
the EU
Which statement accurately describes the IMF's ability to enforce the economic policies a country should adopt in exchange for loans?
the IMF cannot force countries to adopt the policies required to correct economic mismanagement
The World Bank's initial role was to help finance the building of Europe's war-torn economy. The Bank's role changed when _____ implemented the Marshall Plan and lent money directly to European nations.
the United States
What is the gold par value?
the amount of currency needed to purchase one ounce of gold
In 1987, the Group of Five met over concerns that ______ and the result was the creation of the Louvre Accord.
the dollar might decline too far
An international business can create value when bringing products to another country; however, this primarily depends on the attractiveness of the product being offered and
the existence of competition
A dirty-float system is said to exist in a nation when _____ frequently intervene(s) in the foreign exchange market.
the government
According to _____, top managers typically overestimate their ability to create value from an acquisition because they have an exaggerated sense of their own capabilities.
the hubris hypothesis
IDA loans provided by the World Bank are only available to
the poorest countries
The Fisher effect equates the nominal interest rate as
the required real interest rate + expected rate of inflation.
When considering the three basic decisions a firm must make when it decides to enter a foreign market, it must determine the market to enter, the timing of entrance, and
the scale
At the simplest of levels, exchange rates are determined by _____.
the supply and demand of currencies
Granola Grains Corp. has asked that the contract with their new European partner include a provision to protect Granola Grains from the risk of opportunism. This provision protects them from
the theft of technology
Capital flight is most likely to occur when
the value of the domestic currency is depreciating rapidly because of hyperinflation
International businesses use foreign exchange markets for what three reasons?
to pay a foreign company for its products or services in its country's currency to invest spare cash for the short term in money markets to convert foreign currencies it receives from transactions into its own currency
The Louvre Accord resulted in an agreement
to support the stability of exchange rates around their current level by intervening when necessary
The basic infrastructure of a company includes the organizational structure, control systems, and the culture of the firm. What other factor should also be included in this basic infrastructure?
top management
The preference for right-hand-driven cars in Britain as compared to the demand for left-hand-driven cars in France is an example of how ______ create(s) pressure for local responsiveness.
traditional practices
Suppose a US company agrees to buy products worth 1 million euros. At the time of the agreement, the dollar/euro exchange rate was $1 = €1.10, but at the time of payment, the exchange rate is $1 = €0.80. The additional money owed by the US company due the adverse movement in exchange rates between the time of the deal and the time when payment is due is called ______ exposure.
transaction
Suppose a company agrees to buy products in 2014 with payment due in 2015. ______ exposure refers to money lost due to an adverse movement in exchange rates between the time the deal is signed and the time when the products are paid for.
transaction
________ exposure is the risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms.
transaction
Firms should only rely on what four things to predict exchange rate movements?
transaction and translation exposure forecasting future exchange rates monthly foreign exchange exposure reports establishing good reporting systems
The effect of currency exchange rate changes on the reported financial statements of companies is called ______ exposure.
translation
_____ exposure involves the present measurement of past events using currency exchange rate changes on a company's financial statements.
translation
As noted in the text, a business like Caterpillar should follow the ______ strategy because it is under pressure to reduce costs and be locally responsive.
transnational
Following a _____ strategy can pit two conflicting goals against each other: differentiating products versus achieving cost reductions.
transnational
While a localization strategy may give a firm a competitive edge, in order to reduce its cost structure a company might need to shift to a(n) ______ strategy where it can maintain its emphasis on responding to local needs and at the same time respond to cost pressures.
transnational
When a firm tries to achieve low costs, differentiate its product for local needs, and encourage the flow of skills between subsidiaries, it is following a(n) ______.
transnational strategy
While it might be less expensive for a US company to assemble automobile parts in New Zealand, these cost savings would be offset by high ______ costs that make the products more expensive to ship.
transportation
In April 2009, major IMF members agreed to ______ the IMF's resources to give the institution greater financial leverage to act in times of global financial crisis.
triple
True or False: If many national markets are controlled by a few multinational enterprises with the power to influence prices and distribution channels, PPP theory may not hold.
true
True or False: If we could understand how exchange rates are determined, we might be able to identify exchange rate movements.
true
True or False: Though there are many advantages to acquisitions, acquisitions often produce disappointing results.
true
True or false: A cross-licensing agreement reduces the probability that each firm will take advantage of the other's intangible property.
true
True or false: Being locally responsive tends to raise costs for a company.
true
True or false: Companies that operate internationally can increase their profitability and rate of profit growth in ways not available to just domestic businesses.
true
True or false: Critics say that the experience of South Korea and Iceland suggest that a floating exchange rate system can help a country recover from severe economic crisis.
true
True or false: Empirical evidence suggest that the International Fisher effect does NOT explain short-term exchange rate movements well.
true
True or false: Flexibility was an objective of the Bretton Woods agreement because it was recognized that a rigid policy of fixed exchange rates eventually would not work.
true
True or false: Foreign market entry decisions are based on the varying levels of risk and reward.
true
True or false: If no other factors had to be considered, a company would place a higher price on products that are highly valued by customers.
true
True or false: One way a company might create value is by leveraging the skills of its subsidiaries.
true
True or false: Spot against forward is a common type of currency swap.
true
True or false: The foreign exchange market is essentially open 24 hours per day.
true
True or false: The gains or losses identified by translation exposure are on paper only.
true
True or false: The need to customize a product for a local market could work against a company's strategy of marketing a globally standardized product.
true
True or false: To survive increasing competition, multinational firms may need to shift from an international to a transnational strategy.
true
True or false: Transportation costs would have an effect on which entry mode a company uses.
true
True or false: Under the currency board in place in Hong Kong, the government is limited in its ability to set interest rates.
true
True or false: When countries began to devalue their currencies at will in the post-Depression era, confidence in the gold standard lessened.
true
A type of entry mode that is common in the chemical, pharmaceutical, and petroleum-refining industries in which a contractor agrees to handle every detail of a project for a foreign client is called ______.
turnkey
Lisette works for Southwest Petroleum Corp. Her company is responsible for every aspect of setting up a refinery location for its clients. Southwest Petroleum builds the site, trains personnel, and notifies the client when the refinery is ready for operation. What foreign entry mode does this represent?
turnkey project
According to the IMF study of countries from 1975 to 1997 noted in the text, developing nations were ______ to experience currency and banking crises as compared to developed nations.
twice as likely
One study of 49 strategic alliances found that about ______ ran into serious trouble within two years of their formation.
two thirds
Consumers demonstrate ______ needs when the preferences of people in different countries are similar, if not exactly the same.
universal
The difference between a firm's production costs and the value consumers perceive in its products is called ______.
value creation
How can the dollar exchange rate BEST be described under the floating exchange regime?
volatile
When a government intervenes in cross-border trade by implementing a trade barrier, it ______ the link between relative price changes and changes in exchange rates predicted by PPP theory.
weakens
If a high-tech firm wants to set up operations in a foreign country in order to profit from a core competency in technological know-how, it will typically do this by establishing a(n) ______ as a way to protect their technological advantage.
wholly owned subsidiary
Which entry mode would be preferred when a company does not want to risk losing control over technological competence?
wholly owned subsidiary
In which entry mode, does a firm own 100% of the stock?
wholly-owned subsidiary
Residents of the hypothetical nation of Jarna feared that the country's economy was failing. They rushed to convert their domestic currency into US dollars and investors in businesses in Jarna also converted their financial holdings. This mass conversion of currency is known as _____.
capital flight
Tyson is a trader and borrows money in Japanese yen (where the interest rate is 1%). He then invests the money in a Canadian bank, where the rate is 5%. This is an example of a(n) ______.
carry trade
To protect resources efficiently and ensure that each subunit adopts the correct mix of tactics and strategies, firms should aim for _____ control of exposure.
centralized
Which type of control of exposure is MOST effective at protecting resources efficiently and ensuring that each subunit adopts the correct mix of tactics and strategies?
centralized
Economic exposure is concerned with the affect of ______ on a firm's international earning power.
changes in exchange rates
When selecting a strategic alliance partner a firm should
collect information from investment bankers that have had dealings with potential partners.
As the text notes, international strategies fail over time because of the emergence of ______.
competitors
Jack owns a ready-to-heat pasta company that is one of ten companies making this type of product. He would like to charge a higher price for the product since customers place a high value on it but the presence of so many competitors makes this impossible. In this situation, _____ allow(s) customers, instead of the company, to capture some of the value of the product.
consumer surplus
The dollar became less attractive to foreign investments in 2002 for what three reasons?
continued growth in the US trade deficit increasing US budget deficits US government officials "talking down" the dollar
Managers use ______ to analyze data about how the business and its employees are functioning in order to make appropriate administrative decisions.
controls
______ are the metrics used to measure the performance of subunits.
controls
Jameson Electric Corp. would use the foreign exchange market when it needs to
convert currency
_____ competencies are a company's abilities and skills that competitors cannot easily match or copy.
core
Chilly Cooler Corp. has developed a technology that allows its coolers to stay cold 25% longer than any of their competitors coolers. While many competitors have tried to match this technology, so far none of them have. This technology is an example of a(n) _____ for Chilly Cooler.
core competence
Toyota's superior production and logistics functions allow it to produce high-quality, well-designed cars at a lower delivered price than other firms. These are examples of
core competencies
McDonald's ability to manage fast-food operations better than most other firms in the world is an example of a(n)
core competency
When the logistics function is carried out efficiently, it can create value because it lowers
cost
When General Electric won a contract for a $150 million generator project in Romania, it agreed to take payment in the form of Romanian goods that could be sold for $150 million on international markets. This is an example of
countertrade
When a country's currency is nonconvertible, a company may engage in ______, where goods and services will be traded for other goods and services.
countertrade
______ agreements are barter-like agreements used by companies in countries whose currency is nonconvertible.
countertrade
One disadvantage of a turnkey project is that a company might inadvertently
create a competitor
______ generally occur(s) between companies that hold patents over different aspects of the same product. By entering into an agreement, both companies can avoid litigation over infringement disputes.
cross-licensing
Organizational ______ encompasses the norms and value systems that are shared among the employees of a business.
culture
The experience curve relationship is for ______ output over time.
cumulative
A foreign exchange market is where one country's ______ is converted into that of another country.
currency
A(n) ______ is a monetary authority which converts domestic currency on demand into another currency at a fixed exchange rate.
currency board
A(n) ______ occurs when a speculative attack on the exchange rate leads to a large depreciation in that country's legal tender.
currency crisis
An investment made to profit from future currency movements is called
currency speculation
_____ typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates.
currency speculation
Feldman Technology Group has international holdings in India. The company often needs to fund large orders in India for parts with the knowledge that an Indian importer will soon buy completed product from Feldman. These transactions require large sums of capital in both dollars and rupee and as a way to move from one currency to another without incurring foreign exchange risk, the company should use a(n) _____.
currency swap
The bandwagon effect occurs in investing when
currency traders move as a group in the same direction at the same time.
Among other things, being first typically enables a company to establish ______ and ______ before other entrants to the market arrive.
customer loyalty brand recognition
The primary activities in the value chain are R&D, production, marketing and sales, and ______.
customer service
According to the critics of the floating exchange rate, the uncertainty of exchange rates tends to _____ the growth of international trade and investment.
dampen
The OPEC oil crisis in 1971 increased the US inflation rate, which led to negative effects on the trade position. This led to a(n) _____ in the value of the dollar.
decrease
Lowering production costs because of increased efficiencies creates value by _____ costs.
decreasing
The value of a currency is determined by the ______ of that currency relative to other currencies.
demand and supply
It would be difficult to profit through arbitrage because the ______ for a currency would increase when dealers try to profit from exchange rate discrepancies leading to ______ of that currency, and the price differential would disappear.
demand; appreciation
The various components of an organization's architecture are _____ each other.
dependent on
Critics of the Bretton Woods system say that if a country is running a trade deficit in a floating exchange rate system, the exchange rate will ______, making its exports cheaper and imports more expensive, which should correct the trade deficit.
depreciate
In theory, if a country's price inflation is rising rapidly, it should expect to see its currency _____ against that of countries in which inflation rates are lower.
depreciate
A lead strategy occurs when a firm attempts to collect foreign currency receivables early when a currency is expected to ______ and pay foreign currency payables before they are due when a currency is expected to ______.
depreciate; appreciate
In the late 1990s, the dollar _____ against most major currencies.
depreciated
When Great Britain returned to the gold standard in 1925, it placed the pound at the prewar gold parity level and, as a result, placed the country in a period of
depression
Under the Bretton Woods system, if Country A imported more goods than it exported which created a permanent deficit in the balance of trade that wasn't correctable by domestic policy, the IMF would be required to _____.
devalue the currency
Since the mid-1970s, the IMF's loan activities have been mostly targeted toward _____.
developing nations
The strategic alliance between Boeing and some Japanese companies to build the Boeing 787 aircraft was motivated by Boeing's desire to share the ______ of the new jet.
development cost
According to Bartlett and Ghoshal, a late mover company should try to learn as much as it can from competitors and _____ in order to succeed.
differentiate its product offering
What two things did Christopher Bartlett and Sumantra Ghoshal say a late mover company should do to succeed against well-established competitors?
differentiate its product offering benchmark competitor operations
Atkinson Appliance has improved the look, design, and speed of its dishwashers to make them more attractive to consumers. The company is trying to create value creation by using a(n) ______ strategy.
differentiation
Companies that use a transnational strategy are trying to achieve what three things?
differentiation of product offering to account for local differences fostering a multi-directional flow of skills between subsidiaries lowering costs through location economies
In the foreign exchange market, it is _____ to profit through arbitrage.
difficult
If a basket of goods costs $400 in the US and 40,000 yen in Japan, PPP theory predicts that the dollar/yen exchange rate should be
$0.01 per Japanese yen
If one ounce of gold in dollars cost 25, and one ounce of gold in pounds cost 10, then the exchange rate for converting pounds into dollars is ______.
$2.50
If the exchange rate is 1 British pound to $1.35, an American in London will need ______ to purchase a purse priced at 20 pounds.
$27
An American tourist in Japan is interested in buying a souvenir that costs 1800 yen. How much is this in dollars if the exchange rate is $1 to Y400.
$4.50
