CH. 11-16
Which of the following statements is true of equity loans?
An equity loan occurs when a corporation sells stock to investors. An equity loan is made when a corporation sells stock to investors. The money the corporation receives in return for its stock can be used to purchase plants and equipment, fund R&D projects, pay wages, and so on.
Which of the following refers to an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time?
Bill of exchange A draft, sometimes referred to as a bill of exchange, is simply an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.
Which of the following is true about core competence?
Core competence skills are typically expressed in product offerings that other firms find difficult to match or imitate. The term core competence refers to skills within the firm that competitors cannot easily match or imitate. These skills may exist in any of the firm's value creation activities—production, marketing, R&D, human resources, logistics, general management, and so on. Such skills are typically expressed in product offerings that other firms find difficult to match or imitate.
Which of the following refers to the U.S. dollars that are banked outside of the United States?
Eurodollars Eurodollars are dollars banked outside of the United States. They account for about two-thirds of all Eurocurrencies.
Using a localization strategy is most appropriate when there are few differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense.
False A localization 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. By customizing the product offering to local demands, the firm increases the value of that product in the local market.
A pegged exchange rate means the value of a currency is floating against a set of currencies.
False A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.
Fixed exchange rates can help a country deal with economic crises.
False Advocates of floating exchange rates argue that exchange rate adjustments can help a country deal with economic crises.
Changing a firm's strategic posture to build an organization capable of supporting a transnational strategy is a relatively simple task.
False Changing a firm's strategic posture to build an organization capable of supporting a transnational strategy is a complex and challenging task. Some would say it is too complex, because the strategy implementation problems of creating a viable organizational structure and control systems to manage this strategy are immense.
The main principle of countertrade is to accept advance payments for goods and services that are exported to another country.
False Countertrade denotes a whole range of barter-like agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money.
It is easier for investors to get access to information about foreign investment opportunities than domestic investment opportunities.
False Despite advances in information technology, it is still difficult for investors to get access to the same quantity and quality of information about foreign investment opportunities that they can get about domestic investment opportunities.
Small government deficits are an underlying cause of a foreign debt crisis.
False Foreign debt crises tend to have common underlying macroeconomic causes: high relative price inflation rates, a widening of current account deficit, excessive expansion of domestic borrowing, high government deficits, and asset price inflation (such as sharp increases in stock and property prices).
The Jamaica agreement banned IMF members from entering the foreign exchange market to even out fluctuations.
False IMF members were permitted to enter the foreign exchange market to even out "unwarranted" speculative fluctuations in the Jamaica agreement.
A letter of credit awards the title of a product or service to the issuing bank.
False Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.
By using the global capital market, firms have to borrow funds at a much higher cost than they would in a domestic capital market.
False On the borrowing side, by using the global capital market, firms can often borrow funds at a lower cost than is possible in a purely domestic capital market.
Responding to pressures to be locally responsive requires a firm to standardize its products.
False Pressures for local responsiveness arise from national differences in consumer tastes and preferences, infrastructure, accepted business practices, and distribution channels, and from host-government demands. Responding to pressures to be locally responsive requires a firm to differentiate its products and marketing strategy from country to country to accommodate these factors, all of which tends to raise the firm's cost structure.
Profitability is calculated by dividing the total sales of the firm by total invested capital.
False Profitability can be defined as the rate of return that the firm makes on its invested capital (ROIC), which is calculated by dividing the net profits of the firm by total invested capital.
Organizations can avoid systematic risk diversifying international investments.
False Systematic risk refers to movements in a stock portfolio's value that are attributable to macroeconomic forces affecting all firms in an economy, rather than factors specific to an individual firm. The systematic risk is the level of non-diversifiable risk in an economy.
The Eurocurrency market is a relatively high-cost source of funds for international businesses.
False The Eurocurrency market has been an important and relatively low-cost source of funds for international businesses.
The Export-Import Bank is an agency of the United Nations and its mission is promoting global trade.
False The Export-Import Bank is an independent agency of the U.S. government. Its mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries.
The way to increase the profitability of a firm is to create less-expensive products.
False The way to increase the profitability of a firm is to create more value. The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products.
Which strategy makes most sense when there are strong pressures for cost reductions and minimal demands for local responsiveness?
Global standardization strategy Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies; that is, their strategic goal is to pursue a low-cost strategy on a global scale.
Which of the following statements is true of hedge funds?
Hedge funds are private investment funds. Hedge funds are private investment funds that position themselves to make "long bets" on assets that they think will increase in value and "short bets" on assets that they think will decline in value.
Which of the following is a disadvantage of global capital market?
Information about the fundamental quality of investments is difficult to obtain. A lack of information about the fundamental quality of foreign investments may encourage speculative flows in the global capital market. Faced with a lack of quality information, investors may react to dramatic news events in foreign nations and pull their money out too quickly.
Which of the following is a valid observation of the Export-Import (Ex-Im) Bank?
It is an independent agency of the U.S government and promotes international trade. The Export-Import Bank, often referred to as Ex-Im Bank, is an independent agency of the U.S. government. Its mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries.
_____ make(s) Eurobonds more attractive than most major domestic bonds.
Less stringent disclosure requirements Eurobonds are subject to less stringent disclosure requirements than in most domestic bond markets. This is one of the features of the Eurobond market that make it an appealing alternative to most major domestic bond markets.
Identify a common difficulty that traders face when exporting goods or services to other countries.
Many customers require face-to-face negotiations on their home turf. Many foreign customers require face-to-face negotiations on their home turf. An exporter may have to spend months learning about a country's trade regulations, business practices, and more before a deal can be closed.
Which of the following is the main objective of the SCORE program administered by the SBA?
Providing one-on-one counseling to active and new-to-export businesses. Through its Service Corps of Retired Executives (SCORE) program, the SBA oversees some 850 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses.
Which of the following statements is true of Eurobonds?
They are placed in countries other than the one in whose currency the bond is denominated. Eurobonds are normally underwritten by an international syndicate of banks and placed in countries other than the one in whose currency the bond is denominated.
A buyback occurs when a firm builds a plant in a country and agrees to take a certain percentage of the plant's output as partial payment for the contract.
True A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant's output as partial payment for the contract.
A currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it.
True A currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it.
A firm's strategy is defined as the actions managers take to attain the goals of the firm.
True A firm's strategy can be defined as the actions that managers take to attin the goals of the firm.
A sight draft is payable on presentation to the drawee.
True Drafts fall into two categories, sight drafts and time drafts. A sight draft is payable on presentation to the drawee.
Eurobonds fall outside of the regulatory domain of any single nation.
True Eurobonds fall outside of the regulatory domain of any single nation. As such, they can often be issued at a lower cost to the issuer.
Many of the restrictions placed on financial services in countries around the world have lightened up as a result of the development of the Eurocurrency market.
True In country after country, financial services has historically been the most tightly regulated of all industries. Governments around the world have traditionally kept other countries' financial services firms from entering their capital markets. Many of these restrictions have been crumbling since the early 1980s. In part, this has been a response to the development of the Eurocurrency market, which from the beginning was outside national control.
Market makers are the financial service companies that connect investors and borrowers.
True Market makers are the financial service companies that connect investors and borrowers. Those who want to invest money include corporations with surplus cash, individuals, and non-bank financial institutions. Those who want to borrow money include individuals, companies, and governments.
The growth of the global capital market has provided opportunities for firms and individuals to diversify their investments to limit risk.
True On the investment side, the growth of the global capital market is providing opportunities for firms, institutions, and individuals to diversify their investments to limit risk.
One big impediment to exporting is the simple lack of knowledge about the opportunities available in other countries.
True One big impediment to exporting is the simple lack of knowledge of the opportunities available. Often, there are many markets for a firm's product, but because they are in countries separated from the firm's home base by culture, language, distance, and time, the firm does not know about them.
Superior value creation relative to rivals does not necessarily require a firm to have the lowest cost structure in an industry, or to create the most valuable product in the eyes of consumers.
True Superior value creation relative to rivals does not necessarily require a firm to have the lowest cost structure in an industry, or to create the most valuable product in the eyes of consumers. However, it does require that the gap between value (V) and cost of production (C) be greater than the gap attained by competitors.
The Bretton Woods agreement called for a system of fixed exchange rates that would be policed by the IMF.
True The Bretton Woods agreement called for a system of fixed exchange rates that would be policed by the IMF.
When a firm creates a global web of value creation activities, the company disperses different stages of the value chain to those locations in the world where perceived value is maximized or where the costs of value creation are minimized.
True The creation of a global web of value creation activities involves different stages of the value chain being dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized.
Switch trading refers to the use of a specialized third-party trading house in a countertrade agreement.
True The term switch trading refers to the use of a specialized third-party trading house in a countertrade arrangement. Switch trading occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them.
Speculative buying and selling of currencies can create volatile movements in exchange rates under the present foreign exchange system.
True Under the present foreign exchange system, speculative buying and selling of currencies can create very volatile movements in exchange rates.
A drawback of relying on an export management company is that a company can fail to develop its own exporting capabilities.
True While some export management companies (EMCs) perform their functions very well, others appear to add little value to the exporting company. Therefore, an exporter should review carefully a number of EMCs and check their references. One drawback of relying on EMCs is that a company can fail to develop its own exporting capabilities.
Which of the following elements does not support the argument for floating exchange rates?
Uncertainty The case in support of floating exchange rates has three main elements: monetary policy, automatic trade balance adjustments, and economic recovery following a severe economic crisis.
Which of the following terms refer to the foreign bonds sold in the United States?
Yankee bonds Many foreign bonds have nicknames; foreign bonds sold in the United States are called Yankee Bonds and foreign bonds sold in Great Britain are called bulldogs.
A counterpurchase occurs when _____.
a firm agrees to buy a certain amount of materials back from a country to which a sale is made Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.
Unlike firms pursuing a global standardization strategy, firms pursuing an international strategy:
are not confronted with pressures to reduce their cost structure. The distinguishing feature of many firms pursuing an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure.
The consumer surplus per unit is determined by:
competitive pressure in the marketplace. The difference between V (value of product to an average consumer) and P (price per unit) is in part determined by the intensity of competitive pressure in the marketplace; the lower the intensity of competitive pressure, the higher the price charged relative to V. In general, the higher the firm's profit per unit sold is, the greater its profitability will be, all else being equal.
A localization strategy focuses on increasing profitability by:
customizing the firm's goods or services to local conditions. A localization strategy focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets.
Barter refers to the _____.
direct exchange of goods or services without a cash transaction Barter is the direct exchange of goods and/or services between two parties without a cash transaction. Although barter is the simplest arrangement, it is not common.
The _____ shows all of the different positions a firm can adopt with regard to adding value to the product and low cost assuming the firm's internal operations are configured efficiently to support a particular position.
efficiency frontier The efficiency frontier shows all of the different positions that a firm can adopt with regard to adding value to the product (V) and low cost (C) assuming that its internal operations are configured efficiently to support a particular position.
The Bretton Woods agreement implemented a system of _____ exchange rates.
fixed The Bretton Woods agreement also called for a system of fixed exchange rates that would be policed by the IMF.
A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a _____.
fixed exchange rate A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. To make this commitment credible, the currency board holds reserves of foreign currency equal at the fixed exchange rate to at least 100 percent of the domestic currency issued.
A major advantage of countertrade is that it _____.
helps firms finance export deals when there are no other means Countertrade's main attraction is that it can give a firm a way to finance an export deal when other means are not available. Given the problems that many developing nations have in raising the foreign exchange necessary to pay for imports, countertrade may be the only option available when doing business in these countries.
Which of the following is a factor that determines the bank charges on letter of credit?
importer's creditworthiness Banks will charge importers a fee for issuing a letter of credit. Typically this amounts to between 0.5 percent and 2 percent of the value of the letter of credit, depending on the importer's creditworthiness and the size of the transaction.
A managed float is the exchange rate policy where the government _____.
intervenes in the exchange rate system only in a limited way In a managed float system, governments intervene in only a limited way. About 26 percent of IMF's members use this system.
As a contract, the bill of lading specifies that the carrier _____.
is obligated to provide a transportation service in return for a certain charge A bill of lading serves three purposes: it is a receipt, a contract, and a document of title. As a contract, it specifies that the carrier is obligated to provide a transportation service in return for a certain charge.
A letter of credit is a document _____.
issued by a bank at the request of an importer Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified document
A banking crisis refers to _____.
loss of confidence in the banking system A banking crisis refers to a loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits.
The IMF was established at the Bretton Woods conference to _____.
maintain order in the international monetary system The agreement reached at Bretton Woods established two multinational institutions—the International Monetary Fund (IMF) and the World Bank. The task of the IMF was to maintain order in the international monetary system.
The idea that each country should be allowed to choose its own inflation rate is called the _____ agreement.
monetary autonomy Advocates of floating rates argue that each country should be allowed to choose its own inflation rate. This is called the monetary autonomy argument.
A country bases the valuation of its currency on a reference currency. The value of the country's currency is changed based on the changes in the value of the reference currency. This is an example of a _____ exchange rate system. currency board
pegged Under a pegged exchange rate regime, a country will attach the value of its currency to that of a major currency so that, for example, as the U.S. dollar rises in value, its own currency rises too. The given country uses pegged exchange rates.
A _____ rate means the value of the currency is fixed relative to a reference currency and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. fixed exchange
pegged exchange A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.
When the value of a currency appreciates, _____.
people who have invested in the currency will garner benefits Movements in foreign exchange rates can substantially increase the cost of foreign currency loans. In this case, the depositors will earn more if the currency appreciates.
A debt loan is made when a corporation _____.
sells corporate bonds to investors A debt loan requires the corporation to repay a predetermined portion of the loan amount (the sum of the principal plus the specified interest) at regular intervals regardless of how much profit it is making. Debt loans include cash loans from banks and funds raised from the sale of corporate bonds to investors.
Firms that pursue a transnational strategy are trying to simultaneously do all of the following EXCEPT:
standardize their product offering for the global market. Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm's global network of operations.
Global expansion allows firms to achieve all of the following, EXCEPT:
standardize their product offering, marketing strategy, and business strategy for all national conditions. Expanding globally allows firms to increase their profitability and rate of profit growth in ways not available to purely domestic enterprises. However, a firm's ability to increase its profitability and profit growth by pursuing these strategies is constrained by the need to customize its product offering, marketing strategy, and business strategy to differing national conditions, that is, by the imperative of localization.
The experience curve refers to:
systematic reductions in production costs that have been observed to occur over the life of a product. The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product. A number of studies have observed that a product's production costs decline by some quantity about each time cumulative output doubles.
If a country increases its money supply rapidly under a fixed exchange rate regime, _____.
the country will face high levels of price inflation. A fixed exchange rate regime imposes monetary discipline on countries and curtails price inflation. For example, if a country increases its money supply by printing more currency, the increase in money supply would lead to price inflation.
Primary activities have to do with:
the design, creation, and delivery of the product. Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service.
Systematic risk is _____.
the level of non-diversifiable risk in an economy Systematic risk refers to movements in a stock portfolio's value that are attributable to macroeconomic forces affecting all firms in an economy, rather than factors specific to an individual firm. The systematic risk is the level of non-diversifiable risk in an economy.
Under the gold standard, when United States has a trade surplus, _____.
there will be a net flow of gold from other countries to United States Under the gold standard, when a country has a trade surplus, there will be a net flow of gold from the other countries to that country.
