global business final

Which organization was created to implement the GATT agreement?

World Trade Organization

Paul Krugman characterizes strategic trade policy as being

a boost to national income at the expense of other countries.

One example of a(n) ________ effect of foreign direct investment is when a foreign MNE employs a number of host-country citizens.

direct

The ________ view argues that international production should be distributed among countries according to the theory of comparative advantage and countries should specialize in the production of goods they can produce most efficiently.

free market

The European Community was established by the

Treaty of Rome.

What is a common reason for the failure of an acquisition?

clash between the cultures of the acquiring and acquired firms

According to Porter, which factor endowment would be classified as an advanced factor?

communication infrastructure

The economic and strategic advantages that accrue to early entrants into an industry are called

first-mover advantages.

It is one of Garrett's job responsibilities to report the amount of foreign direct investment undertaken by the government over a one-year time period. Garrett reports the ________ of FDI.

flow Correct

________ is a pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area.

Mercosur

When the management team reviewed its government contract on office furnishings, they noticed that in order to bid on the project, at least 44 percent of the value of the office furniture had to be produced in the United States. This stipulation is an example of a(n)

local content requirement.

Ownership restraint is a method of

restricting inward FDI by a host country.

A firm might justify a preference for licensing over FDI because licensing

results in the licensee bearing the costs and risks.

Assume that the exchange rate between the euro and the dollar is €1.00 = $1.50. An American tourist in Germany is buying a product whose price is €80. How much in U.S. dollars would the tourist have to pay to buy the product?

$120

________ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

A forward exchange

________ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

Dumping Correct

The ultimate controlling authority with the EU is the

European Council.

A country that relies on the pragmatic nationalist view would say that

FDI should be allowed so long as the benefits outweigh the costs.

________ was a multilateral agreement established in 1947 whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like.

General Agreement on Tariffs and Trade (GATT)

American-based Trenton Inc. has decided to establish a wholly owned subsidiary in Argentina. To decide whether to acquire an enterprise in the market or to establish a greenfield venture, the company evaluated the pros and cons of each strategy. In the end, Trenton Inc. opted to establish a greenfield venture. What was likely a major point in favor of greenfield ventures?

Greenfield ventures provide a much greater ability to build the kind of subsidiary company that a firm wants.

How did President Trump react to the two multilateral trade agreements, the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership, that were being pursued by the Obama administration?

He pulled the United States out of these negotiations.

How did the Smoot-Hawley Act affect employment?

It had a damaging effect on employment abroad.

Agri-Cor sells farm equipment throughout the euro zone. The company has noticed that some customers travel to countries where equipment sells for less to obtain a better deal. What implication of adopting the euro as a common currency does this situation demonstrate?

It makes it easier to compare prices across Europe.

What is a political argument for regional economic integration?

It reduces the potential for violent conflict.

Mexico agreed to NAFTA after it was determined that the country's oil industry would be controlled by Mexico. Why did Mexico fight for this right?

It wanted to maintain national sovereignty.

Concrete Forms International needs immediate access to steel in order to produce a new product line. It cannot afford to wait and establish a new operation in a foreign country where steel is prevalent, so it decides to purchase an existing company instead. Why did Concrete Forms decide to make this purchase?

Mergers and acquisitions are quicker to execute than greenfield investments.

________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

Multipoint competition

One risk associated with a joint venture is that

a firm that enters into a joint venture risks giving control of its technology to its partner.

One focus of strategic trade policy is to help domestic companies gain

a first-mover advantage.

One form of FDI is ________, which involves the establishment of a new operation in a foreign country.

a greenfield investment

Rae feels it is best for her company to pay their foreign supplier in Panama this month even though they will receive product for another six months. She recently learned that the currency in Panama is expected to appreciate and, by paying the supplier now, her company will save money. This is an example of

a lead strategy.

If Italy is more efficient at producing fine leather shoes and handbags, then Italy has a(n)

absolute advantage.

A customs union differs from a free trade area because it allows for

adoption of a common external trade policy.

Assume the euro/dollar exchange rate quoted in Tokyo at 6 a.m. is €1 = $1.00. If the New York euro/dollar exchange rate at the same time (5 p.m. New York time) is €1 = $1.35, a dealer could make a profit through

arbitrage

Kendall Wood Products Corp. purchased securities on the London Stock Exchange and then immediately resold them on the New York Stock Exchange at a higher price. The profits from this transaction were used to buy new machinery for the mill. This company engaged in

arbitrage.

Gondola Granola is an American health food grocery store chain with locations in 20 countries. When the company enters a new foreign market, it usually selects a combination of franchising and master subsidiaries. These master subsidiaries are joint ventures with local partners. Specifically, these joint ventures are politically more acceptable and they

bring a degree of local knowledge to the subsidiary.

Assume that the interest rate on borrowings in Argentina is 3 percent, but the interest rate on deposits in British banks is 9 percent. A trader borrows 1 million Argentine pesos, then converts the money into British pounds and deposits it in a British bank. What is the trader involved in?

carry trade

A(n) ________ has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members, but does not have a common currency.

common market

Which term indicates that the units of resources required to produce a good are assumed to remain fixed no matter where one is on a country's production possibility frontier?

constant returns to specialization

Under a licensing agreement, a licensor grants intangible property rights to the licensee. This would include

copyrights

An American company sold heavy building materials to the government of Taiwan. Instead of receiving U.S. dollars, the company agreed to take payment in the form of Taiwanese goods. This is an example of

countertrade

A(n) _____ refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

currency swap

Kyra works for a costume jewelry manufacturer and while their products are lower in cost, there is a high degree of consumer pressure to create the best quality jewelry possible and to constantly innovate with new jewelry designs. Which aspect of Porter's Diamond does this demonstrate?

demand conditions

The extent to which a firm's future international earning power is affected by changes in exchange rates is known as

economic exposure.

The harmonization of member nations' tax rates is required to form a(n)

economic union.

Some countries have a policy that entirely restricts the export of coffee products. This is called a(n)

export ban.

TickTock Inc., an American watchmaker, makes custom watches in California, which it then ships to Brazil for sale there. Based on this information, TickTock Inc. is involved in

exporting

Karvel lives in northern California where there is sufficient land and labor to successfully grow grapes for wine. Heckscher-Ohlin would consider the land and labor to be

factor endowments.

Which form of entry into a foreign market is a specialized form of licensing?

franchising Correct

Burger King licenses its brand name to foreign firms as long as they agree to run their restaurants on exactly the same lines as Burger King restaurants elsewhere in the world. In return, the foreign firms have to pay Burger King a percentage of their profits. This is an example of

franchising.

Alana lives in a country in which the government does not impose quotas on what can be imported or on what businesses can produce and sell to another country. What type of situation does this describe?

free trade

When Norway, Iceland, Liechtenstein, and Switzerland were joined by the EFTA, all barriers to the free flow of goods and services between the countries was removed. Member nations are allowed to determine the level of trade protection for goods coming from all other nations. What level of economic integration does this represent?

free trade area

Identify the correct sequence of economic integration starting from the least integrated to the most integrated.

free trade area, customs union, common market, economic union, and political union

Most economists would agree that the best interests of international business are found in a nation with a

free trade policy.

Jacob is the chief financial officer for RinseAll Detergent products. His company is interested in investing in a facility in Indonesia, but he is worried about unpredictable fluctuations in future exchange rates, which could cost his company millions of dollars. One way to ensure against this exchange risk is for Jacob to use

hedging

The _____ postulates that top managers typically overestimate their ability to create value from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities.

hubris hypothesis

One reason the British electorate voted to exit the European Union is because of an increase in ________ within Europe.

immigration Correct

Translation exposure refers to the

impact of currency exchange rate changes on the reported financial statements of a company.

Italy has a direct restriction on the amount of metal products that may be imported into the country. Which instrument of trade policy does this reflect?

import quota

High tariff barriers and subsidies in the agricultural industry ultimately lead to

increased prices for consumers.

A(n) _____ market is one in which prices do not reflect all available information.

inefficient

The ________ argument was proposed by Alexander Hamilton in 1792 and is by far the oldest economic argument for government intervention.

infant industry

According to the _____, for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

international Fisher effect

A greenfield venture may be too slow to establish a sizable presence when

global competitors are interested in establishing a presence.

A tariff rate quota provides a lower tariff rate to

imports within the quota.

Which form of entry into a foreign market is more likely to provide a company with access to a local partner's knowledge?

joint venture

Internalization theory is used to explain why a company prefers FDI over ________ as a way to enter a foreign market.

licensing Correct

The Republic of Monaslu has the world's most efficient car manufacturing industry, while the country of Ingora has the world's most efficient electronics industry. The Republic of Monaslu trades cars with Ingora in exchange for consumer electronics. This form of trade between the two countries illustrates

the theory of absolute advantage.

The basic message of ________ is that potential world production is greater with unrestricted free trade than it is with restricted trade.

theory of comparative advantage

The stock of FDI refers to the

total accumulated value of foreign-owned assets at a given time.

Gear Electronics used to buy all of its component parts from a local plant in Cleveland, Ohio, but this year it has decided to buy the parts from a lower-cost facility located in Tijuana, Mexico. This is an example of

trade creation.

A country that imports more goods than it exports experiences a

trade deficit.

Quadrangle Corporation, an American high-tech company, wants to set up operations in a foreign country. The company needs to select an entry mode that offers protection of its proprietary technology. Which entry mode is most suitable for Quadrangle Corporation?

wholly owned subsidiary

Royal Chocolatier, a British manufacturer of chocolates, granted U.S. company American Candy Inc. the right to produce and sell Royal Chocolatier's products in the United States In return, American Candy Inc. has to pay a royalty fee on every unit sold. According to this information, what is being done by Royal Chocolatier?

licensing

An implication of trade barriers for business practice is that they

limit a firm's ability to serve a country from locations outside of that country.

The government of the Republic of Senna enforces tariffs and quotas to limit imported goods, while exports are subsidized. By using these instruments, the government seeks to achieve a surplus in the balance of trade. Based on this information, which approach most influences the Republic of Senna's approach to international trade?

mercantilism Correct

Which approach suggests that nations may benefit from trade even when they do not differ in resource endowments or technology?

new trade theory

Which theory stresses that in some cases, countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms?

new trade theory

TransWare Inc., based in Atlanta, has a plant in Russia that builds road equipment. Each year this plant has been profitable, but TransWare Inc. is not able to convert the profits into U.S. dollars and take them out of the country. What type of convertibility does this represent?

nonconvertible Correct

Subsidies and quotas are examples of ________ barriers a county might impose.

nontariff

SmileBright, a dental products manufacturing company, has a market share of 30 percent in India. Three of its competitors together control 55 percent of the market. Whenever SmileBright raises or lowers the prices of its products, the other three companies quickly imitate its action. What is the market structure of this industry in India?

oligopoly Correct

Krinkle Chips is entering a foreign market and is spending significant funds on educating customers about their line of low-fat veggie chips. These costs are an example of _____ costs.

pioneering

A country that wants to create the highest level of economic integration would enter into a(n)

political union.

An example of a pioneering cost is the cost of

promoting a new product.

A(n) ________ refers to the extra profit that producers make when supply is artificially limited by an import quota.

quota rent

Which political ideology reflects the idea that a multinational enterprise is an instrument of imperialist domination?

radical view

The Single European Act was put in place in an attempt to

remove all impediments to the formation of a single market.

A foreign government was not enforcing its intellectual property rights, which resulted in massive copyright infringements. In turn, this was costing U.S. companies millions of dollars in lost sales revenues. To force the country to play by the rules, the United States threatened to impose trade sanctions on a range of imports from the country's businesses. The underlying motive for intervention by the U.S government was

retaliation

Fast Fleet Trucking, an American company, is planning to enter South Korea. While the company has operations abroad, it has no experience with Asian markets. Fast Fleet Trucking needs a type of entry that allows the company to collect information and learn about the South Korean market while limiting its exposure. What is the most suitable form of entry for Fast Fleet Trucking?

small-scale entry

A tax of 32 cents is levied for each pair of eyeglasses imported into a nation. This is an example of a(n)

specific tariff.

The rate at which a foreign exchange dealer converts one currency into another currency on a particular day is the

spot exchange rate.

A currency is considered freely convertible when

the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

According to ________, location-specific advantages are of considerable importance in explaining both the rationale for and the direction of foreign direct investment.

the eclectic paradigm

One of the main benefits that FDI provides to the home country is

the home country's balance of payments benefits from the inward flow of foreign earnings.

The Heckscher-Ohlin theory is based on the idea that

the pattern of international trade is determined by differences in factor endowments.

The creation of a single market increases price competition for business. In other words, it creates a(n)

threat

Licensing is a good option to enter a foreign market when

tight control of the foreign operation is not required.

Two eastern European countries formed a free trade agreement. As a result, one of the countries that used to produce its own plastic bottles at a higher cost now imports them from the other country at a lower cost. This is an example of

trade creation.

The United States imports sugar from several nations. If the NAFTA agreement caused the United States to import sugar only from Canada, even though it cost more to do so, it would be an example of

trade diversion.

Green Grocer Foods hired an independent contractor to oversee the development of a new operations unit in China. The contractor was responsible for hiring services to build the actual plant and ensuring that personnel were trained on the plant equipment so it would run smoothly when it was turned over to Green Grocer Foods. What type of entry mode does this demonstrate?

turnkey project

In which mode of market entry does a contractor agree to handle every detail of the operation for a foreign client, and hand over the operation once it is fully functional?

urnkey project

Foreign producers agree to ________ imposed by an exporting country because they fear more damaging punitive tariffs or import quotas might follow if they do not.

voluntary export restraints

Carson Components Inc., based in Missouri, decided to set up a new operation in Belgium. This is a greenfield venture, which is a form of which entry mode?

wholly owned subsidiary

According to the product life-cycle theory, once a new product becomes widely accepted internationally then production for that product

will start to take place in other countries.

Carolina Furniture Inc. is concerned with the possibility of high transportation costs and the threat of tariff barriers when entering into a foreign market. Based on this, which entry mode should the furniture company avoid?

xporting

A situation in which an economic gain by one country results in an economic loss by another is called a

zero-sum game.

An advantage of exporting is

it avoids the costs of establishing manufacturing operations in the host country.

One disadvantage of licensing as a mode of entry into foreign markets is that

it can cause the firm to quickly lose control over its technology.

Carlos is the manager of an American company. He expects the value of the British pound to appreciate in the near future and so delays the collection of payments from British customers until the next month. Which tactic is Carlos using to minimize the foreign exchange exposure?

lag strategy

Assume that the exchange rate between the U.S. dollar and the Japanese yen is $1 = ¥150. A book that retails for $10 in New York should sell for ¥1,500 in Tokyo, if there are no trade barriers and transportation costs, according to the

law of one price.

In order to encourage the agricultural industry, the French government provided low-interest loans for the purchase of seeds and fertilizers. The government also gave cash grants and made tax reductions. Which instrument of trade policy is being used by the French government?

subsidies Correct

In terms of the approaches to exchange rate forecasting, _____ is based on the premise that there are analyzable market trends and waves and that previous trends and waves can be used to predict future trends and waves.

technical analysis

An economist would say that the benefits of regional integration are determined by

the amount of trade creation.

The movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions, is called

the bandwagon effect.