MGMT 3050 - International Business - Study Guide Exam 2

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

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

flow

A corporation relies on ROIC to measure

profitability.

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.

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

Freeman Fabricators International 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 equipment for the company. This company engaged in

arbitrage

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

The Treaty of Rome provided for the establishment of a(n)

common market.

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

communication infrastructure

As the human resource director, Geoff provides each manager with a breakdown of the metrics for employee performance measurement. He asks them to evaluate their staff against the standards provided in these metrics. Geoff is providing the managers with a(n) __________ device.

control

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

currency swap

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

demand conditions

The executive managers of Solo Sounds, a U.S.-based musical instrument manufacturer, want to reduce the vulnerability of the company to unpredictable exchange rate movements. What would provide the company with a hedge against currency fluctuations?

dispersing production to different locations around the globe

When a nation puts government-backed insurance programs in place to cover major types of foreign investment risk, it has the effect of

encouraging outward FDI by a home country.

Fast Tracker Inc., a U.S.-based company, makes custom wearable fitness trackers in Oregon, which are then shipped to Europe for sale there. Based on this information, Fast Tracker Inc. is involved in

exporting

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

Simone 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 established the EFTA, all barriers to the free flow of goods and services between the countries were removed. Member nations were 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

In terms of the approaches to exchange rate forecasting, __________ draws on economic theory to construct sophisticated econometric models that are used to predict exchange rate movements.

fundamental analysis

In the semiconductor industry, there are strong pressures for cost reductions, while demands for local responsiveness are minimal. As a result, Intel Corporation, which operates in this industry, focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies. According to this information, which strategy is Intel pursuing?

global standardization

Shreya is the chief financial officer for Home Safe Security Inc. Her company is interested in investing in a facility in Indonesia, but she is worried about unpredictable fluctuations in future exchange rates, which could cost her company millions of dollars. One way to ensure against this exchange risk is for Shreya to use

hedging

The World Bank's initial mission was to

help finance the building of Europe's economy by providing low-interest loans.

According to the USMCA, 40 percent of parts for any tariff-free vehicles must come from a _______ by 2023.

high-wage factory

Translation exposure refers to the

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

A South American nation has a direct restriction on the amount of vegetables that may be imported into the country. Which instrument of trade policy does this reflect?

import quota

One example of a(n) __________ effect of foreign direct investment is when jobs are created because of increased local spending by employees of an MNE.

indirect

Dolby Fashion House, an Italian manufacturer of evening dresses, granted U.S. company On the Runway Inc. the right to produce and sell Dolby Fashion's products in the United States. In return, On the Runway Inc. has to pay a royalty fee on every unit sold. According to this information, what form of FDI is Dolby Fashion House using?

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 currency of Saudi Arabia, the riyal, is fixed relative to the U.S. dollar. As a result, the U.S. dollar exchange rate determines the exchange rate between the Saudi Arabia riyal and other currencies. This is an example of a __________ exchange rate.

pegged

In terms of organization architecture, __________ refers to the employees of the organization, the strategy used to recruit, compensate, and retain those individuals, and the type of people that they are in terms of their skills, values, and orientation.

people

A country in a state of fundamental disequilibrium suffers from

permanent adverse shifts in the demand for their products.

One reason a government might intervene in foreign trade is to protect consumers from a potentially dangerous product that's being imported. This would be an example of a(n) _____ argument for government intervention.

political

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

political union.

At Chem-Four International, the board of directors meets each year to determine how resources will be allocated. The board will be determining the firm's

processes

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

results in the licensee bearing the costs and risks.

In his theory of absolute advantage, Adam Smith advocated that __________ should determine what a country imports and what it exports.

the market mechanism

A European nation has the world's most efficient computer monitor manufacturing industry, while a country in Central America has the world's most efficient agricultural machines industry. The European nation trades computer monitors with the Central American country in exchange for agricultural machinery. This form of trade between the two countries illustrates

the theory of absolute advantage.

During the NAFTA era, Tandey Manufacturing used to buy all of its component parts from a local plant in Springfield, Illinois, but after a few years, the company decided to buy the parts from a lower-cost facility located in Mexico. This is an example of

trade creation.

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

trade creation.

Which strategy should firms pursue when they 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?

transnational

Earth Drivers Inc. sells construction 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.

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.

The __________ refers to systematic reductions in production costs that have been observed to occur over the life of a product.

experience curve

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

export ban.

Good Grains Bread Corp. plans to increase profits by providing custom bread baking mixes to the various countries where it sells. The company wants to match the tastes and preferences of the consumer in each of these markets. What type of strategy is Good Grains Bread Corp. using?

localization

When companies behave recklessly because they know they will be saved by a government bail-out if things go wrong, it is called a

moral hazard.

In terms of value creation, marketing and sales, research and development, and human resources are all aspects of a company's

operations

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

theory of comparative advantage

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

threat

The stock of FDI refers to the

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

Assume that the exchange rate between the euro and the dollar is €1.00 = $1.50. Jenna is an American tourist in Italy buying a leather wallet whose price is €60. How much in U.S. dollars will Jenna have to pay to buy the product?

$90

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

A forward exchange

__________ is a support activity of the value chain.

Logistics

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

Mercosur

Custom Cabinetry International needs immediate access to wood in order to produce an order of 50,000 high-end retail display cases by the end of next year. It cannot afford to wait and establish a new operation in a foreign country where this species of wood is prevalent, so it decides to purchase an existing company instead. Why did Custom Cabinetry 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

Which organization was created to implement the GATT agreement?

World Trade Organization

The mercantilist doctrine promoted government intervention in order to achieve

a surplus in the balance of trade.

If France is more efficient at producing fine wines than other nations, then France has a(n)

absolute advantage.

A country is said to be in __________ when the income its residents earn from exports is equal to the money its residents pay to other countries for imports.

balance-of-trade equilibrium

Tavis lives in southern Florida where there is sufficient land and labor to successfully grow gourds and melons. Heckscher-Ohlin would consider the land and labor to be

factor endowments.

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

first-mover advantages.

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

franchising

A tariff rate quota provides a lower tariff rate to

imports within the quota.

According to Michael Porter, differentiation strategy leads a company to focus on

increasing the attractiveness of a product.

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

licensing

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

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

nontariff

A tax of 14 cents is levied for each ceramic plate 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.

Cooperative agreements between potential or actual competitors are called

strategic alliances.

Under the fixed exchange rate regime established at Bretton Woods, __________ served as the reference point for all other currencies.

the U.S. dollar

A weakness of the Bretton Woods system was that it could not work if

the U.S. dollar was under speculative attack.

The Heckscher-Ohlin theory is based on the idea that

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

Licensing is a good option to enter a foreign market when

tight control of the foreign operation is not required.

A country that imports more goods than it exports experiences a

trade deficit.

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.

Images from the Great Depression included lines of people standing at their financial institution waiting to withdraw their money because they didn't trust the money would be there when they needed it. What was this an example of?

a banking crisis

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

amount of trade creation.

An American company sold construction equipment to the government of Singapore. Instead of receiving payment in U.S. dollars, the company agreed to take payment in the form of goods. This is an example of

countertrade.

In countries that adopt a __________ exchange rate system, the values of currencies are set against each other at some mutually agreed-on exchange rate.

fixed

As an investor studying the gold standard, Kareem knows that he would need more than 1,500 euros to purchase one ounce of gold. These euros represent the

gold par value.

In order to encourage the wine production industry, the Italian government provided low-interest loans for the purchase of equipment and plants. The government also gave cash grants and made tax reductions. Which instrument of trade policy is being used by the Italian government?

subsidies

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

zero-sum game.

It is the job of the __________ to debate legislation proposed by the commission. However, it is more of a consultative rather than a legislative body.

European Parliament.

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

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

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

He pulled the United States out of these negotiations.

How did the Smoot-Hawley Act divert consumer demand away from foreign products?

It implemented a wall of tariffs.

__________ justifies some limited government intervention to support the development of certain export-oriented industries.

New trade theory

Paul Krugman characterizes strategic trade policy as being

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

Alayna feels it is best for her company to pay their foreign supplier in Argentina this month even though they will not receive products they ordered from the supplier for another six months. She recently learned that the currency in Argentina is expected to appreciate and, by paying the supplier now, her company will save money. This is an example of

a lead strategy.

In a common market, labor and capital are

allowed to move freely because there are no restrictions on cross-border flows of capital.

Assume that the interest rate on borrowings in Chile is 4 percent, but the interest rate on deposits in British banks is 8 percent. A trader borrows 1 million Chilean pesos, then converts the money into British pounds and deposits it in a British bank. What is the trader involved in?

carry trade

Which situation would require a business to allow for customization in its product because of an infrastructure difference in a foreign nation?

difference in consumer electrical systems across continents

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 plus a common monetary and fiscal policy are all required to form a(n)

economic union.

The reductions in unit cost achieved by producing a large volume of a product are called

economies of scale.

A(n) __________ market is one in which prices reflect all available public information.

efficient

The exchange rate for converting the U.S. dollar into other currencies is continuously adjusted depending on the laws of supply and demand. This illustrates a __________ exchange rate.

floating

Advocates of the floating rate system argue that

floating rates help adjust trade imbalances.

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

free trade policy.

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

infant industry

Companies pursue a(n) __________ strategy when they take the products first produced for their domestic market and sell them internationally with only minimal local customization.

international

Procter & Gamble is an example of a company using a(n) __________ strategy. The company produces innovative new products in Cincinnati and then transfers them wholesale to local markets.

international

What two aspects of the IMF Articles of Agreement fostered the flexibility that was needed to help avoid high unemployment?

lending facilities and adjustable parities

When the management team reviewed its government contract on office chairs, they noticed that in order to bid on the project, at least 37 percent of the value of the office chairs had to be produced in the United States. This stipulation is an example of a(n)

local content requirement.

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

new trade theory

Solar Chemical, an industrial cleaning products manufacturing company, has a market share of 30 percent in Brazil. Three of its competitors together control 55 percent of the market. Whenever Solar Chemical 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 Brazil?

oligopoly

Raymond Vernon noticed that in the 1960s, the wealth and size of the U.S. market was a natural incentive to develop new consumer products. What theory did he propose based on this fact?

product life-cycle

The U.S. agriculture industry has long-benefited from high tariff rates and _____ that protect domestic agriculture and traditional farming communities.

subsidies

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.

A dirty-float system differs from a clean-float system because in a dirty-float

the central bank will intervene to maintain the value of the currency.

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

The Bretton Woods agreement created which two multinational institutions?

International Monetary Fund and the World Bank

According to the __________, there is a strong relationship between inflation rates and interest rates.

Fisher effect

__________ 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)

Hudson Oil and Gas Inc., based in Houston, has a plant in Norway that builds cargo ships used to transport the company's products around the world. Each year this plant has been profitable, but Hudson 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

Which scenario is an example of the production function of the value chain?

A store clerk at Trendy Tops rings up a customer's order at the cash register.

__________ 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

What is an economic argument for regional integration?

It allows countries to specialize in the goods they can produce most efficiently.

How did the Marshall Plan overshadow efforts by the World Bank?

It let the United States loan money directly to European nations for rebuilding efforts.

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.

Which scenario demonstrates the concept of opportunism in a strategic alliance?

Swenson Group wanted to make a strategic alliance with Miller Corp. in order to steal technology so it could become a front-runner in the industry.

What happened to the dollar following the announcement by the Group of Five that it would be desirable for most major currencies to appreciate via the U.S. dollar?

The dollar continued to decline.

The investment manager at Solar Electric Inc. reminds the board that the foreign exchange market is a mixed system. The investment manager wants the board to realize that rates are driven by

a combination of government intervention and speculative activity.

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

Alejandro is the manager of Polar Plastics, 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 Alejandro using to minimize the company's foreign exchange exposure?

lag strategy

Assume that the exchange rate between the U.S. dollar and the Japanese yen is $1 = ¥150. A pair of shoes that retail for $100 in New York should sell for ¥15,000 in Tokyo, if there are no trade barriers and transportation costs, according to the

law of one price.

When Shaleen first started at the manufacturing facility, it took her four hours to complete the task she can now accomplish in 30 minutes. In her first two months on the job, she not only learned to do her job more efficiently, but she has also saved the company money. This is an example of

learning effects.

Thirsty Skin Corporation is seeking to lower the costs of value creation and achieve a low-cost position in the skincare marketplace. As a result, it plans to move its manufacturing plant from the United States to South America, which is the optimal location for production. This strategic move will most likely allow the company to realize

location economies.

According to the eclectic paradigm, __________ is/are of considerable importance in explaining both the rationale for and the direction of foreign direct investment.

location-specific advantages

New trade theorists would agree that a country might become dominant in the export of a good simply because it was

lucky to be the first to produce the good.

A(n) __________ system refers to one in which a country's currency is nominally allowed to float freely against other currencies but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value.

managed-float

Brianna lives in a nation that encourages the production of goods for exporting and to satisfy the needs of the nation's citizens. This results in the nation relying less on importing goods. Which trade theory does this reflect?

mercantilism

The government of a South American nation 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 is influencing the international trade efforts in this nation?

mercantilism

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.