Chapter 13

64) Letters of credit are popular among traders because most of the risks are assumed by ________. A) distributors B) importers C) exporters D) banks

D) banks

62) Which of the following letters of credit can be modified without obtaining approval from either the exporter or the importer, by the bank issuing the letter of credit? A) revocable letter of credit B) confirmed letter of credit C) at sight letter of credit D) usance letter of credit

A) revocable letter of credit

32) ________ take ownership of the merchandise when it enters their country and accept all the risks associated with generating local sales. A) Agents B) Distributors C) Sales representatives D) Freight forwarders

B) Distributors

73) Which of the following is an advantage of wholly owned subsidiaries? A) The parent company receives all profits generated by the subsidiary. B) They are the least expensive investment entry modes. C) They help in the sharing of the cost of an international investment project. D) They are the least risky when compared to other investment entry modes.

A) The parent company receives all profits generated by the subsidiary.

71) When one company is hired to design, construct, and test a production facility for a client, the arrangement is called ________. A) a turnkey project B) licensing C) a joint venture D) franchising

A) a turnkey project

87) Which of the following methods would Gro-Tru be implementing if it exchanges its products directly for other goods or services without the use of money? A) barter B) offset C) switch trading D) buyback

A) barter

63) A(n) ________ is guaranteed by both the exporter's bank in the country of export and the importer's bank in the country of import. A) confirmed letter of credit B) transferrable letter of credit C) revocable letter of credit D) irrevocable letter of credit

A) confirmed letter of credit

42) The sale of goods and services to a country by a company that promises to buy a specific product from that country in the future is called a(n) ________. A) counterpurchase B) offset C) joint venture D) barter

A) counterpurchase

35) Companies involved in direct exporting typically rely on ________. A) distributors B) agents C) export management companies D) export trading companies

A) distributors

52) Export/import financing in which a bank acts as an intermediary without accepting financial risk is called ________. A) documentary collection B) counterpurchase C) buyback D) open account

A) documentary collection

85) Which of the following methods of export/import financing is Techno Toys' bank using if it acts as an intermediary without accepting financial risk? A) documentary collection B) buyback C) letter of credit D) advance payment

A) documentary collection

31) Which of the following occurs when a company sells its products to buyers in a target market without going through intermediary companies? A) export through local distributors B) export through agents C) sale through export management companies D) sale through export trading companies

A) export through local distributors

27) Which of the following is the most common method of buying and selling goods internationally? A) exporting and importing B) countertrade C) a turnkey project D) A merger or an acquisition

A) exporting and importing

44) An offset agreement differs from a counterpurchase agreement in that an offset agreement ________. A) fails to specify the type of product that must be purchased B) fails to specify the amount that will be spent on the purchase C) fails to give a business greater freedom in fulfilling its end of a countertrade deal D) fails to make a hard-currency purchase of any product from that nation in the future

A) fails to specify the type of product that must be purchased

69) Which of the following is a contractual entry mode in which one company supplies another with intangible property and other assistance over an extended period? A) franchising B) management contract C) licensing D) strategic alliance

A) franchising

28) Which of the following steps of the strategy development process for exports involves performing market research and interpreting results obtained from the research? A) identification of a potential market B) match needs of the market to the company's abilities C) initiation of meetings D) commitment of resources

A) identification of a potential market

30) Which of the following is the first step in developing a successful export strategy? A) identification of a potential market B) match market needs to the company's abilities C) initiation of meetings D) commitment of resources

A) identification of a potential market

34) Which of the following occurs when a company sells its products to intermediaries who then resell to buyers in a target market? A) indirect exporting B) counterpurchase C) an acquisition D) a joint venture

A) indirect exporting

82) If Owen's HomeCare Products decides to sell their products to intermediaries who then resell them to buyers in target markets, the company would be engaging in ________. A) indirect exporting B) counterpurchase C) an acquisition D) a joint venture

A) indirect exporting

95) The board of directors of Sports Stuff is concerned with the firm's lack of experience in foreign markets. To minimize this problem, Herb recommends that the firm create a ________ with a local partner. A) joint venture B) turnkey project C) wholly owned subsidiary D) franchise

A) joint venture

37) The biggest advantage of an export management company is usually its ________. A) knowledge of the target market's cultural, political, legal, and economic conditions B) well-developed and extensive distribution channels and storage facilities C) well-rounded experience in countertrade-related activities D) financial understanding of investment projects and its manufacturing expertise

A) knowledge of the target market's cultural, political, legal, and economic conditions

46) Buyback is defined as ________. A) the export of industrial equipment in return for products produced by that equipment B) an agreement that a company will offset a hard-currency sale to a nation by making a hard-currency purchase of an unspecified product from that nation in the future C) the sale of goods or services to a country by a company that promises to make a future purchase of a specific product from that country D) the exchange of goods or services for a certain amount of money

A) the export of industrial equipment in return for products produced by that equipment

51) Advance payment is commonly used for export/import financing when ________. A) two parties are unfamiliar with each other B) the buyer has obtained credit for the transaction C) the transaction is for a relatively high amount D) the buyer has good credit rating at banks

A) two parties are unfamiliar with each other

55) ________ is a payment method commonly used when there is an ongoing relationship between the involved parties. A) Advance payment B) Documentary collection C) Letter of credit D) Open account

B) Documentary collection

53) Which of the following financing methods entails the greatest risk for importers? A) documentary collection B) advance payment C) letter of credit D) open account

B) advance payment

43) A company proposes that in exchange for a hard-currency sale, it will make a hard-currency purchase of an unspecified product from the buyer nation in the future. Which of the following is the company proposing? A) a counterpurchase B) an offset C) a buyback D) a barter

B) an offset

39) Which of the following refers to the exchange of goods or services directly for other goods or services without the use of money? A) offset B) barter C) counterpurchase D) switch trading

B) barter

59) Which of the following refers to a contract between the exporter and shipper that specifies merchandise destination and shipping costs? A) sight draft B) bill of lading C) letter of credit D) bill of exchange

B) bill of lading

40) Which of the following allows a country to earn back some of the currency it pays out for imports? A) switch trading B) counterpurchase C) buyback D) barter

B) counterpurchase

38) Selling goods or services that are paid for, in whole or part, with other goods or services is called ________. A) indirect exporting B) countertrade C) licensing D) a joint venture

B) countertrade

75) Which of the following types of joint ventures involve parties investing together in downstream business activities? A) backward integration B) forward integration C) multistage D) buyback

B) forward integration

92) Herb has been exploring another type of entry mode that requires ongoing assistance on the part of one firm, often in the form of start-up capital, management training, or location advice. Herb is most likely considering ________. A) a strategic alliance B) franchising C) licensing D) a joint venture

B) franchising

Scenario: Owen's HomeCare Products Owen McCain, owner of Owen's HomeCare Products, is considering going international. He feels that the products he manufactures will be well-received, especially in developing countries. He wants to understand the exporting process and then scale his exporting activities accordingly. 80) Through his research, Owen learns that the first step in developing a successful export strategy is ________. A) initiation of meetings with intermediaries B) identification of a potential market C) commitment of resources D) matching of market needs to company abilities

B) identification of a potential market

74) A ________ is a separate company created and owned by two or more independent entities to achieve a common business objective. A) wholly owned subsidiary B) joint venture C) strategic alliance D) turnkey project

B) joint venture

67) Which of the following is a contractual entry mode in which a company owning intangible property grants another firm the right to use that property for a specified period of time? A) franchising B) licensing C) management contract D) strategic alliance

B) licensing

88) Gro-Tru would be engaging in ________, if it decides that in exchange for a hard-currency sale it would make a hard-currency purchase of an unspecified product from the importing nation in the future. A) barter B) offset C) switch trading D) buyback

B) offset

65) Export/import financing in which an exporter ships merchandise and later bills the importer for its value is called ________. A) advance payment B) open account C) a letter of credit D) documentary collection

B) open account

Scenario: Wang's Techno Toys Ann Wang has been successfully running Wang's Techno Toys that sells high-tech toys in the domestic market. Continually increasing and stiff competition at home has now forced Wang's Techno Toys to enter international markets through direct exports. 83) Which of the following will most likely help Techno Toys sell its toys directly to buyers in the target market? A) agents B) sales representatives C) export management companies D) export trading companies

B) sales representatives

93) Which of the following entry modes would Sports Stuff be implementing if it hires a company to design, construct, and test a production facility on its behalf? A) joint venture B) turnkey project C) wholly owned subsidiary D) franchising

B) turnkey project

66) Which of the following is a contractual entry mode? A) wholly owned subsidies B) turnkey projects C) joint ventures D) strategic alliances

B) turnkey projects

68) Which of the following statements is true of licensing? A) Licensing restricts finances needed for international expansion. B) Cross licensing grants a company the right to use a property but does not grant it sole access to a market. C) A major advantage of licensing is that it is the least risky method of international expansion. D) Licensing increases the likelihood that a licensor's product will appear on the black market.

C) A major advantage of licensing is that it is the least risky method of international expansion.

70) Which of the following statements best differentiates between franchising and licensing? A) Licensing gives a company greater control than franchising over the sale of its product in a target market. B) Franchising is common in manufacturing industries while licensing is primarily used in service industries. C) Franchising requires ongoing assistance from the franchiser while licensing normally involves a one-time transfer of property. D) Licensees must often meet strict guidelines on product quality, day-to-day management duties, and marketing promotions unlike franchisees.

C) Franchising requires ongoing assistance from the franchiser while licensing normally involves a one-time transfer of property.

45) ________ is a countertrade whereby one company sells to another its obligation to make a purchase in a given country. A) Franchising B) Joint venture C) Switch trading D) Barter

C) Switch trading

77) Which of the following is a disadvantage of strategic alliances? A) They are the most expensive among the investment entry modes. B) They increase the likelihood that one partner will try to take advantage of the other. C) They create future competitors. D) They fail to tap into their competitors' specific strengths.

C) They create future competitors.

50) Which of the following normally takes the form of a wire transfer of money from the bank account of the importer directly to that of the exporter prior to shipment of merchandise? A) documentary collection B) letter of credit C) advance payment D) open account

C) advance payment

56) A document ordering the importer to pay the exporter a specified sum of money at a specified time is called a ________. A) bill of lading B) letter of credit C) bill of exchange D) management contract

C) bill of exchange

81) Which of the following steps would Owen implement toward the end while developing a successful export strategy? A) initiation of meetings with intermediaries B) identification of a potential market C) commitment of resources D) matching of market needs to company abilities

C) commitment of resources

Scenario: Gro-Tru Grows To Europe Gro-Tru, a maker of chemical fertilizers and pesticides, sees enormous growth potential in Central Europe. The company has received several inquiries from potential importers in the region, but in most cases, the potential importers have expressed difficulty in obtaining the hard currency to pay for Gro-Tru's products. Alistair Green, vice-president for business development, is exploring how Gro-Tru can meet the needs of the potential market. 86) Alistair has identified an option that might help the firm deal with the importer's inability to pay with hard currency. The option involves selling goods or services that are paid for in whole or part with other goods or services. Which of the following methods is Alistair considering? A) auction B) bidding C) countertrade D) tendering

C) countertrade

29) Which of the following steps of the strategy development process for exports involves establishing relationships with potential local distributors? A) identification of a potential market B) match market needs to the company's abilities C) initiation of meetings D) commitment of resources

C) initiation of meetings

72) Which of the following is an investment entry mode? A) licensing B) franchising C) joint venture D) turnkey project

C) joint venture

60) Which of the following is a method of export/import financing in which the importer's bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document? A) sight draft B) bill of lading C) letter of credit D) bill of exchange

C) letter of credit

Scenario: Sports Stuff Inc. Herb Graham is vice president of Sports Stuff Inc., a business that develops, manufactures, and markets sports products. The company is looking to expand its operations into the European market. Herb believes that if the company expands its product line to include products reflecting sports that are popular in Europe, the company will achieve success there. 91) Herb knows that much of the success his company enjoys is due to the patents and copyrights that protect the company's products. If Sports Stuff chooses an entry mode in which it grants another firm the right to use its intangible property for a specified period of time, it would be engaging in ________. A) a turnkey project B) franchising C) licensing D) a joint venture

C) licensing

78) Which of the following is a strategic factor that influences a company's international entry mode selection? A) market consumption capacity B) market receptivity C) market size D) market intensity

C) market size

89) One option that intrigues Alistair is the process in which one company sells to another its obligation to make a purchase in a given country. This arrangement is known as ________. A) barter B) offset C) switch trading D) buyback

C) switch trading

58) A(n) ________ becomes a negotiable instrument that can be traded among financial institutions when inscribed "accepted" by an importer. A) sight draft B) ocean bill of lading C) time draft D) inland bill of lading

C) time draft

94) The CEO of Sports Stuff has decided that the company needs to retain complete control over its operations in Europe. To achieve this objective, Herb would most likely recommend that the firm establish a ________. A) joint venture B) cross licensing agreement C) wholly owned subsidiary D) strategic alliance

C) wholly owned subsidiary

79) Which of the following statements is true of the strategic factors that influence a company's international entry mode selection? A) Low tariffs and high quota limits encourage market entry by means of investment. B) Companies that produce goods with high shipping costs prefer exporting. C) Companies set up production units in a host market if the total cost of production is lower in the home market. D) Markets that are likely to remain relatively small consider exporting as a viable option.

D) Markets that are likely to remain relatively small consider exporting as a viable option.

33) Which of the following is true of distributors? A) The use of distributors increases the exporter's control over the price buyers are charged. B) They are compensated with a fixed salary plus commissions based on the value of their sales. C) They are seldom required to take ownership of the merchandise when it enters their country. D) They can stunt the growth of the exporter's market share by charging very high prices.

D) They can stunt the growth of the exporter's market share by charging very high prices.

41) Which of the following is the oldest known form of countertrade? A) counterpurchase B) switch trading C) offset D) barter

D) barter

84) In some countries, people exchange electronic goods for Techno Toys instead of paying money for them. This practice is known as ________. A) offset B) counterpurchase C) switch trading D) barter

D) barter

47) A form of countertrade that usually typifies long-term relationships between the companies involved is called ________. A) barter B) franchising C) offset D) buyback

D) buyback

76) A ________ joint venture is formed when each partner requires the same component in its production process. A) backward B) multistage C) forward D) buyback

D) buyback

49) Which of the following is a method of export/import financing? A) offset B) buyback C) switch trading D) documentary collection

D) documentary collection

36) A(n) ________ exports products on behalf of an indirect exporter. A) local distributor B) subsidiary C) sales representative D) export management company

D) export management company

61) A(n) ________ allows the bank to modify the terms of the letter only after obtaining the approval of both exporter and importer. A) bill of exchange B) bill of lading C) confirmed letter of credit D) irrevocable letter of credit

D) irrevocable letter of credit

54) Which of the following financing methods entails the greatest risk for exporters? A) supersedeas bond B) advance payment C) letter of credit D) open account

D) open account

48) Which of the following statements is true of countertrade? A) Countertrade is practiced by countries when there is a lack of hard currency. B) Countertrade involves products whose prices on world markets tend to remain steady. C) Countertrade usually involves industrial products and computer softwares. D) Hedging risk in countertrade is prohibited.

A) Countertrade is practiced by countries when there is a lack of hard currency.

57) Which of the following requires an importer to pay for the imported goods when they are delivered? A) sight draft B) inland bill of lading C) air way bill of lading D) time draft

A) sight draft

90) In his research, Alistair discovers a type of arrangement in which industrial equipment is exported in return for products produced by that equipment. This arrangement is known as ________. A) barter B) offset C) switch trading D) buyback

D) buyback