International Business Exam 2
Quota
A ________ is a numerical limit on the quantity of a good that may be imported into a country during some time period.`
False
A common market requires that member nations create a common currency.
Vertical Integration
A company can achieve market power through ________.
True
A compound tariff on an imported product is calculated partly as a percentage of its stated price and partly as a specific fee for each unit.
voluntary export restraint
A country imposes a tariff on goods that it sells abroad at the request of another nation. This is an example of a(n) ________.
Balance of payments
A country's ________ is a summary of all economic transaction between one country and the rest of the world, over a given period of time.
Construct a new facility in a foreign market
A greenfield investment is another name for a company's decision to ________.
True
A group of nations in a geographic region undergoing economic integration is called a regional trading bloc.
high-income economies
A majority of the total world merchandise trade occurs among ________.
True
A voluntary export restraint refers to a quota that a nation imposes on its exports, usually at the request of another nation.
internationalization
A(n) ________ advantage is the one that a company gains from incorporating a business activity within itself rather than leaving it to a relatively inefficient market.
Tariff rate quota
A(n) ________ imposes a low tariff rate on a limited amount of imports of a specified good, but imposes a prohibitively high tariff on the good above that limited amount.
Foreign trade zone
A(n) ________ is a geographic area where imported or exported goods receive preferential tariff treatment.
Embargo
A(n) ________ is an absolute ban on the exporting and importing of goods to a particular destination.
Countervailing duty
A(n) ________ is calculated to offset the advantage an exporter receives from a subsidy.
Economic union
A(n) ________ requires member nations to harmonize their tax, monetary, and fiscal policies and create a common currency.
True
According to Adam Smith, international trade should not be restricted by tariffs and quotas in order to give a country an absolute advantage.
True
According to Michael Porter, advanced factors account for the sustained competitive advantage a country enjoys in a product.
Infant industry
According to the ________ argument, as an industry grows and matures, it gains the knowledge it needs to become more innovative, efficient, and competitive.
False
According to the eclectic theory that explains FDI, an ownership advantage is the advantage that arises from internalizing a business activity rather than leaving it to a relatively inefficient market.
New product stage
According to the international product life cycle theory, in which of the following stages is a good produced in the home country because of uncertain domestic demand and to keep production close to the research department?
False
According to the market imperfections theory, competition is a common market imperfection.
False
All factors of production are internationally mobile.
False
An absolute advantage is the economic and strategic advantage gained by being the first company to enter an industry.
True
An embargo is the most restrictive nontariff trade barrier available.
False
An import tariff is levied by the government of a country that a product is passing through on its way to its final destination.
Economic nationalism
Another term for neomercantilism is ________.
Labor
Both absolute and comparative advantage theories assume that ________ is the only resource used in the production process.
True
Canada and the United States are early examples of political unions.
False
Consumers are benefitted when a government imposes import quotas on products.
Free trade area
Countries belonging to a ________ maintain whatever policies they see fit against nonmember countries.
Voluntary export restraint
Countries might impose a(n) ________ in response to the threat of an import quota or total ban on a product by an importing nation.
voluntary export restraint
Countries might impose a(n) ________ in response to the threat of an import quota or total ban on a product by an importing nation.
False
Customs duties decrease the total amount of a good's production cost.
True
Developed countries have historically been the major participants behind cross-border mergers and acquisitions.
maturing product stage
During which stage of the international product life cycle theory does demand rise and remain sustained for a fairly lengthy period of time?
True
Economist David Ricardo developed the theory of comparative advantage.
Merchandise
Exports and imports of computer software, electronic components, and apparel are included in the ________ account of a country's balance of payments.
Merchandise
Exports and imports of tangible goods are included in the ________ account of a country's balance of payments.
Services
Exports and imports of tourism and business consulting are included in the ________ account of a country's balance of payments.
True
Factor proportions theory states that a country will produce and export those goods that require resources abundantly available within the country.
suppliers who have close working relationships with producers
Firms engage in FDI when the firms they supply have already invested abroad. This practice of "following clients" is observed in industries having ________.
True
Firms from emerging markets account for a greater share of global mergers and acquisitions than developed markets.
True
Foreign direct investment is acquisition of foreign assets for the purpose of controlling them.
implies that the national government exerts minimal influence on the exporting and importing decisions of private firms
Free trade ________.
European Coal and Steel Community
In 1951, Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands signed the Treaty of Paris and created the ________.
False
In a customs union, each country can maintain whatever policy it sees fit against nonmember countries.
False
In the maturing product stage of the international product life cycle theory, increased competition creates pressures to reduce production costs.
standardized product stage
In which stage of the international product life cycle does the innovating firm's country become a net importer of the product?
True
Increasing globalization is causing a growing number of international companies from emerging markets to undertake FDI.
True
Industries considered essential to national security often receive government-sponsored protection.
True
International trade is the purchase, sale, or exchange of goods and services across national borders.
trade protectionism may make it difficult for a company to buy what it needs from foreign suppliers
Managers should understand the effect of trade protectionism because ________.
True
Mercantilism states that nations should only concern themselves with accumulating financial wealth.
False
Mercantilism views competition for the world's wealth as a positive-sum game.
True
Mercantilist countries used to amass wealth by acquiring less-developed territories around the world.
True
National competitive advantage theory states that a nation's competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.
True
National competitive advantage theory states that a nation's competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.`
Mercantilism
Nations following the theory of ________ believed that the world's wealth was limited and that a nation could increase its share of the pie only at the expense of its neighbors.
True
Nations often restrict trade in goods and services to achieve cultural objectives, the most common being protection of national identity.
True
Ombudsman and Data Protection Supervisor are the EU institutions that fulfill secondary and support roles.
False
Portfolio investment is the purchase of physical assets of a company in another country to gain a degree of management control.
Transit tariff
Products manufactured in Brazil are transported through Mexico on their way to England. Mexico applies a tariff on the goods. What type of tariff is implemented by Mexico?
True
Products that are of use in both industrial and military applications are designated as dual-use products.
administrative delays
Purposely understaffing customs offices to cause time delays, requiring special licenses that take a long time to obtain, and requiring air carriers to land at inconvenient airports are all examples of ________.
regionalism
Regional economic integration is also referred to as ________.
Administrative delays
Regulatory controls or bureaucratic rules designed to impair the rapid flow of imports into a country are called ________.
True
Restrictions on the convertibility of one currency into others is called currency controls.
The merger would bring in increased cash-flows that Blickinstock can use to acquire other firms.
Scenario: Blickinstock at the Crossroads Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock's vice president of global business development, will be making a presentation to the board outlining the company's options. Blickinstock has identified a company that it can acquire or merge with. Which of the following statements would represent the least likely reason for Blickinstock to go ahead with the merger?
Protect its balance of payments
Scenario: Blickinstock at the Crossroads Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock's vice president of global business development, will be making a presentation to the board outlining the company's options. If Blickinstock's home government tries to stop the company from investing in Latin America, the government is most likely trying to ________.
protect its balance of payments
Scenario: Blickinstock at the Crossroads Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock's vice president of global business development, will be making a presentation to the board outlining the company's options. If Blickinstock's home government tries to stop the company from investing in Latin America, the government is most likely trying to ________.
the low-wage, 130-mile-wide strip along the U.S.-Mexico border that comprises a special economic region
Scenario: Blickinstock at the Crossroads Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock's vice president of global business development, will be making a presentation to the board outlining the company's options. If board members ask about the maquiladora industry, Keith would explain that it refers to ________.
foregin direct investment
Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. GMI's investments are examples of ________.
Greenfield investment
Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. GMI's subsidiary for component B in Thailand is best described as a(n) ________.
the capital accounts of Brazil and the United States
Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. In which of the following accounts would GMI's purchase of the company in Brazil appear?
Rationalized
Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. Which of the following systems of production is used by GMI?
Current account surplus
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. Happyland's international trade situation illustrates that the country is experiencing a ________.
Services
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. If Happyland advertises its beaches and attracts tourists, the tourism-related income would be recorded in its ________ account.
Merchandise
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. Transactions involving the export of Happyland's textile and computer products are included in its ________ account.
Performance demands
Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. Which of the following methods will Happyland use to discourage foreign direct investment inflows?
True
Tariffs are a source of government revenue mostly among developing nations.
True
Tariffs are taxes placed on goods being imported into a country. A tariff can act as a barrier to trade by increasing the cost of the imported goods to the consumers.
True
Tariffs tend to exact a cost on countries as a whole because they reduce consumer choices.
Home countries to promote FDI
Tax breaks on profits earned abroad and political pressures are used by ________.
Legislative
The Council of the European Union is the ________ body of the European Union.
True
The Court of Justice is the court of appeals of the European Union.
Executive
The European Commission is the ________ body of the European Union.
False
The European Free Trade Association focuses on trade only in consumer goods, and not in manufactured goods.
True
The European Union (EU) and European Free Trade Association (EFTA) created the European Economic Area (EEA).
Regional
The European Union is an example of ________ integration.
European monetary union
The European Union plan that established its own central bank and currency in January 1999 is known as the ________.
True
The Maastricht Treaty called for political union of the member nations.
True
The Southern Common Market is also referred to as MERCOSUR.
Income payments
The ________ account within the United States' current account includes financial gains compensated to entities in other nations that is earned on assets they hold in the United States.
income payments
The ________ account within the United States' current account includes financial gains compensated to entities in other nations that is earned on assets they hold in the United States.
Smoot-Hawley Act
The ________ altered the U.S. trade policy from a stance of free trade to one of protectionism in the 1930s.
Current account
The ________ records exports and imports of goods and services, investment income, and gifts.
International product life cycle
The ________ theory states that a country's export eventually becomes its import.
Market power
The ________ theory states that a firm tries to establish a dominant presence in an industry by undertaking foreign direct investment.
Factor Proportions
The ________ theory states that countries produce and export goods that require resources available in abundance and import goods that require resources in short supply.
Market imperfections
The ________ theory states that when an aspect of the market makes a transaction less efficient than it could be, a company will undertake foreign direct investment to internalize the transaction and thereby remove the efficiency-reducing aspect.
True
The ability of a nation to produce a good more efficiently than any other nation is called its absolute advantage.
Central american common market
The common market between Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua is referred to as the ________.
trade deficit
The condition that results when the value of a country's imports is greater than the value of its exports is called ________.
False
The eclectic theory states that firms undertake foreign direct investment only when the features of a particular location make the location appealing for investment.
Forward integration
The extension of a company's activities into stages of production that absorb the company's outputs is known as ________.
True
The factor proportions theory of international trade was developed by Heckscher-Ohlin.
True
The increase in the level of trade between nations that results from regional economic integration is called trade creation.
Manufactured goods
The international product life cycle theory was put forth for ________.
most members trade more with nonmembers than they do with each other
The main challenge facing the Caribbean Community and Common Market (CARICOM) is that ________.
False
The major purpose of foreign trade zones is to implement barriers to trade and commerce.
True
The most common economic reasons for nations' attempts to influence international trade are the protection of young industries from competition and the promotion of a strategic trade policy.
Import
The most common tariffs used today are the ________ tariffs.
True
The pattern of imports and exports that occurs in the absence of trade barriers is called free trade.
True
The possibility that a company will create a future competitor by charging another company for access to its knowledge is a market imperfection that can encourage foreign direct investment.
Market imperfection
The possibility that a company will create a future competitor by charging another company for access to its knowledge is a(n) ________ that can encourage FDI.
local contents requirements
The purpose of ________ is to force companies from other nations to use local resources in their production processes, particularly labor.
Market imperfection
The requirement that a sufficient portion of a product's content must originate within a certain market to escape tariff charges is an example of a(n) ________.
low-income and middle-income nations
The smallest portion of the total world trade comprises trade between ________.
governmental restrictions and competitive support actions to affect trade flows
The term protectionism, when applied to international trade, refers to ________.
False
The theories of comparative and absolute advantage assume that specialization in the production of one particular good results in efficiency gains.
zero-sum game
The theory of absolute advantage destroys the mercantilist idea that international trade is a ________.
True
The theory of absolute advantage destroys the mercantilist idea that international trade is a zero-sum game.
True
The theory of absolute advantage measures a nation's wealth by the standard of living of its people.
David Ricardo
The theory of comparative advantage was proposed by ________.
False
The value of trade passing through the borders of all countries always exceeds the amount of goods and services they produce.
Economic nationalism
Today, countries seen by others as trying to maintain a trade surplus and expand their national treasures at the expense of other nations are accused of practicing ________.
False
Today, the Southern Common Market acts as a political union.
True
Trade barriers and specialized knowledge are examples of market imperfections.
False
Trade deficit occurs when the value of a country's exports is greater than the value of its imports.
True
Trade in services tends to be relatively more important for the world's richest countries.
Developing countries
Using tariffs to generate government revenue is most common among ________.
income receipts account and given a plus sign
When a U.S. subsidiary in another country remits profits back to its parent company in the U.S., the receipt of profits is recorded in the ________.
True
When a company exports a product at a price lower than the price normally charged in its domestic market, it is said to be dumping.
comparative advantage
When a country is not able to produce a good more efficiently than other nations, but produces the good more efficiently than it does any other good, it is said to have a(n) ________.
positive-sum game
When there are gains to be had by both countries that are party to an exchange, international trade is considered a(n) ________.
Product Life Cycle Theory
Which international trade theory originated in the marketing field?
Income receipts account
Which of the following accounts within the current account of the United States' balance of payments includes financial gains earned on U.S. assets held abroad?
income receipts account
Which of the following accounts within the current account of the United States' balance of payments includes financial gains earned on U.S. assets held abroad?
Turkey
Which of the following countries has been facing difficulties in negotiations regarding its application for European Union membership?
Canada
Which of the following countries is a member of the North American Free Trade Agreement (NAFTA)?
United States
Which of the following countries is seen as a threat to national cultures around the world?
El Salvador
Which of the following countries of the Central American Common Market has adopted the U.S. dollar as its official currency?
Special government approval
Which of the following do products designated as dual use require before exports can take place?
Export-Import Bank
Which of the following financial companies in the United States is involved in activities of selling of goods abroad, and offers insurance on foreign accounts receivable?
European court of human rights
Which of the following institutions is least likely to play an important role in monitoring and enforcing economic and political integration in the European Union?
Globalization
Which of the following is a major driver of foreign direct investment?
local content requirement
Which of the following is a method of restricting trade?
...
Which of the following is an import tariff?
Export financing
Which of the following is an instrument that governments use to promote trade?
Norway
Which of the following is currently a member of the European Free Trade Association?
Foreign official assets
Which of the following is recorded in the capital account of a country's balance of payments?
Political union
Which of the following is the greatest extent of regional economic integration?
protection of national identity
Which of the following is the main cultural motive behind government intervention in trade?
Differential tax rates
Which of the following is used by home country governments to limit outbound foreign direct investment?
Political pressure
Which of the following is used by home-country governments to promote outbound foreign direct investment?
the Single European Act
Which of the following materialized the EU's goals of removing trade barriers, increasing harmonization, and enhancing the competitiveness of European companies?
Performance demands
Which of the following methods is used by a host country to restrict incoming foreign direct investment?
current account surplus
Which of the following occurs in a country's balance of payments when a country exports more goods and services and receives more income from abroad than it imports and pays abroad?
Unwanted cultural influence in a nation can cause governments to block imports that it believes are harmful.
Which of the following statements is true about cultural influences?
Tariffs
Which of the following will add to the cost of an imported product by levying an additional tax upon it?
Reduced utility rates
Which of the following would most likely be used as a subsidy to entice firms to locate or expand facilities in a particular community?
Internationalization theory
Which theory explains why a firm would choose to enter a foreign market via FDI rather than exploit its ownership advantages internationally through other means?
Absolute advantage
Which theory suggests that a country should export those goods and services for which it is more productive than other countries and import those goods and services for which other countries are more productive?
comparative advantage
Which theory suggests that a country should produce and export those goods and services for which it is relatively more productive than other countries and import those goods and services for which other countries are relatively more productive?
Adam Smith
Who proposed the theory of absolute advantage?
sunset industries
________ are those that use outdated and obsolete technologies or employ low-wage workers with few skills.
Dumping
________ can occur when a firm sells its goods in a foreign market at a price below what it charges in its home market.
Currency controls
________ make it more difficult for importers of nonessential goods to acquire foreign exchange.
cultural imperialism
________ refers to the unwanted cultural influence in a nation that can cause great distress and lead governments to block imports it believes to be harmful.
portfolio investment
________ represents passive holdings of securities such as foreign stocks, bonds, or other financial assets.