International Business Exam 3

Which of the following is a disadvantage of the integration facilitated by technology? (pg. 358-359)

"Shocks" that occur in one financial center now spreads around the globe very quickly.

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive ____. (pg297)

$1,500=1000 euros*$1.50

According to the law of one price, if the exchange rate between the British pound and the dollar is £1 = $1.50, a shirt that retails for $120 in New York should sell for _____ in London. (pg. 303)

$80=120/$1.50

EXTRA CREDIT What are the four basic strategies that firms use to compete in international markets? Describe each. (pg. 397-400)

1. Global standardization strategy- Firms focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies, They prefer to market a standardized product worldwide so that they can reap the maximum benefits from economies of scale and learning effects. 2. Localization strategy- focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets. By customizing that product offering to local demands, the firm increases the value of that product in the local market. 3. Transnational strategy- They are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects, They are able to realize many of the benefits of global manufacturing while reacting to pressures for local responsiveness by differentiating its product among national markets. 4. International strategy- Taking products first produced for their domestic market and selling them internationally with only minimal local customization.

To increase the potential for a successful acquisition, a firm should: (pg. 463-464)

1. Not pay too much for the acquired unit 2. Not uncover any nasty surprises after the acquisition 3. Acquire a firm whose organization culture is not antagonistic to that of the acquiring enterprise.

What is a capital market? Define market makers. (pg. 353)

A capital market is the part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments. Capital markets bring together those who want to invest money and those who want to borrow money. Market makers are the financial service companies that connect investors, either directly or indirectly. They include commercial banks and investment banks.

What is a currency swap?

A currency swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward) Swaps are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

When companies disperse different stages of the value chain to those locations around the world where perceived value is maximized or where the costs of value creation are minimized, companies create: (pg. 388)

A global web

What is a joint venture? What type of joint venture is most common? Provide an example of a joint venture. (pg. 458-459)

A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. Fuji Xerox for example is a joint venture between Xerox and Fuji. The most common type of joint venture is a fifty-fifty venture, in which there are two parties that hold a fifty percent ownership stake and contributing a team of managers to share operating control.

Discuss some of the advantages and disadvantages of establishing greenfield venture in a foreign country. (pg. 464-465)

Advantages: It gives the firm a much greater ability to build the kind of subsidiary company that it wants: it is much easier to build an organization culture from scratch than it is to change the culture of an acquired unit. It is easier to establish a set of operating routines in a new subsidiary than it is to convert the operating routines of an acquired unit. Disadvantages: They are slower to establish and risky. A degree of uncertainty is associated with future revenue and profit prospects. Also, the possibility of being preempted by more aggressive global competitors who enter via acquisitions and build a big market presence that limits the market potential for the greenfield venture.

Which of the following is an argument favoring centralization? (pg. 412-413)

Arguments for: 1. centralization can facilitate coordination. 2. centralization can help ensure that decisions are consistent with organizational objectives. 3. By concentrating power and authority in one individual or a managed team, centralization can give top-level managers the means to bring about needed major organizational changes. 4. Centralization can avoid the duplication of activities that occurs when similar activities are carried on by various subunits within the organization.

A Eurocurrency is any currency ____. (pg.362)

Banked outside of its country of origin

The value of a product to an average consumer is V; and the average price that the firm can charge a consumer for that product is P. Here, V - P can be termed as: (pg. 381- 382)

Consumer surplus per unit

What is countertrade? Why would a firm engage in countertrade?

Countertrade refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. Countertrade makes sense when a country's currency is nonconvertible. An example is one country trading goods for other goods that it can sell in the international market for their currency.

The emphasis on local responsiveness in firms pursuing a localization strategy creates strong pressures for: (pg. 413)

Decentralizing operating decisions to foreign subsidiaries

EXTRA CREDIT Which of the following is a disadvantage of global capital market?

Different accounting standards

It has been suggested that learning effects are important only during the start-up period of a new process and that they cease after two or three years. Any decline in the experience curve after such a point is due to: (pg. 389-390)

Economies of scale

_____ refer(s) to systematic reductions in production costs that have been observed to occur over the life of a product. (pg. 389)

Experience curve

If a service firm wants to build a global presence quickly and at a relatively low cost and risk, it must employ ____. (pg. 454)

Exporting

Discuss the characteristics of a firm that is pursuing an international strategy. (pg. 436)

Firms pursuing an international strategy attempt to create value by transferring core competencies from home to foreign subsidiaries. They operate with a worldwide product division structure. Headquarters typically maintains centralized control over the source of the firm's core competency, which is most typically found in the R&D and or marketing functions of the firm. The need for coordination is moderate and performance ambiguity is also moderate. Need for cultural controls are moderate also. Core competency is centralized, the rest is decentralized.

Early entrants to a market that are able to create switching costs that tie the customer to the product are capitalizing on _____. (pg. 449)

First mover advantages

Explain the floating exchange rate, fixed exchange rate, and pegged exchange rate. (pg 324, 336)

Floating exchange rate- When the foreign exchange market determines the relative value of a currency. EX: Four of the world's major currencies are all free to float against each other. Thus, their exchange rates are decided by market forces. Fixed exchange rate- The values of a set of currencies are fixed against each other at some mutually agreed-on exchange rate. Pegged exchange rate- A country will peg the value of its currency to that of a major currency. For example as the US dollar rises in value, the small country's currency that is pegging the US dollar will rise as well.

_____ are exchange rates governing some specific future date foreign exchange transactions. (pg. 299)

Forward exchange rates

Firms entering markets where there are no incumbent competitors to be acquired should choose: (pg. 464-465)

Greenfield venture

Describe the benefits of global expansion for firms: (pg. 386-391)

It allows firms to increase their profitability and rate of profit grown in ways not available to domestic enterprises. Firms that operate internationally are able to: 1. Expand the market for their domestic product offerings by selling those products in international markets. 2. Realize location economies by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively. 3. Realize greater cost economies from experience effects by serving an expanded global market from a central location, thereby reducing the costs of value creation. 4. Earn a greater return by leveraging any valuable skills developed in foreign operations and transferring them to other entities within the firm's global network of operations.

Which of the following is an advantage of using the gold standard? (pg. 325)

It contained a powerful mechanism for achieving balance of trade equilibrium by all countries.

Organizational structure means all of the following, EXCEPT: (pg. 411)

It means: 1. The formal division of the organization into subunits such as product divisions, national operations, and functions. 2. the location of decision-making responsibilities within that structure 3. The establishment of integrating mechanisms to coordinate the activities of subunits, including cross-functional teams and or regional committees.

Firms engaging in a _____ with a local company can benefit from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems. (pg. 458-459)

Joint venture

An arrangement whereby a firm grants the right of intangible property to another entity for a specified time period in exchange for royalties is a(n) _____ agreement. (pg. 455)

Licensing agreement

Compare and contrast licensing agreements and franchising agreements. (pg. 455-457)

Licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to another entity for a specified period, and in return, the lecensor receives a royalty fee from the licensee. Franchising is like licensing, except franchising tends to involve longer-term commitments than licensing. Franchising is basically a specialized from of licensing in which the franchiser not only sells intangible property (usually a trademark) to the franchisee but also insists that the franchisee agree to abide by strict rules as to how it does business. Both licensing and franchising involve royalty payments to those giving the licensor and franchisor. However, licensing is usually manufacturing firms, franchising is employed by service firms like McDonald's. Franchising has more disadvantages such as quality control and risk.

Which of the following will help a company hedge against currency fluctuations? (pg. 344)

Maintaining strategic flexibility can take the form of dispersing production to different locations around the world.

A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct? (pg. 297)

Multiply the cost in British pounds so 40*$1.50 which would mean that it costs $60 in Britain in American dollar terms. So you would buy in America.

The norms and values systems that are shared among the employees of a company are referred to as: (pg. 412)

Organizational culture

The costs of promoting and establishing a product offering when a firm enters a foreign market prior to its rivals are known as ____. (pg. 451)

Pioneering costs

_____ can be defined as the rate of return that the firm makes on its invested capital, which is calculated by dividing the net profits of the firm by total invested capital. (pg. 380)

Profitability

When an investor purchases a corporate bond, he purchases the right to receive a ____. (pg. 353)

Specified fixed stream of income from the corporation for a specified # of years.

When two parties agree to exchange currency and execute the deal immediately, the transaction is a: (pg. 298-299)

Spot exchange

EXTRA CREDIT Discuss strategic alliances. How successful are they? Why do firms form strategic alliances? (pg.465-469)

Strategic alliances refer to cooperative agreements between potential or actual competitors. The failure rate for international strategic alliances seems to be high. Study of 49 international strategic alliances found that two thirds run into serious managerial and financial troubles within two years of their formation. Other reasons for developing strategic alliances include the following: Forming economies of scale Enhancing competitiveness Dividing risks Setting new standards for technology Entering new markets Overcoming the competition in a market

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it, what will happen? (pg. 304-305)

The dollar will appreciate and the Yen will depreciate

Which of the following is the reason why the current foreign-exchange system is sometimes thought of as a managed-float system?

The frequency of government intervention in the foreign exchange market.

How does a global capital market, as compared to a purely domestic market, benefit investors? (pg. 353-358)

The global capital market benefits investors by providing a wider range of investment opportunities, thereby allowing them to build portfolios of international investments that diversify their risks. By using the global capital market, investors have a much wider range of investment opportunities than in a purely domestic capital market. In a purely domestic capital market, the pool of investors is limited to residents of the country. The liquidity of the market is limited.

A country is said to be in balance-of-trade equilibrium when____. (pg. 325)

The income its residents earn from exports is equal to the money its residents pay to other countries for imports.

ABC Bank is a financial corporation located in England and uses euro as its official currency. The company borrows 1 million U.S. dollars from a bank based in United States. ABC will be at a disadvantage if ____. (pg. 367)

Their currency depreciates relative to the dollar

The basic strategy paradigm suggests that to maximize its profitability, a firm should do all of the following, EXCEPT: (pg.383)

They should do: 1.Pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice. 2. Configure its internal operations, such as manufacturing, marketing, logistics, info systems, human resources, and so on, so that they support that position 3. Make sure that the firm has the right organization structure in place to execute its strategy

A dirty float refers to a situation in which ______?

They try to hold the value of their currency within some range against an important reference currency or a basket of currencies.

EXTRA CREDIT Which of the following observations is true of the Bretton Woods agreement? (pg. 326-327)

Too much typing. Just read the pages.

The need for coordination between subunits is highest in firms pursuing a(n): (pg. 436-437)

Transnational and global standardization

International businesses use foreign exchange markets for all of the following reasons except: (pg. 297-298)

Why they use them: 1. Convert payments in a foreign currency to home currency 2. They must pay a foreign company for its products or services in its country's currency 3. Have spare cash they wish to invest for short terms in money markets 4. Currency speculation

The _____ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. (pg. 303)

law of one price