International Business Module 2
Of the countries listed below, which one supplies the United States with huge amounts of electronic products and components?
China
Which of the following are benefits of doing business with major trading partners? (Check all that apply.)
Currency from the foreign country is available to pay for the exports. Satisfactory transportation facilities are already established. The business climate is already relatively favorable.
Which of the following actions has President Trump undertaken to address U.S. trade deficits?
Imposed tariffs Attempted to reduce trade imbalances with China Renegotiated trade treaties
Which of the following are true regarding foreign direct investment?
It includes the control of real or physical assets. It includes the ownership of real or physical assets. It includes the ownership of plants and other facilities.
Which of the following statements are accurate regarding an oligopolistic industry?
It is an industry with a limited number of competing firms. The actions of one firm can strongly affect the performance of others in the industry. Interdependence among firms increases the likelihood that firms will imitate their competition.
Which of the following statements are accurate regarding mercantilism?
It viewed precious metals such as gold and silver as the only source of wealth. It is a complex political and economic theory. It tended to create a trade surplus.
Which of the following countries have consistently remained on the list of top 15 nations from which the United States imports for the past 45 years? (Check all that apply.)
Italy Germany United Kingdom Japan
Which of the following are reasons why Mexico and Canada are major trading partners with the United States? (Check all that apply.)
Membership in NAFTA Lower freight charges Shorter delivery times
Which of the following statements are true regarding international trade?
Nations will attain a higher standard of living by specializing in goods for which they have a comparative advantage. International trade exists because firms export. Nations should import goods for which they have a comparative disadvantage.
Choose the selection that best depicts world trade in merchandise in 2016.
The largest merchandise exporters in 2016, in order were China, the United States, Germany, Japan, and the Netherlands.
Which statement best explains the trade in services based on international trade?
The primary-world nations experienced an absolute increase of the dollar volume of their service exports.
Which statement reflects how evenly trade has grown?
The proportion of merchandise exports coming from North America, Latin America, Europe, Africa, and the Middle East has decreased since 1983.
Which statement accurately portrays the volume of goods and services traded in 2017?
The volume of goods and services traded in 2017 was almost six times larger than the $4 trillion of trade in 1990.
The amount invested each year into other countries is referred to as _____.
annual FDI outflow
Economist David Ricardo's idea of a comparative advantage is based on the idea that when two countries are involved in trade, __________.
both countries can benefit from trade
When one nation is less efficient than another nation in the production of two goods, the less efficient nation has a(n) __________________ advantage in the production of that good for which its absolute disadvantage is les
comparative
The purchase of an existing business in another nation is called ________.
cross-border acquisition
A nation can attempt to regain competitiveness in world markets through currency _________________, which lowers the value of a nation's currency relative to other currencies and, as a result, lowers the prices of its exports.
devaluation
The annual FDI investments going into _________________ (developed/developing) countries has been decreasing.
developed
Which term means the predictable decline in the average cost of producing each unit of output as a production facility gets larger and output increases?
economies of scale
Perfect competition results in _______.
efficient allocation of products efficient production
An __________ rate is used to convert from foreign currency to domestic currency,
exchange
True or false: Doing business with a nation's major trading partner can be disadvantageous because cultural objections are still prevalent.
false
True or false: Nations should import goods for which they have a comparative advantage.
false
Which of the following are contributing to increases in foreign direct investment?
fewer government barriers to trade increased competition from globalizing firms new production and communication technologies
_____ includes both ownership and control of real or physical assets such as plants and other facilities.
foreign direct investment
A ____________ investment is the establishment of new facilities from the ground up.
greenfield
As a result of their continued economic development, developing countries have dramatically __________ (increased/decreased) their share of FDI stock.
increased
The initial stage of the international product life cycle is _______.
innovation
After analyzing which nations account for the most exports and imports, it is evident that international trade _____.
is unevenly distributed across the world
Which of the following are liabilities associated with being a foreign company in an international investment?
lack of knowledge about local market conditions increased costs of doing business at a distance differences in cultures and language
Which of the following reasons explain why companies start with foreign trade prior to foreign direct investment? Foreign trade is _______.
less risky less costly
What amount of exports from developing nations go to developed countries?
less than half
For a firm to have a ____________-specific advantage overseas, the foreign market must have specific economic, social, or political characteristics.
location
Which theory suggests that foreign direct investment is made by firms in industries with relatively few competitors, due to their possession of technical and other advantages over indigenous firms?
monopolistic advantage theory
The strategic behavior theory suggests that strategic rivalry between firms in a(n) _____ industry will result in firms closely following and imitating each other's international investments in order to keep a competitor from gaining an advantage.
oligopolistic
Annual FDI ______ is the amount invested each year into other nations.
outflow
What were some of the largest categories of exports to China from the United States in 2016?
passenger cars civilian aircraft soybeans
_____________ competition is the market situation in which there is a sufficiently large number of well-informed buyers and sellers of a homogeneous product such that no individual participant has enough power to determine the price of the product.
perfect
In balance-of-payments accounting, an export that brings money to the country is considered _____________(positive/negative), while imports that cause monetary outflow are labeled _____________(positive/negative).
positive negative
According to the economic theory of mercantilism, the only source of wealth was _____.
precious metals
The unique differences that producers build into their products with the intention of influencing demand is called _______.
product differentiation
The EU and ASEAN have reinforced the increasing _______________ (regionalization/globalization) of trade.
regionalization
The land, labor, capital, and related production factors that a nation possesses are called _______.
resource endowments
For the past 20 years, international trade in __________ (merchandise or services?) has seen the fastest growth.
services
For a firm to have a location-specific advantage overseas, the foreign market must have specific ______ characteristics. (Check all that apply.)
social political economic
Which of the following are reasons why firms tend to cluster together on a geographic basis?
specialized local suppliers shared technological information pooling of a common labor force
A trade _______________ is the amount by which the value of a nation's exports exceeds the value of its imports.
surplus
The book value of all foreign direct investment refers to the value of the _____.
total outstanding stock
True or false: The international product life cycle theory is demonstrated by the fact that personal computers were initially introduced in the United States but over time their production has moved overseas and they are now imported into the United States.
true
What amount of exports from developed economies go to other industrialized nations?
two thirds
World trade tends to be dominated by exchanges ______ geographic regions.
within
Which of the following assumptions must be present when arguing the internalization theory?
A firm must have superior knowledge over its competitors.
If Ecuador has an absolute advantage in coffee and Argentina in wheat, then, according to trade theory
Ecuador should focus production on coffee and trade for other goods.
Although all regions of the world have experienced an absolute increase in the dollar volume of service exports, the proportion of world exports of commercial services from which of the following regions has declined since 1980? (Check all that apply.)
European Union Africa Middle East
How are exchange rates used in international trade?
Exchange rates are used to convert from foreign to domestic currency.
When examining the volume of international trade, how are goods and services currently represented?
Exports of services grew faster than trade in merchandise for the last 20 years.
Natalie purchases Open Source bottled water from France because it is derived from natural springs and the store brand doesn't say where it comes from. What is influencing Natalie's purchase decision?
product differentiation
Which of the following are reasons why foreign direct investment in the United States has focused on the acquisition of existing companies rather than new ones?
rapid access to U.S. technology corporate restructuring greater success with a known brand name
Which of the following are reasons why many Asian countries are both import and export partners of the United States?
Their governments have been pressured by the U.S. government to lower their trade surplus. Their rising standards of living enable their people to afford more imported products. They are purchasing large amounts of capital goods to further their industrial expansion.
Which of the following are reasons why many Asian countries are both import and export partners of the United States? (Check all that apply.)
Their governments have been pressured by the U.S. government to lower their trade surplus. Their rising standards of living enable their people to afford more imported products. They are purchasing large amounts of capital goods to further their industrial expansion.
What exists when a nation can produce more of a good or service than another country for the same or lower cost of inputs?
absolute advantage
Supporters of mercantilism would agree that
accumulation of precious metals is an activity essential to a nation's welfare.
According to the theory of overlapping demand, goods produced for domestic consumption will eventually be exported to countries with _____.
similar income per capita similar demand
Which of the following is NOT a liability associated with being a foreign company in an international investment?
similarities in culture and language
Which theory suggests that strategic rivalry between firms in an oligopolistic industry will result in firms closely following and imitating each other's international investments in order to keep a competitor from gaining an advantage?
strategic behavior theory
The experience curve refers to
the predictable decline in the average cost of producing each unit of output as a production facility gets larger and output increases.
When the value of imports into a nation exceeds the value of its exports, that nation is experiencing a(n)
trade deficit
An industry that has a limited number of competing firms, such as the U.S. mobile phone market in which four firms controlled 98 percent of the market in 2018, is known as
an oligopolistic industry.
Since 1983, the proportion of world trade coming from the United States has
decreased overall. ???
A trade _________ is the amount by which the value of imports into a nation exceeds the value of its exports.
deficit
Currency ______ lowers the value of a nation's currency relative to other currencies and therefore effectively lowers the prices of its exports.
devaluation
A major portion of the exports from developing countries go to ________ countries, and this proportion has been ________.
developing; increasing ????
The idea that a denim manufacturer in the United States can export its products to China while at the same time a Chinese manufacturer in the denim market can export to the United States because each of the product lines has unique qualities demonstrates the idea of product ____________
differentiation
The foreign investment component known as _________ requires investors to participate in the management of the firm.
direct investment
The ______ theory suggests that for a firm to be successful overseas, it must have ownership of unique knowledge or resources and be able to sustain them over time.
dynamic capability
Which theory is currently the most widely cited and accepted theory of foreign direct investment?
eclectic theory of international production
Which theory of FDI proposes an overall framework for explaining why firms choose to engage in FDI rather than serve foreign markets through alternatives such as exporting, licensing, or strategic alliances?
eclectic theory of international production
Franz was happy to report to the management team that its larger production facility made it possible to increase the number of bicycles produced and also decrease the cost of each bicycle. Which of the following explains this scenario?
economies of scale
Which of the following were among the largest categories of imports from China to the United States in 2016?
electrical machinery footwear toys
After its first two years in business, Lennart's company realized that by purchasing component parts from Indonesia, it could save 12% in the final cost of goods. Lennart's company was able to improve its efficiency based on the knowledge it gained during its first two years in business. This example demonstrates the idea of the _______.
experience curve
The ______ refers to the rising scale on which efficiency improves as a result of cumulative experience and learning
experience curve
Which of the following mercantilist policies are currently being practiced in China, thus giving price advantages to Chinese companies? (Check all that apply.)
export subsidies undervalued currency lax regulatory oversight
For a number of different reasons, a government may impose tariffs. When these add significantly to the cost of the goods, consumers might not want or be able to purchase a firm's products. Under these conditions, the least effective strategy would be
exporting
If a product is bulky or heavy, transportation costs increase, and unless the product has an extremely high value-to-weight ratio, the least effective strategy would be
exporting
Nations encounter a trade surplus when the value of
exports exceeds the value of imports.
Which variable in Michael Porter's diamond model distinguishes between land, location, or natural resources and transportation systems or university research institutes?
factor conditions
Which of the following are the four variables in Michael Porter's diamond model of national advantage?
factor conditions demand conditions firm strategy, structure, and rivalry related and supporting industries
True or false: Historically, foreign trade has followed foreign direct investment.
false
True or false: Two-thirds of the value of corporate investments made in the United States from abroad has been spent establishing new businesses.
false
Although the mercantilist era ended, we still define a(n) ______ trade balance to mean that a nation exports more goods and services than it imports
favorable
If a firm has valuable know-how that cannot be adequately protected by contracts, and there is reason to believe that additional costs through transportation or tariffs would be high, the most effective approach would be
foreign direct investment
If a firm needs to maintain tight control over a foreign operation, and there is reason to believe that additional costs through transportation or tariffs would be high, the most effective approach would be
foreign direct investment
If a firm's competitive advantage comes from skills and capacities that may be difficult to transfer or protect, and there are reasons to believe that additional costs through transportation or tariffs would be high, the most effective approach would be
foreign direct investment
The establishment of new facilities from the ground up is known as
greenfield investment.
The dynamic capability theory suggests that in order for an international foreign direct investment to be successful, the firm must _______.
have the ability to dynamically create, sustain, and exploit the capability over time have the ability to transfer the capability to international environments in order to produce a competitive advantage have ownership of unique knowledge and resources
The proportion of service exports from the United States has _________ (increased or decreased?) in the past three decades.
increased
The volume of FDI flowing into developing countries has been
increasing
The _____ advantage of the eclectic theory of international production suggests that it is in a firm's best interest to exploit its ownership-specific advantages by retaining ownership and control.
internalization
Which advantage of the eclectic theory of international production involves retaining ownership and control, where either the market does not exist or it functions inefficiently, making the transaction cost of market-based options too high?
internalization
The theory that to obtain a higher return on its investment, a firm will transfer its superior knowledge to a foreign subsidiary that it controls, rather than sell it in the open market is known as
internalization theory
Which FDI theory suggests that due to high transaction costs, a firm may obtain a better price by using the superior knowledge itself than by selling the knowledge on the open market?
internalization theory
If a firm's know-how, skills, and capabilities can be protected by contract, and if tight control over foreign operations is not vital to remain competitive, and there are reasons to believe that additional costs through transportation or tariffs would be high, the most effective approach would be
licensing
Which of the following three are the basic types of tangible and intangible ownership-specific advantages?
monopolistic advantages economies of scale or scope knowledge or technology
A nation's ability to design, produce, distribute, or service products within an international trading context while earning increasing returns on its resources is known as ________.
national competitiveness
According to economist Alfred Marshall, firms that cluster together on a geographic basis can achieve
national competitiveness
xA nation's ability to design, produce, distribute, or service products within an international trading context while earning increasing returns on its resources is known as ________.
national competitiveness
An _____________ industry has a limited number of competing firms, such as the U.S. mobile phone marke
oligopolistic
Which theory argues for the existence of similar preferences and demand for products and services among nations with similar levels of per capita income?
overlapping demand
Which advantage of the eclectic theory of international production suggests that a firm has or can develop a firm-specific advantage through ownership of tangible and intangible assets that are not available to other firms and that can be transferred abroad?
ownership-specific advantage
Place the stages of the international product life cycle (IPLC) in the correct order from first to last.
1. US Exports 2. Foreign production 3. Foreign competition in export markets 4. Import competition in US markets
Deals that do not result in a foreign investor obtaining at least ________ of the shareholdings are classified as portfolio investments.
10%
The book value of all foreign direct investment refers to the value of the _____.What percentage of global output is destined for international trade?
60%
The top 10 trading partners of the United States accounted for ____ of total U.S. exports in 2017.
66%
Choose the selection that best depicts the direction of world trade in 2015.
About half of the exports from developing nations go to developed countries.
Although trade has increased globally, the proportion of world trade coming from which of the following regions has actually decreased since 1980? (Check all that apply.)
Africa North America Middle East
Today, which country is seen by many as the "fortress of mecantilism"?
China
Which country has become the world's largest exporter?
China
Which nation ranks number one in exports of merchandise?
China
Match the statements about international trade with the correct term.
Direction of Trade: More than half of exports from developing countries go to developed countries. Regionalization of Trade: A significant amount of trade occurs within trade areas. Relevance of Major Trading Partners for Managers: Favorable business climate exists in importing nation. Major U.S. Trading Partner: Mexico or Canada Trade deficit: U.S. trade relationship with China Trade surplus: Value of exports exceeds value of imports.
Overall, what has occurred with the dollar volume of service exports worldwide?
Overall, what has occurred with the dollar volume of service exports worldwide?
Melissa wonders which countries are the biggest trading partners with the United States. Which country was not one of the biggest trade partners of the United States in 2017?
Spain
Green Fields Coffee Co. introduced its line of herbal coffees to the international market two years ago. They were well received and now foreign competitors are starting to appear. Which stage of the product life cycle theory is the company currently in?
Stage 3?
Easy Play Audio/Video Corp. has been selling audio and video equipment to the international market for six years. Recently, the company decided to drop its line of televisions because the United States is importing televisions at a lower cost than the company can make their television. Which stage of the product life cycle theory is the company currently in?
Stage 4
Mexico and Canada are major U.S. trading partners because they have the benefit of lower freight charges and shorter delivery times. Why do these benefits exist for these two nations?
They established these parameters in the NAFTA agreement.
If Indonesia can produce more clothing products than the United States and do so for a lower cost, then Indonesia is said to have a(n)
absolute advantage
The theory of resource endowment explains
that a nation will trade goods that can be produced with the production factor that is most abundant.
