ch6-11 total
30) A countervailing duty is an additional tariff placed on an imported product that a nation believes is receiving an unfair subsidy.
t
4) The main disadvantage of protection from import competition is the added cost of continuing to produce a good or service that could be supplied more efficiently by an international supplier.
t
5) Agriculture is typically protected for national security reasons.
t
54) Financial assistance to domestic producers in the form of cash payments is an example of a(n) ________. A) ad valorem tariff B) embargo C) subsidy D) export tariff
c
54) Which of these strategies are appropriate for companies in industries where buyer preferences do not converge across national borders? A) Retrenchment B) Global C) Multinational D) Stability
c
55) A company that integrates backward or forward can achieve market power through ________. A) ownership advantages B) horizontal integration C) vertical integration D) internalization
c
55) A strategy that establishes research and development (R&D), production, and marketing at the subsidiary level is called a ________ strategy. A) retrenchment B) global C) multinational D) stability
c
55) Eurobonds are popular because ________. A) they are less risky than traditional bonds B) they are always denominated in euros C) of the absence of government regulation D) European companies are considered very stable
c
28) The Jamaica Agreement saw the return of the fixed exchange rate system.
f
3) Today, all factors of production are internationally mobile.
f
4) Portfolio investment is the purchase of physical assets or a significant amount of ownership of a company in another country to gain a degree of management control.
f
5) A common market requires that member nations harmonize their tax, monetary, and fiscal policies, and that they create a common currency
f
5) All parties ranging from suppliers and employers to consumers who are affected by a company's activities are called its stockholders
f
5) Currency devaluation increases consumers' buying power.
f
7) In order to capture the gains from currency translation, managers prefer that exchange rates be volatile and unpredictable.
f
7) To increase market share by 5 percent in the next three years is an example of an objective at the highest level of the firm.
f
7) Two main reasons for foreign direct investment flows are globalization and diversity.
f
8) The most common economic reason for nations' attempts to influence international trade is preserving national security.
f
14) According to the eclectic theory, an internalization advantage is the advantage that arises from internalizing a business activity rather than leaving it to a relatively inefficient market
t
14) In regional economic integration, industries requiring mostly unskilled labor will tend to shift production to low-wage nations within a trading bloc
t
14) Receiving financing from government agencies is often crucial to the success of small businesses just beginning to export.
t
14) The nature of arbitrage is to level excessive fluctuations by destroying its own profitability.
t
15) A common purpose of many companies' facilities in foreign trade zones is final product assembly.
t
15) Inflation is the result of the supply and demand for a currency
t
15) The rate at which one currency is exchanged for another depends on the size of the transaction, the trader conducting it, and general economic conditions.
t
18) The four key approaches to corporate strategy are growth, retrenchment, stability, and combination.
t
18) Transit tariffs have been almost eliminated worldwide through trade agreements.
t
2) An excess money supply creates a borrowers market, forcing down interest rates and the cost of borrowing.
t
2) Exchange rates affect the translation of earnings into the home country currencies.
t
2) Factors of production include things such as labor, financial capital, capital equipment, and land or natural resources.
t
2) Industries considered essential to national security often receive government-sponsored protection.
t
48) The increase in the level of trade among nations that results from regional economic integration is called ________. A) trade diversion B) trade restriction C) trade creation D) trade embargo
c
51) The international bond market consists of all bonds sold by issuing companies, governments, or other organizations ________. A) within their own countries B) to London banks C) outside their own countries D) to developing nations only
c
53) Companies often establish largely independent, self-contained units in each national market under which of these strategies? A) Retrenchment B) Global C) Multinational D) Stability
c
53) One way a company can achieve market power is through ________. A) ownership advantages B) horizontal integration C) vertical integration D) balancing payments
c
53) Which of the following requires nations to give up the least amount of sovereignty? A) Economic union B) Common market C) Free trade area D) Political union
c
54) A bond issued by a Venezuelan company, denominated in U.S. dollars, and sold in Britain, France, and Germany is an example of a ________. A) Venobond B) Forobond C) Eurobond D) Latinobond
c
55) In 1951, Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands created the ________. A) European Union B) European Economic Community C) European Coal and Steel Community D) European Free-Trade Area
c
56) The Fisher effect can be written as follows: ________. A) Nominal Interest Rate = Real Interest Rate + Government Floor Rate B) Real Interest Rate = Nominal Interest Rate + Inflation Rate C) Nominal Interest Rate = Real Interest Rate + Inflation Rate D) Real Interest Rate = Nominal Interest Rate + Unemployment Rate
c
75) Exports and imports of computer software, electronic components, and apparel would be reflected in the ________ account within the current account. A) services B) capital C) merchandise D) corporate
c
75) Today, the United States exports more to ________ than it does to Britain, France, Germany, and Italy combined. A) China B) Japan C) Mexico D) South Korea
c
80) In a quoted exchange rate, the currency with which another currency is to be purchased is called the ________. A) base currency B) forward currency C) cross currency D) quoted currency
d
80) Tariff-quotas are used extensively in the trade of ________. A) manufactured goods B) services C) textiles D) agricultural products
d
83) The goals of the International Monetary Fund (IMF) include each of the following EXCEPT ________. A) facilitating expansion and balanced growth of international trade B) promoting international monetary cooperation C) making the resources of the fund available to members D) promoting regional economic union
d
84) Which of the following is NOT a characteristic upon which products are typically differentiated? A) Brand image B) Product design C) Quality reputation D) Low cost
d
85) An exchange rate calculated using two other exchange rates is called a(n) ________. A) arbitrage rate B) hedge rate C) forward rate D) cross rate
d
85) IMF members formalized the existing system of floating exchange rates as the new international monetary system by drafting the so-called ________. A) Bretton Woods Agreement B) Smithsonian Agreement C) Plaza Accord D) Jamaica Agreement
d
85) Which of the following would most likely be used by a host country to restrict incoming foreign direct investment? A) Differential tax rates for earnings abroad B) Insurance to cover the risk of overseas investments C) Low-interest loans to investors D) Performance demands
d
86) The only Western Hemisphere nation that would be excluded from participating in the Free Trade Area of the Americas (FTAA) is ________. A) Argentina B) Mexico C) the United States D) Cuba
d
15) According to the eclectic theory, an ownership advantage is the advantage of locating a particular economic activity in a specific location because of the characteristics of that location
f
16) A multinational strategy is best suited to industries in which price competitiveness is a key success factor.
f
16) The least amount of sovereignty that must be surrendered to the trading bloc occurs in a political union
f
16) The practice of insuring against potential losses that result from adverse changes in exchange rates is called currency arbitrage.
f
17) A way to cool off an inflationary economy is to lower interest rates.
f
17) The goal of the Single European Act was to reduce the ability of European companies to compete against companies from Japan and North America
f
18) There are two components of every quoted exchange rate: the debt and the equity rates.
f
2) A written statement of why a company exists and what it plans to accomplish is referred to as its core competencies.
f
20) Forward exchange rates are perfect predictors of future exchange rates.
f
20) Scale refers to the kinds of activities a firm performs and scope to the size of activities
f
20) The Mexican maquiladora project was built upon the success of the border project between Germany and Poland
f
21) Proponents of the efficient market view of exchange rates believe that companies can search for new pieces of information to improve forecasting.
f
22) A country may impose export quotas to protect its domestic producers from international competition.
f
22) An exchange rate requiring delivery of the traded currency within two business days is called a cross rate.
f
22) Like the European Union (EU) commissioners, EU justices are required to act in the interest of their native countries
f
23) If you are traveling to another country and want to exchange currencies at your bank before departing, you will be quoted the spot rate since you are exchanging on the spot.
f
23) The value of a currency expressed in dollars is called its par value.
f
24) The primary disadvantage of the gold standard was that it increased exchange-rate risk.
f
25) A differentiation strategy works best with mass-marketed products aimed at price-sensitive buyers.
f
25) Forward contracts belong to a family of financial instruments called arbitrage.
f
26) Centralized decision making is beneficial when fast-changing national business environments put a premium on local responsiveness.
f
26) If a currency's forward rate is higher than its spot rate, the currency is trading at a discount.
f
26) Restricting the convertibility of one currency into others is called administrative delay.
f
26) The income payments account includes income earned on home country assets held abroad
f
27) A current account deficit occurs when a country exports more goods and services and receives more income from abroad than it imports and pays abroad
f
27) Today, the Southern Common Market (MERCOSUR) acts as a political union
f
28) A global matrix structure is an organizational structure that divides worldwide operations according to a company's product areas.
f
28) The Caribbean Community and Common Market (CARICOM) was formed in 1961 as a common market between Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua
f
29) A convertible currency (or soft currency) is traded freely in the foreign exchange market with its price determined by the London banks.
f
29) One reason a home country may discourage foreign direct investment outflows is to protect its "sunset" industries
f
3) A common market area is the greatest extent of national integration
f
3) Investors increase risk by holding international securities whose prices move independently.
f
3) The intentional raising of the value of a currency by a nation's government is called devaluation.
f
30) The Asian currency crisis was primarily caused by the lack of funding from the International Monetary Fund and the World Bank.
f
30) The most common self-managed teams in many manufacturing companies are downsizing teams.
f
30) The primary purpose of the Gulf Cooperation Council (GCC) at its formation was to create a political union between Iraq and Iran
f
6) Countries belonging to the free-trade area must concede a certain amount of their national autonomy (or sovereignty) to the supranational union of which they are a part
f
6) Increased regulation of national capital markets has been instrumental in the expansion of the international capital market.
f
8) A core competency is a company skill that competitors can easily imitate.
f
8) A political union requires nations to accept a common stance on all economic and political policies within their territories
f
21) International transactions between two currencies other than the U.S. dollar often use the dollar as a vehicle currency.
t
21) The Court of Justice is the court of appeals of the European Union
t
21) The soaring cost of developing subsequent stages of technology has led multinationals to engage in cross-border alliances and acquisitions
t
21) Weaker competitors often resort to retrenchment when national business environments grow more competitive.
t
22) Technical analysis employs charts of past trends in currency prices and other factors to forecast exchange rates.
t
22) The practice of "following clients" can be expected in industries where many component parts are obtained from suppliers with whom a manufacturer has a close working relationship
t
22) The purpose of a combination strategy is to mix growth, retrenchment, and stability strategies across a corporation's business units.
t
23) In industries with a limited number of large firms, foreign direct investment decisions frequently resemble a "follow the leader" scenario
t
23) The European Union (EU) and European Free Trade Association (EFTA) created the European Economic Area to cooperate on matters such as the free movement of goods, persons, services, and capital
t
23) The key to developing an effective business-level strategy is deciding on a general competitive strategy in the marketplace
t
24) A country's balance of payments is a national accounting system that records all payments to entities in other countries and all receipts coming into the nation
t
24) A negative aspect of the low-cost leadership strategy is low customer loyalty.
t
24) Forward rates represent the expectations of currency traders and bankers regarding a currency's future spot rate.
t
24) North America was about three decades behind Europe in taking major steps toward economic integration
t
25) The Bretton Woods Agreement was an accord among nations to create a new international monetary system based on the value of the U.S. dollar.
t
25) The North American Free Trade Agreement membership includes Canada, Mexico, and the United States
t
25) The merchandise account includes exports and imports of tangible goods
t
26) The Southern Common Market is also referred to as MERCOSUR
t
26) To provide funding for countries' efforts toward economic development, the Bretton Woods Agreement created the International Bank for Reconstruction and Development.
t
27) Decentralization can help foster participative management practices.
t
27) The IMF asset whose value is based on a "weighted basket" of four currencies is called a special drawing right, or SDR
t
27) The process of aggregating the currencies that one bank owes another and then carrying out the transaction is called clearing.
t
27) When one World Trade Organization member files a complaint against another, decisions are to be rendered in less than one year.
t
28) All foreign exchange transactions can be performed in the over-the-counter (OTC) market
t
28) The two main reasons countries intervene in foreign direct investment flows are to control the balance of payments and to obtain resources and benefits
t
29) A main goal of the matrix structure is to bring together geographic and product area managers in joint decision making.
t
29) Indonesia, Malaysia, the Philippines, Singapore, and Thailand formed the Association of Southeast Asian Nations (ASEAN) in 1967
t
29) Today's international monetary system remains in large part a managed float system.
t
3) A company's mission statement often guides decisions such as which industries to enter.
t
30) One goal of currency restriction is to preserve hard currencies to pay for imports and to finance trade deficits.
t
30) One method used by host countries to restrict incoming foreign direct investment is ownership restrictions
t
4) A market segment is a clearly identifiable group of potential buyers
t
4) Devaluation lowers the price of a country's exports on world markets and increases the price of imports.
t
4) In a free-trade area, each country is able to maintain whatever policy it sees fit against nonmember countries
t
4) When obtaining microcredit, small groups of low-income entrepreneurs can borrow money at competitive rates without having to put up collateral.
t
5) Deregulation of national capital markets has been instrumental in the expansion of the international capital market.
t
5) Foreign direct investment is the purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control.
t
6) At the core of foreign direct investment are international flows of capital.
t
6) Currency revaluation increases the prices of exports and reduces the prices of imports.
t
6) To mass-produce a zero-pollution emissions automobile by 2012 is an example of a business-unit objective.
t
6) When products have both military and industrial applications, they are designated dual-use products.
t
7) A primary reason why the United States maintains its embargo on Cuba is the potential to influence internal politics.
t
7) Canada and the United States are examples of early formations of political unions
t
7) Securitization is the unbundling and repackaging of hard-to-trade financial assets into more liquid, negotiable, and marketable financial instruments.
t
8) An offshore financial center is a country or territory whose financial sector features very few regulations and few, if any, taxes.
t
8) Developed countries are the prime destination for foreign direct investment because cross-border mergers and acquisitions are concentrated in developed countries.
t
8) Stable exchange rates improve the accuracy of financial planning.
t
9) A core competency refers to multiple skills that are coordinated to form a single technological outcome.
t
9) As the unpredictability of exchange rates increases, so too does the cost of insuring against the accompanying risk.
t
9) Booking centers are usually located on small island nations and territories with favorable tax and/or secrecy laws.
t
9) European Union nations, the United States, and Japan account for the vast majority of world foreign direct investment inflows.
t
9) Protecting infant industries can cause domestic companies to become complacent toward innovation.
t
9) The increase in the level of trade between nations that results from regional economic integration is called trade creation
t
13) Unwanted cultural influence in a nation can cause governments to block imports that it believes are harmful.
t
14) The London Interbank Bid Rate (LIBID) is the interest rate that London banks charge other large banks for borrowing Eurocurrency.
f
15) A benefit of regional economic integration is that it always expands employment opportunities in all nations
f
69) The most common tariff used today is the ________ tariff. A) import B) transit C) compound D) export
a
Scenario: Learning the Americas' Way The newly-formed countries that emerged after the break up of the United Frontier States (UFS) are interested in learning more about integration in the Americas. Because the former UFS nations have many similarities with the countries of North and South America, they believe they can learn from the integration experience in the Americas. To that end, they pose the following questions. Bolivia, Colombia, Ecuador, and Peru belong to the ________. Latin Free Trade Association (LAFTA) North American Free Trade Agreement (NAFTA) Andean Community Latin American Integration Association (ALADI)
Andean Community
Scenario: EU Primer The tiny but important country of Beaconville has been invited to join the European Union (EU). However, there is a lot of confusion among the country's population as to exactly how the EU operates. Beaconville's Office of Public Affairs is putting together a flyer outlining some of the EU's basic operating components and needs help answering the following questions. The ________ fulfills its role of adopting EU law by debating and amending legislation proposed by the European Commission. Council of the European Union European Parliament Court of Justice Court of Auditors
European Parliament
Scenario: Badland Joins the World Badland, a former totalitarian economy and pariah state, is taking steps toward a free market economy. The government wants to encourage trade but also wants to find a balance where local businesses and industries are not destroyed. The government may want to impose an import quota for which of the following reasons? Maintain adequate supplies of a product in the home market Force the companies of other nations to compete against one another Restrict the supply of a product on world markets Maintain exports of a product at target levels
Force the companies of other nations to compete against one another
Scenario: Zucoland Zucoland, a small-sized country just south of the Andes mountain range, was invited to join a regional trading bloc. The government of Zucoland is considering the benefits and costs of joining such a bloc. The government is attracted by the fact that this trading bloc requires Zucoland to give up the least amount of sovereignty compared to other types of blocs. Which of the following would the government of Zucoland most likely experience as a benefit of joining the trading bloc? Increased national sovereignty Increased military security Trade diversion Higher wage employment
Higher wage employment
44) An architect's ability to design an office building in the Victorian style is an example of a(n) ________. A) core competency B) skill C) ability D) capability
b
60) Foreign bonds issued in the United States are called ________. A) bulldog bonds B) yankee bonds C) samurai bonds D) dragon bonds
b
Scenario: Learning the Americas' Way The newly-formed countries that emerged after the break up of the United Frontier States (UFS) are interested in learning more about integration in the Americas. Because the former UFS nations have many similarities with the countries of North and South America, they believe they can learn from the integration experience in the Americas. To that end, they pose the following questions. The regional trade agreement between Canada, Mexico, and the United States to eliminate tariffs and nontariff barriers between themselves is known as the ________. Latin Free Trade Association Andean Community Caribbean Community and Common Market North American Free Trade Agreement
North American Free Trade Agreement
Scenario: Happyland Happyland, a country of about 48 million people with beautiful beaches, vast natural resources, and a highly skilled labor force, is encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software. The net result of 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 is Happyland LEAST likely to use to encourage foreign direct investment inflows? Tax incentives Low-interest loans Infrastructure improvements Performance demands
Performance demands
40) The objective to mass-produce a zero-pollution emissions automobile by 2020 would most likely belong to a(n) ________. A) individual business unit B) individual department C) regional headquarters D) global headquarters
a
Scenario: Learning the Americas' Way The newly-formed countries that emerged after the break up of the United Frontier States (UFS) are interested in learning more about integration in the Americas. Because the former UFS nations have many similarities with the countries of North and South America, they believe they can learn from the integration experience in the Americas. To that end, they pose the following questions. Another name for MERCOSUR is the ________. Andean Community Southern Common Market Latin American Integration Association North American Free Trade Agreement
Southern Common Market
61) Foreign bonds issued in the United Kingdom are called ________. A) bulldog bonds B) yankee bonds C) samurai bonds D) dragon bonds
a
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 would be open to merger or acquisition. Which of the following is NOT a reason to go ahead with the merger? The merger could help increase Blickinstock's global competitiveness. The merger could allow the company to get a foothold in the market. The merger could help to fill the gaps in Blickinstock's product line. The merger would allow Blickinstock to remain focused on Europe
The merger would allow Blickinstock to remain focused on Europe
61) Companies designing promotional campaigns and advertising strategies at headquarters are likely following a ________ strategy. A) retrenchment B) global C) multinational D) multidomestic
b
31) The international financial market is composed of two interrelated systems called the ________ and the ________. A) international capital market; foreign exchange market B) international capital market; foreign goods market C) foreign goods market; international services market D) foreign goods market; foreign exchange market
a
31) The process whereby countries in a geographic region cooperate with one another to reduce or eliminate barriers to the international flow of products, people, or capital is called ________. A) regional economic integration B) region first policy C) intra-nation pact D) multi-domestic union
a
32) The purchase of physical assets or a significant amount of ownership (stock) of a company in another country to gain a measure of management control is called ________. A) foreign direct investment B) portfolio investment C) mergers D) vertical integration
a
33) Company debt normally takes the form of ________. A) bonds B) equity C) stocks D) bank loans
a
33) The strategy formulation process involves both ________. A) planning and strategy B) strategy and structure C) planning and marketing D) strategy and production
a
34) Devaluation of a currency results in all of the following EXCEPT ________. A) lowers profit margins for domestic companies B) lowers the price of a country's exports C) increases the price of a country's imports D) reduces consumers' buying power
a
35) A nation's government intentionally raising its currency's value is called ________. A) revaluation B) fundamental disequilibrium C) devaluation D) convertible restriction
a
35) All parties affected by a company's activities are called ________. A) stakeholders B) suppliers C) stockholders D) employees
a
35) Which of the following is the lowest level of regional integration? A) Free trade area B) Political union C) Common market D) Customs union
a
36) Shares of ownership in a company's assets that give shareholders a claim on the company's future cash flows are called ________. A) stocks B) bonds C) debt D) eurocurrencies
a
37) Managers prefer that exchange rates be ________. A) stable B) freely floating C) volatile D) unpredictable
a
37) When companies realized they could produce in the most efficient and productive locations in the world and simply export to markets worldwide, a new surge of foreign direct investment flowed into ________. A) low-cost newly industrialized nations and emerging markets B) highly developed economies C) home country markets D) totalitarian and theocratic nations only
a
38) An expanded money supply ________. A) reduces the cost of borrowing B) makes it difficult for financial institutions to lend money C) increases the cost of borrowing D) diminishes the entrepreneurial initiatives of a country
a
38) The main difference between a free-trade area and a customs union is that the members of a customs union ________. A) agree to treat trade with all nonmember nations in a similar manner B) agree to the free movement of all factors of production C) harmonize their tax, monetary, and fiscal policies and create a common currency D) accept a common stance on economic and political policies regarding nonmember nations
a
39) Which of the following statements is NOT true? A) Entrepreneurs and small businesses play a minimal role in expanding foreign direct investment flows. B) Increasing globalization is causing a growing number of international companies from emerging markets to undertake foreign direct investment. C) The desire to increase a firm's global competitiveness drives many cross-border mergers and acquisitions. D) Companies may pursue mergers and acquisitions to fill gaps in their product lines.
a
41) If a kilogram of coal costs €1.5 in Germany and $1 in the United States, the law of one price ________. A) calculates the expected exchange rate between the euro and the dollar to be €1.5/$ B) calculates the expected exchange rate between the euro and the dollar to be €.67/$ C) tells us the expected exchange rate between the euro and dollar is equal to the actual rate D) tells us there is an arbitrage opportunity
a
42) At which level in a company do objectives usually become more precise and almost always contain numerical targets of performance? A) Individual department level B) Business-unit level C) Consumer level D) Corporate level
a
44) Which of these is a country or territory whose financial sector features very few regulations and few, if any, taxes? A) Offshore financial center B) Currency market center C) Capital market center D) World trade center
a
45) A market that is said to operate at peak efficiency and where goods are readily and easily available is said to be a(n) ________. A) perfect market B) eclectic market C) imperfect market D) greenfield market
a
46) A group of nations currently taking steps toward political union is ________. A) European Union (EU) B) Southern Common Market (MERCOSUR) C) Andean Community D) North American Free Trade Agreement (NAFTA)
a
47) Higher levels of trade between nations result in all of the following EXCEPT ________. A) greater standardization B) increased efficiency C) greater consumption D) higher standards of living
a
47) Which of these includes activities that directly affect a nation's interest rates or money supply? A) Monetary policy B) Government spending C) Purchasing power parity D) Fiscal policy
a
50) When the U.S. government lowers taxes, this is an example of ________. A) fiscal policy B) monetary policy C) domestic policy D) the law of one price
a
50) Which of these is NOT a component of the international capital market? A) Foreign exchange market B) International equity market C) Eurocurrency market D) International bond market
a
52) A strategy of adapting products and their marketing strategies in each national market to suit local preferences is called a ________. A) multinational strategy B) stability strategy C) global strategy D) retrenchment strategy
a
52) The ________ theory states that a firm tries to establish a dominant presence in an industry by undertaking foreign direct investment. A) market power B) eclectic C) market imperfections D) trade barriers
a
54) Suppose the exchange rate at the beginning of the year between the Indian Rupee (R) and U.S. dollar is R43.125/$. The annual inflation rate in India is 19 percent whereas inflation in the United States is 3 percent. What would be the new exchange rate at the end of the year? A) R49.8224/$ B) R37.327/$ C) R0.0267/$ D) $37.327/R
a
56) The absence of government regulation in the Eurobond market ________. A) substantially reduces the cost of issuing a bond B) lowers the risk level of the bond C) makes Eurobonds less popular than foreign bonds D) exists because of the difficulty of regulating a multi-country market
a
56) The main drawback of a multinational strategy is that it does not allow a company to ________. A) exploit scale economies in product development and marketing B) closely monitor buyer preferences in each local market C) modify its products except for the most superficial features D) respond quickly and effectively to emerging buyer preferences
a
56) Which of the following created the European Economic Community? A) The Treaty of Rome B) The Maastricht Treaty C) The Single European Act D) Warsaw Pact
a
57) If money were free from all controls when transferred internationally, the real rate of interest would ________. A) be the same in all countries B) be reflected in exchange rate conversions C) create arbitrage opportunities across countries D) be the same as the inflation rate
a
58) Foreign bonds account for about ________ percent of all international bonds. A) 20 to 25 B) 25 to 40 C) 50 to 70 D) more than 90
a
58) Offering the same products using the same marketing strategy in all national markets is referred to as a ________ strategy. A) global B) multinational C) retrenchment D) multidomestic
a
60) The ________ called for banking in a single common currency, setting up monetary and fiscal targets for countries taking part in monetary union, and political union of member nations. A) Maastricht Treaty B) European Monetary Union C) Single European Act D) Copenhagen Criteria
a
61) According to the efficient market view, the best predictor of exchange rates is ________. A) forward exchange rates B) fundamental analysis C) technical analysis D) statistical modeling
a
62) A system of production in which each of a product's components is produced in the location where the cost of producing that component is lowest is called ________ production. A) rationalized B) greenfield C) centralized D) maquiladora
a
63) The inefficient market view holds that prices of financial instruments ________. A) do not reflect all publicly available information B) are dependent on economic efficiency C) are not dependent on economic efficiency D) reflect all publicly available information at any given time
a
64) A ________ strategy can cause a company to overlook important differences in buyer preferences from one market to another. A) global B) retrenchment C) multidomestic D) multinational
a
64) Which of the following denotes a stock market with no central geographic location? A) Cybermarket B) Foreign exchange market C) Capital market D) Bond market
a
67) All of these are key approaches to corporate-level strategy EXCEPT ________. A) differentiation B) growth C) stability D) retrenchment
a
68) The ________ represents a country's national accounting system that records all payments to entities in other countries and all receipts coming into the nation. A) balance of payments B) credit account C) capital account D) current account
a
68) The most commonly quoted rate in the Eurocurrency market is the ________. A) London Interbank Offer Rate (LIBOR) B) London Interbank Bid Rate (LIBID) C) spot rate D) cross rate
a
69) Rates that the world's largest banks charge one another for loans are called ________. A) interbank interest rates B) standardized interest rates C) exchange rates D) inflation hedge rates
a
70) The Council of the European Union is the ________ body of the European Union. A) legislative B) executive C) financial D) monitoring
a
71) The rate at which one currency is exchanged for another is called the ________. A) exchange rate B) LIBOR C) LICU rate D) Federal funds rate
a
72) Under the gold standard, if the U.S. dollar was fixed at $30/oz of gold and Japan was fixed at ¥75/oz of gold, what would be the Yen/dollar exchange rate? A) ¥2.50/$ B) $2.50/¥ C) ¥0.40/$ D) ¥2250/$
a
72) Which of the following is NOT a member of European Free Trade Association today? A) Sweden B) Liechtenstein C) Norway D) Switzerland
a
73) Exports and imports of tourism and business consulting are included in which of the following? A) Services within the current account B) Capital account C) Merchandise within the current account D) Corporate account
a
75) The practice of insuring against potential losses that result from adverse changes in exchange rates is called currency ________. A) hedging B) arbitrage C) speculation D) conversion
a
77) Which of these strategies is designed to guard against change? A) Stability B) Growth C) Retrenchment D) Differentiation
a
80) ALADI refers to the ________. A) Latin American Integration Association B) Southern Common Market Association C) Central Common Market Association D) Latin American Free-Trade Area
a
80) When a U.S. subsidiary in another country remits profits back to its parent in the United States, the receipt of profits is recorded in the ________. A) income receipts account and given a plus sign B) income receipts account and given a minus sign C) income payments account and given a plus sign D) income payments account and given a minus sign
a
81) In a quoted exchange rate of $1.69/British pound, the British pound is called the ________. A) base currency B) forward currency C) cross currency D) quoted currency
a
81) Which of the following was created by the Bretton Woods Agreement to enforce the rules of the international monetary system? A) International Monetary Fund (IMF) B) International Bank for Reconstruction and Development (IBRD) C) Special Drawing Rights (SDR) D) World Bank
a
81) Which of these strategies is one in which a company designs its products to be perceived by buyers as unique throughout its industry? A) Differentiation B) Stability C) Low-cost leadership D) Retrenchment
a
82) An exchange rate of ¥117.87/$ indicates ________. A) that 117.87 yen buys one dollar B) that 117.87 dollars buys one yen C) a direct quote on the dollar D) an indirect quote on the yen
a
82) Companies that follow a ________ strategy can charge a higher price and enjoy greater customer loyalty than the low-cost leader. A) differentiation B) stability C) low-cost leadership D) retrenchment
a
82) The ________ is an IMF asset whose value is based on a weighted basket of four currencies. A) SDR B) IMF C) IBRD D) G5
a
84) The international monetary system based on fixed exchange rates ended in ________. A) 1973 B) 1983 C) 1993 D) 2003
a
84) When a country provides tax breaks and low-interest loans, it is using which of these to encourage inflows of foreign direct investment? A) Financial incentives B) Sanctions C) Infrastructure improvements D) Performance demands
a
84) Which of the following has adopted the U.S. dollar as its official currency? A) El Salvador B) Honduras C) Nicaragua D) Costa Rica
a
86) A system in which currencies float against one another, with governments intervening to stabilize their currencies at particular target exchange rates is called a ________. A) managed float system B) Bretton Woods system C) free float system D) fixed exchange-rate system
a
86) An organizational structure that organizes a company's entire global operations into countries or geographic regions is referred to as a(n) ________ structure. A) international area B) international division C) global matrix D) global product
a
87) The exchange rate at which two parties agree to exchange currencies on a specified future date is called a(n) ________. A) forward rate B) bid-ask rate C) spot rate D) arbitrage rate
a
Scenario: ABC Software ABC Software is a producer of educational software for small children. The company has operations in Switzerland and would like to expand its foreign production with a new facility in China. 101) ABC Software has had difficulty obtaining funds to expand. A friend of the CEO recommends the company explore an offshore financial center, which ________. A) is a country or territory whose financial sector features very few regulations and few, if any, taxes B) tends to be characterized by political and economic instability making, it an inexpensive but risky source of funds C) typically lends money to companies that have had difficulty getting financing elsewhere because of poor credit records D) is a financial center located in a resort community that is popular among financiers, and therefore allows companies seeking financing to make lucrative contacts
a
Scenario: Beanstalk International Beanstalk International is rapidly growing. The company wants to follow a strategy of adapting its products and marketing in each national market to suit local preferences. Beanstalk is intent on creating value for its customers. 94) Beanstalk managers know that the drawback of such an adaptive strategy is that ________. A) it does not allow companies to exploit scale economies in product development, manufacturing, and marketing B) it can cause a company to overlook important differences in buyer preferences from one market to another C) it is applicable to industries in which price-competitiveness is a key success factor D) it does not allow a company to modify its products except for the most superficial features
a
Scenario: Beanstalk International Beanstalk International is rapidly growing. The company wants to follow a strategy of adapting its products and marketing in each national market to suit local preferences. Beanstalk is intent on creating value for its customers. 93) The strategy that Beanstalk would most likely want to follow is called a ________ strategy. A) multinational B) retrenchment C) global D) stability
a
Scenario: Just-for-Kids, Inc. Just-for-Kids, Inc., is a toys and clothes manufacturer based in San Diego, California. The company has received an inquiry from an overseas company to do business. Tom Dodd is the owner of the company researching the opportunity and how exchange rates will affect its international business activities. 89) If Just-for-Kids is selling in a country with a strong currency while sourcing from a country with a weak currency, it will most likely ________. A) improve its profits B) face U.S. government penalties C) generate losses D) engage in unethical conduct
a
Scenario: Redding Club Redding Club is a recording and music distribution company with a significant market presence in its native India—an emerging market. Redding's CEO, Bill Woods, an immigrant from England, is concerned whether the company will be able to compete against a large, multinational music corporation that is targeting India as part of its growth strategy. 100) Bill knows that if globalization pressures in the industry are weak, and a company's own assets are not transferable, the company should concentrate on its home turf using a(n) ________ strategy. A) defender B) extender C) dodger D) contender
a
Scenario: Sally goes to Japan Sally Johnson has identified a market for her company's products in Japan. She is excited about expanding her company, but knows she needs to learn how the foreign exchange market works before she can successfully sell her products abroad. 100) Sally knows that on March 1 the exchange rate between the European Union euro (€) and the U.S. dollar was €5/$, and that by April 1 the exchange rate was €4/$. This means that ________. A) the value of the dollar has fallen 20 percent B) the value of the eruo has risen 20 percent C) she is looking at an indirect quote on the euro D) she is looking at a direct quote on the dollar
a
Scenario: Sally goes to Japan Sally Johnson has identified a market for her company's products in Japan. She is excited about expanding her company, but knows she needs to learn how the foreign exchange market works before she can successfully sell her products abroad. 99) If Sally knows that ¥117.87/$, she also knows that ________. A) $.008484/¥ B) the quote is in U.S. terms C) this is an indirect quote on the yen D) it costs a little more than a dollar to buy one yen
a
Scenario: Sam Dearing, Budding International Financier Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work. 101) If the actual euro/dollar exchange rate on currency markets is €1.2/$, and a kilogram of wheat still costs $1 in the U.S. and €1.5 in France, Sam also knows that ________. A) the price of a kilogram of wheat in France is $1.25 B) the price of a kilogram of wheat in France is $.80 C) the law of one price is valid in the international wheat market D) there is no arbitrage opportunity because the price of wheat is lower in France
a
Scenario: Sam Dearing, Budding International Financier Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work. 97) Sam already knows that the ________ tells us how much of one currency we must pay to receive a certain amount of another. A) exchange rate B) par value C) law of one price D) purchasing power parity theory
a
Scenario: Sam Dearing, Budding International Financier Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work. 99) Sam has been studying the price of wheat across markets. If a kilogram of wheat costs €1.5 in France and $1 in the United States, the law of one price would tell us ________. A) the expected exchange rate between the euro and the dollar is €1.5/$ B) wheat is over priced in France C) wheat is under priced in France D) an arbitrage opportunity exists in the international wheat market
a
Scenario: TeleToys International TeleToys International, a U.S.-based company, recently opened 18 toy stores in Brazil, acquired a women's clothing store company in Canada, and closed its men's clothing store chain in Australia. The company has a structure that organizes its global operations into geographic regions. 95) TeleToys' opening of 18 stores in Brazil can best be described as a(n) ________ strategy. A) organic growth B) stability C) retrenchment D) acquisition
a
1. Scenario: Badland Joins the World Badland, a former totalitarian economy and pariah state, is taking steps toward a free market economy. The government wants to encourage trade but also wants to find a balance where local businesses and industries are not destroyed. If Badland chooses to levy tariffs as a percentage of the stated price of an imported product, this would be an example of a(n) ________. compound tariff specific tariff ad valorem tariff tariff-quota
ad valorem tariff
31) When a country's currency is weak, the price of its ________. A) exports and imports declines B) exports on world markets declines and the price of imports increases C) exports and imports increases D) exports on world markets increases and the price of imports declines
b
31) Which of these is the process of identifying and selecting an organization's objectives and deciding how the organization will achieve those objectives? A) Mission formulation B) Planning C) Value chain analysis D) Strategy development
b
33) Which of the following refers to investments that do NOT involve obtaining a measure of control in a company? A) Foreign direct investment B) Portfolio investment C) Mergers D) Acquisitions
b
34) The U.S. Commerce Department sets the threshold at which it classifies an international capital flow as foreign direct investment at ________ percent. A) 4 B) 10 C) 7 D) 1
b
34) Which of these refers to a written statement of why a company exists and what it plans to accomplish? A) Strategy statement B) Mission statement C) Value chain statement D) Core competency statement
b
35) Which of these is a debt instrument specifying the timing of principal and interest payments? A) Stock B) Bond C) Eurocurrency D) Equity
b
36) Which of the following lowers the price of a country's exports on world markets and increases the price of imports? A) Revaluation B) Devaluation C) Liquidity D) Strong currency
b
37) Economic integration whereby countries remove all barriers to trade among themselves, but erect a common trade policy against nonmembers is called a(n) ________. A) economic union B) customs union C) common market D) free-trade area
b
38) During the second stage of the strategy formulation process, a company does all of the following EXCEPT analyze ________. A) the firm's primary activities B) competitors' unique abilities C) national and international business environments D) the firm's support activities
b
40) Microcredit loans in developing countries typically average ________. A) more than $100 B) about $350 C) more than $500 D) less than $500
b
40) Which of these stipulates that an identical product must have an identical price in all countries when the price is expressed in a common currency? A) Purchasing power parity B) Law of one price C) Fisher effect D) Efficient market view
b
41) Which of the following is best classified as an economic union? A) Southern Common Market (MERCOSUR) B) European Union (EU) C) North American Free Trade Agreement (NAFTA) D) Andean Community
b
42) The unbundling and repackaging of hard-to-trade financial assets into more liquid, negotiable, and marketable financial instruments is called ________. A) market liquidity B) securitization C) bartering D) arbitrage
b
43) A(n) ________ requires member nations to harmonize their tax, monetary, and fiscal policies and create a common currency. A) customs union B) economic union C) free trade area D) common market
b
43) According to the international product life cycle, in which stage of a product's life cycle does a company directly invest in production facilities in countries where demand is great enough to warrant production facilities? A) New product stage B) Maturing product stage C) Standardized product stage D) Declining product stage
b
43) Which of these is a special company ability that competitors find extremely difficult to equal? A) Value chain B) Core competency C) Growth strategy D) Location economics
b
45) Inflation ________. A) occurs when money is injected into an economy that is experiencing greater output B) is the result of supply and demand for a currency C) increases people's purchasing power D) can be controlled through currency movements
b
46) Which of these is a primary activity in a company's value chain? A) Infrastructure B) Marketing and sales C) Procurement D) Human resource management
b
46) ________ is a prominent operational center. A) Phoenix B) London C) Beijing D) Frankfurt
b
47) Inbound and outbound logistics are considered ________. A) capabilities B) primary activities C) support activities D) core competencies
b
47) The requirement that a sufficient portion of a product's content originate within a certain market to escape tariff charges is an example of a ________. A) trade marker B) market imperfection C) tariff quota D) maturing product
b
48) ________ centers are usually located on small island nations or territories with favorable tax and/or secrecy laws. A) Liquidity B) Booking C) Capital D) Operational
b
49) When the French government buys its own securities on the open market, this is an example of ________. A) fiscal policy B) monetary policy C) global policy D) the law of one price
b
49) Which of these is NOT a support activity in a company's value chain? A) Infrastructure B) Marketing and sales C) Procurement D) Human resource management
b
50) A(n) ________ is the advantage that arises from internalizing a business activity rather than leaving it to a relatively inefficient market. A) ownership advantage B) internalization advantage C) location advantage D) market power advantage
b
52) Studies of the Southern Common Market (MERCOSUR) found that the net effect of the agreement was ________. A) trade diversion B) trade creation C) slower trade D) regional inflation
b
52) When a government buys its own securities on the open market, ________. A) tax rates decline B) the money supply increases C) the nation's productivity increases D) it encourages FDI outflow
b
53) To cool off an inflationary economy, a government might ________. A) lower interest rates B) raise interest rates C) lower foreign exchange rates D) raise foreign exchange rates
b
54) The most sophisticated and advanced example of regional integration today is occurring in which of the following? A) Asia B) Europe C) North America D) Africa
b
54) Which of the following is the extension of company activities into stages of production that provide a firm's inputs or absorb its outputs? A) Horizontal integration B) Vertical integration C) Market penetration D) Collaborative diversification
b
57) Bonds sold outside the borrower's country and denominated in the currency of the country in which they are sold are called ________. A) international bonds B) foreign bonds C) Eurobonds D) local bonds
b
57) Investment by multinational companies benefits developing and newly industrialized countries in all the following ways EXCEPT ________. A) transfer of technology B) decreased tax revenues C) decreased unemployment D) training to create a more highly skilled workforce
b
57) The Treaty of Rome aimed at establishing common policies among member nations for ________. A) textiles and retail goods B) transportation and agriculture C) metal and cyclical products D) meat products and telecommunications
b
59) Companies producing entire inventories of products or components in one or very few optimal locations are likely following a ________ strategy. A) retrenchment B) global C) multidomestic D) multinational
b
59) Which of the following is an example of a greenfield investment? A) A business acquisition in Southeast Asia's former agricultural region B) The construction of an entirely new manufacturing subsidiary overseas C) A merger between a U.S. and non-U.S. company D) The purchase of an existing business that is still in its infancy
b
60) Companies performing product R&D in one or very few locations are likely following a ________ strategy. A) retrenchment B) global C) multidomestic D) multinational
b
63) A potential problem with rationalized production is that ________. A) it is highly inefficient B) a work stoppage in one country can bring the entire production process to a standstill C) unionization in one country affects operations in other countries D) parts come in from multiple countries for assembly
b
63) Factors responsible for growth in the international equity market include all the following EXCEPT ________. A) advent of cybermarkets B) spread of countertrade C) economic growth in developing countries D) activities of investment banks
b
63) The European Union plan that established its own central bank and currency in January 1999 is known as the ________. A) Single European Act B) European monetary union C) Copenhagen Criteria D) European currency exchange
b
64) The automobile industry uses a ________ method of production. A) fractional B) rationalized C) single-country D) component
b
65) The main benefit of a global strategy is that it allows a company to ________. A) closely monitor buyer preferences in each local market B) save costs due to product and marketing standardization C) avoid either growth or retrenchment D) respond effectively to emerging buyer preferences
b
65) Which of the following European Union countries opted out of transition to the euro? A) Norway B) Sweden C) Switzerland D) Finland
b
69) The Court of Justice is the ________ of the European Union. A) Supreme Court B) court of appeals C) small-claims court D) capital crimes court
b
70) All of the following transactions are recorded in the current account of the United States EXCEPT ________. A) import of goods B) sale of U.S. assets C) income payments on foreign assets in the United States D) income receipts on U.S. assets abroad
b
70) Which of these strategies is designed to increase the scale or scope of a corporation's operations? A) Differentiation B) Growth C) Stability D) Retrenchment
b
70) ________ was the first nation to implement the gold standard. A) The United States B) Britain C) France D) Japan
b
71) The European Commission is the ________ body of the European Union. A) legislative B) executive C) financial D) monitoring
b
74) A retrenchment strategy is designed to ________. A) guard against change B) reduce the scale or scope of a corporation's operations C) increase the scale or scope of a corporation's operations D) mix growth, retrenchment, and stability strategies
b
74) An exchange rate system in which the exchange rate for converting one currency into another is fixed by international governmental agreement is called a ________. A) floating exchange-rate system B) fixed exchange-rate system C) gold standard D) currency board system
b
75) A company that is closing factories with unused capacity and laying off workers is likely following a ________ strategy. A) growth B) retrenchment C) stability D) combination
b
75) By limiting the growth of a nation's money supply, the gold standard was also effective at controlling ________. A) cross rates B) inflation C) currency reserves D) economic development
b
76) A company that is reducing the scope of its activities by selling unprofitable business units or those no longer directly related to its overall aims is likely following a ________ strategy. A) growth B) retrenchment C) stability D) combination
b
76) According to the U.S. Trade Representative Office, exports to Mexico and Canada support some ________ million U.S. jobs. A) 1.1 B) 2.9 C) 3.7 D) 5.8
b
76) ________ is the instantaneous purchase and sale of a currency in different markets for profit. A) Currency hedging B) Currency arbitrage C) Currency speculation D) Currency conversion
b
77) Which of the following created a new international monetary system based on the value of the U.S. dollar? A) Plaza Accord B) Bretton Woods Agreement C) Louvre Accord D) Jamaica Agreement
b
79) Today, the Andean Community is best described as a somewhat incomplete ________. A) free-trade area B) customs union C) common market D) political union
b
80) The World Bank was created by the ________. A) Jamaica Agreement B) Bretton Woods Agreement C) Smithsonian Agreement D) Plaza Accord
b
83) A common market between Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua is referred to as the ________. A) Latin American Common Market (LACM) B) Central American Common Market (CACM) C) North American Common Market (NACM) D) Southern Common Market (MERCOSUR)
b
83) A home country may encourage outflows of foreign direct investment because it ________. A) may serve to replace jobs at home B) can increase long-run competitiveness C) sends resources out of the home country D) may take the place of exports
b
84) The exchange rate between the euro (€) and the dollar is €0.8461/$. Which of the following is the correct direct quote on the dollar? A) $2.20/€ B) $1.1819/€ C) $5.50/€ D) $0.8461/€
b
32) ________ is the set of planned actions taken by managers to help a company meet its objectives. A) Mission formulation B) Planning C) Value chain analysis D) Strategy
d
85) The way in which a company divides its activities among separate units and coordinates activities among those units is referred to as ________. A) process planning B) organizational structure C) capacity planning D) mission and objectives
b
86) Which of the following is an exchange rate that requires delivery of the traded currency within two business days? A) Derivative rate B) Spot rate C) Discount rate D) Forward rate
b
87) Home governments may use which of the following to limit the effects of outbound foreign direct investment? A) Insurance B) Differential tax rates C) Low-interest loans D) Infrastructure improvements
b
87) Today's international monetary system is considered a ________. A) fixed system B) managed float system C) floating system D) mixed system
b
88) A team in which employees from a single department take on responsibilities of their former supervisors is called a ________ team. A) cross-functional B) self-managed C) global D) domineering
b
89) If the spot rate for the British pound (GBP) is $1.6950/GBP and the 30-day forward rate is $1.6921/GBP, then the pound is trading at a ________ in the 30-day market. A) premium B) discount C) swap D) spot
b
91) A currency used as an intermediary to convert funds between two other currencies is called a(n) ________. A) spot currency B) vehicle currency C) forward currency D) interbank currency
b
93) A ________ currency is traded freely in the foreign exchange market. A) barter B) convertible C) vehicular D) soft
b
Scenario: ABC Software ABC Software is a producer of educational software for small children. The company has operations in Switzerland and would like to expand its foreign production with a new facility in China. 102) If ABC Software simultaneously purchases and sells foreign exchange for two different dates, it is doing which of the following? A) Increasing its foreign exchange rate risk B) Conducting a currency swap C) Entering an arbitrage situation D) Buying and selling at the spot rate
b
Scenario: Color-Me-Green, Inc. Color-Me-Green, Inc., a U.S.-based clothing merchant, has started doing business internationally. Having subsidiaries in several countries at year-end, the company must integrate the financial information from all its subsidiaries into the U.S. home office. 94) Suppose Country A has a currency called the Pulse (P). At the beginning of the year, the exchange rate between the Pulse and U.S. dollar was P150/$. The inflation rate in Country A is running at an annual rate of 250 percent,whereas inflation in the U.S. is running at 2 percent. Which of the following would most likely be the new exchange rate that Color-Me-Green can expect at the end of the year? A) P525/$ B) P514.70/$ C) P43.71/$ D) $43.71/P
b
Scenario: Just-for-Kids, Inc. Just-for-Kids, Inc., is a toys and clothes manufacturer based in San Diego, California. The company has received an inquiry from an overseas company to do business. Tom Dodd is the owner of the company researching the opportunity and how exchange rates will affect its international business activities. 90) The government of the country that Just-for-Kids is considering doing business in just lowered the value of its currency, which is referred to as ________. A) the Fisher effect B) devaluation C) fundamental disequilibrium D) revaluation
b
Scenario: Redding Club Redding Club is a recording and music distribution company with a significant market presence in its native India—an emerging market. Redding's CEO, Bill Woods, an immigrant from England, is concerned whether the company will be able to compete against a large, multinational music corporation that is targeting India as part of its growth strategy. 101) If globalization pressures are weak in the music industry, and Redding Club's assets can be transferred abroad, the company may be able to extend its success to a limited number of other markets using a(n) ________ strategy. A) defender B) extender C) dodger D) contender
b
Scenario: Sam Dearing, Budding International Financier Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work. 100) Suppose Sam then noticed that the actual euro/dollar exchange rate on currency markets is €1.2/$, and that a kilogram of wheat still costs $1 in the U.S. and €1.5 in France. Sam then knows ________. A) the expected exchange rate between the euro and the dollar is €1.5/$ B) wheat is priced higher in France C) wheat is priced lower in France D) an arbitrage opportunity does not exist in the international wheat market
b
Scenario: Sam Dearing, Budding International Financier Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work. 98) Sam's mentor at the firm told him that the ________ stipulates that an identical product must have an identical price in all countries when the price is expressed in a common currency. A) exchange rate B) law of one price C) purchasing power parity theory D) Bretton Woods Agreement
b
Scenario: Trader's Paradise Trader's Paradise is a global merchant that sells a variety of products. The company operates in 48 different countries (some developed, some developing) and some former communist countries. The company faces substantial risks given differing conditions in foreign exchange markets. 96) If Trader's Paradise instead purchases euros expecting the value to rise and generate a profit for the company, it is engaging in currency ________. A) conversion B) speculation C) hedging D) arbitrage
b
32) A group of nations in a geographic region undergoing economic integration is called a ________. A) regional domestic unit B) regional collaborative C) regional trading bloc D) foreign direct investment region
c
32) Which of the following is a system that allocates financial resources in the form of debt and equity according to their most efficient uses? A) International equity market B) Foreign currency market C) Capital market D) Eurocurrency market
c
33) Which of these is the intentional lowering of a currency's value by the nation's government? A) Revaluation B) Inefficient market view C) Devaluation D) Fundamental disequilibrium
c
35) Which of the following are main drivers of foreign direct investment? A) Diversity and telecommunications B) Telecommunications and transportation C) Globalization and mergers and acquisitions (M&A) D) Diversity and globalization
c
37) Which of these is the first stage of the strategy formulation process? A) Formulate strategies B) Implement strategies C) Identify company mission and goals D) Identify core competency and value creating activities
c
39) All of the following are part of stage three of the strategy formulation process EXCEPT ________. A) selecting multinational or global strategy B) formulating departmental-level strategy C) analyzing business-level environment D) formulating corporate-level strategy
c
39) An exchange rate provides information regarding each of the following EXCEPT ________. A) the buying power of a currency B) whether a certain product will be more or less expensive in another country (as measured in the home currency) C) how much of one currency must be paid to receive a certain amount of another D) whether a certain product will be more or less expensive in another country (as measured in the foreign currency)
c
39) Economic integration whereby countries remove all barriers to trade and the movement of labor and capital between themselves and erect a common trade policy against nonmembers is called a(n) ________. A) economic union B) customs union C) common market D) political union
c
40) A(n) ________ represents the greatest degree of regional integration. A) economic union B) common market C) political union D) customs union
c
41) The international capital market's rapid growth rate is traced to all these EXCEPT ________. A) innovative financial instruments B) information technology C) foreign exchange rates D) deregulation
c
41) Which of the following refers to the theory that a company will begin by exporting its products and later undertake foreign direct investment as a product moves through its life cycle? A) Eclectic life cycle B) Market imperfections life cycle C) International product life cycle D) Market power life cycle
c
42) Economic integration whereby countries remove barriers to trade and the movement of labor and capital, erect a common trade policy against nonmembers, and coordinate their economic policies is called a(n) ________. A) customs union B) common market C) economic union D) free trade area
c
42) When the law of one price is violated, a(n) ________ opportunity arises. A) hedging B) speculation C) arbitrage D) power play
c
44) In the ________ product stage of the international product life cycle theory, increased competition pressures a company to produce in low-cost developing nations. A) new B) maturing C) standardized D) declining
c
44) Integration whereby countries coordinate aspects of their economic and political systems is called a(n) ________. A) free trade area B) common market C) political union D) economic union
c
44) Which of these is the relative ability of two countries' currencies to buy the same "basket" of goods in those two countries? A) Fisher effect B) Law of one price C) Purchasing power parity D) Cross rates
c
47) Which of these is a prominent operational center? A) The Cayman Islands B) Gibraltar C) Switzerland D) Singapore
c
48) Human resource management is an example of a ________. A) capability B) primary activity C) support activity D) core competency
c
34) A loan in which the borrower promises to repay the borrowed amount plus a predetermined rate of interest is called ________. A) equity B) exchange rate C) stock D) debt
d
56) Which of the following statements is true regarding complete ownership of a business in another country? A) It guarantees profits. B) It does not guarantee decision-making responsibility. C) It does not guarantee control. D) It guarantees government support.
c
57) In an industry where price competitiveness is a key success factor, a firm should NOT use a ________ strategy. A) retrenchment B) global C) multinational D) stability
c
58) Today, the number of European Union (EU) members stands at ________. A) 8 B) 13 C) 27 D) 18
c
58) Which of these is the principle that a difference in nominal interest rates supported by two countries' currencies will cause an equal but opposite change in their spot exchange rates? A) Purchasing power parity B) International Monetary Fund Rule C) International Fisher effect D) Efficient market view principle
c
59) Foreign bonds issued in Japan are called ________. A) bulldog bonds B) yankee bonds C) samurai bonds D) dragon bonds
c
59) The EU's goals of removing trade barriers, increasing harmonization, and enhancing the competitiveness of European companies were put forward in which of the following? A) Maastricht Treaty B) European Monetary Union C) Single European Act D) Copenhagen Criteria
c
62) Global products are most common in industries where there is ________. A) little buyer convergence B) low pressure to contain costs C) significant price competition D) high pressure for localization
c
64) The common currency of the European Union is known as the ________. A) European currency unit B) eurodollar C) euro D) euromark
c
66) Companies involved in more than one line of business must first formulate a ________. A) business-level strategy B) department-level strategy C) corporate-level strategy D) global-level strategy
c
66) The collection of agreements and institutions that govern exchange rates is the ________. A) Bretton Woods Agreement B) Plaza Accord C) International monetary system D) Floating-exchange rate system
c
66) The market consisting of all the world's currencies that are banked outside their countries of origin is called the ________. A) foreign exchange market B) interbank trading market C) Eurocurrency market D) offshore financial center
c
67) The British pounds of a British trading company that are deposited in a Japanese bank are called ________. A) Poundyens B) Euroyen C) Europounds D) Yen-pounds
c
67) Using gold as a medium of exchange in international trade was advantageous for all of the following reasons EXCEPT ________. A) its limited supply made it a commodity in high demand B) it was a good medium of exchange for both small and large purchases C) its weight made transporting it inexpensive D) it could be traded and stored for hundreds of years
c
68) A growth strategy is designed to ________. A) guard against change B) reduce the scale or scope of a corporation's operations C) increase the scale or scope of a corporation's operations D) mix growth, retrenchment, and stability strategies
c
68) All of the following institutions play important roles in monitoring and enforcing economic and political integration in the European Union EXCEPT the ________. A) European Parliament B) Council of the European Union C) European Supreme Court D) European Commission
c
68) The international monetary system in which nations linked the value of their paper currencies to specific values of gold is referred to as the ________. A) bartered system B) floating exchange-rate system C) gold standard D) managed float system
c
69) A nation's balance of payments consists of two components: the ________ account and the ________ account. A) current; past-due B) capital; fixed C) current; capital D) merchandise; services
c
71) Organic growth refers to corporate strategy relying on ________. A) mergers and acquisitions B) joint venture growth C) internally generated growth D) strategic alliance growth
c
71) The value of a currency expressed in terms of gold is called its ________. A) exchange rate B) gold value C) par value D) gold currency value
c
72) The bid-ask spread in the foreign exchange market is the ________. A) price at which a bank will buy a currency B) price of currency in the foreign exchange market C) difference between the bid and ask quotes for a currency D) price a bank will pay for a currency
c
73) A strategy designed to reduce the scale or scope of a corporation's business is called a ________ strategy. A) growth B) differentiation C) retrenchment D) stability
c
73) Under the gold standard, the calculation of each currency's par value was based on the concept of ________. A) the international Fisher effect B) nominal and real interest rates C) purchasing power parity D) the law of one price
c
73) Which of the following countries is NOT a member of the North American Free Trade Agreement (NAFTA)? A) Mexico B) United States C) Venezuela D) Canada
c
74) Exports and imports of tangible goods are included in the ________ account within the current account. A) exports B) capital C) merchandise D) corporate
c
76) Which of the following occurs when a country exports more goods and services and receives more income from abroad than it imports? A) Current account deficit B) Capital account surplus C) Current account surplus D) Capital account deficit
c
77) In 2006, the United States and six Central American nations established the CAFTA-DR, which stands for ________. A) Coffee And Fruit Trade Agreement B) Central Area For Trade Agreement C) Central American Free Trade Agreement D) Central Andes Fair Trade Area
c
77) The profit-motivated purchase and sale of interest-paying securities denominated in different currencies is called ________. A) currency arbitrage B) currency hedging C) interest arbitrage D) interest hedging
c
78) Companies that see the business environment as posing neither profitable opportunities nor threats will likely follow a ________ strategy. A) growth B) retrenchment C) stability D) combination
c
78) The Bretton Woods Agreement incorporated all of these features EXCEPT ________. A) funds for economic development B) an enforcement mechanism C) floating exchange rates D) built-in flexibility
c
78) The purchase or sale of a currency with the expectation that its value will change and generate a profit is called ________. A) currency hedging B) currency arbitrage C) currency speculation D) currency conversion
c
79) Which strategy works best with mass-marketed products aimed at price-sensitive buyers? A) Differentiation B) Stability C) Low-cost leadership D) Retrenchment
c
80) A strategy in which a company exploits economies of scale to have the lowest cost structure of any competitor in its industry is called ________. A) differentiation B) stability C) low-cost leadership D) retrenchment
c
81) Today, the Southern Common Market (MERCOSUR) is best described as a(n) ________. A) economic union B) political union C) customs union D) European Union
c
81) Which of the following is a reason for host country intervention in foreign direct investment (FDI) flows? A) FDI sends resources out of the host country B) To keep competitive local firms in business C) To improve the nation's balance of payments D) To prevent loss of technology to other countries
c
82) Reasons for home nations to discourage foreign direct investment outflows include all of the following EXCEPT that it may ________. A) send resources out of the home country B) cause loss of jobs at home C) relocate "sunset" industry jobs abroad D) damage a nation's balance of payments
c
82) The main challenge facing the Caribbean Community and Common Market (CARICOM) is ________. A) the bloc has not yet signed an agreement calling for a single market B) military conflicts continue to hamper efforts to move toward political union C) most members trade more with nonmembers than they do with each other D) the difficulty in persuading Chile to become a member
c
83) In designating any exchange rate, the quoted currency is always the ________. A) fraction B) denominator C) numerator D) indirect quote
c
83) Which of the following is NOT a way that products can be differentiated? A) Quality B) Design C) Accounting methods D) Brand image
c
85) The Free Trade Area of the Americas (FTAA) is a trade agreement ________. A) between Mexico, Canada, and the United States B) among the South American nations C) that has been proposed to include all of North and South America D) that includes Brazil, Canada, the United States, and Mexico
c
86) Which of the following is LEAST likely to be used by home-country governments to promote outbound foreign direct investment? A) Offering tax breaks on profits earned abroad. B) Granting loans to firms wishing to increase their investments abroad. C) Eliminating ownership restrictions on nondomestic investors. D) Offering insurance to cover the risks of investments abroad.
c
87) An organizational structure that splits the chain of command between product and area divisions is referred to as a(n) ________ structure. A) international area B) international division C) global matrix D) global product
c
88) A monetary regime based on an explicit commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate is known as a ________. A) fixed exchange rate system B) Bretton Woods Agreement C) currency board D) pegged exchange rate system
c
88) The stated aim of the organization for Asia Pacific Economic Cooperation (APEC) is to ________. A) build another trading bloc B) create a political union C) strengthen the multilateral trading system D) create a single unified economic union
c
89) A team of top managers from both headquarters and international subsidiaries who meet to develop solutions to company-wide problems is referred to as a ________ team. A) culture B) cross-functional C) global D) self-managed
c
90) Which of these is the simultaneous purchase and sale of foreign exchange for two different dates? A) Forward swap B) Bid-ask swap C) Currency swap D) Security swap
c
92) The world's largest banks exchange currencies at spot and forward rates in the ________. A) securities exchanges B) Eurocurrency market C) interbank market D) over-the-counter market
c
Scenario: Beanstalk International Beanstalk International is rapidly growing. The company wants to follow a strategy of adapting its products and marketing in each national market to suit local preferences. Beanstalk is intent on creating value for its customers. 90) Beanstalk managers should conduct which of the following to identify company activities that create value for its customers? A) Mission statement analysis B) Competitive analysis C) Value chain analysis D) Process and capacity planning
c
Scenario: Color-Me-Green, Inc. Color-Me-Green, Inc., a U.S.-based clothing merchant, has started doing business internationally. Having subsidiaries in several countries at year-end, the company must integrate the financial information from all its subsidiaries into the U.S. home office. 93) If Country A is a subsidiary with a very high inflation rate, this situation would necessarily ________. A) enhance import values, thereby helping Color-Me-Green's sales B) lower the prices of goods and services in the country C) diminish people's purchasing power, thereby hurting Color-Me-Green's sales D) cut real interest rates
c
Scenario: Color-Me-Green, Inc. Color-Me-Green, Inc., a U.S.-based clothing merchant, has started doing business internationally. Having subsidiaries in several countries at year-end, the company must integrate the financial information from all its subsidiaries into the U.S. home office. 96) In an attempt to raise money in Country B, Color-Me-Green was quoted an interest rate of 14 percent by a local bank. This quoted rate is called the ________ rate. A) real B) artificial C) nominal D) foreign-company
c
Scenario: Just-for-Kids, Inc. Just-for-Kids, Inc., is a toys and clothes manufacturer based in San Diego, California. The company has received an inquiry from an overseas company to do business. Tom Dodd is the owner of the company researching the opportunity and how exchange rates will affect its international business activities. 92) Which of the following would best explain to Tom what devaluation in a target market means? A) Devaluation increases the price of a country's exports on world markets. B) Devaluation reduces the price of imports like those of Just-For-Kids. C) Devaluation increases the price of imports like those of Just-For-Kids. D) Devaluation prohibits foreign companies from investing in the country.
c
Scenario: Redding Club Redding Club is a recording and music distribution company with a significant market presence in its native India—an emerging market. Redding's CEO, Bill Woods, an immigrant from England, is concerned whether the company will be able to compete against a large, multinational music corporation that is targeting India as part of its growth strategy. 102) If globalization pressures are strong, but Redding Club's assets cannot be easily transferred to new markets, the company may want to restructure itself around activities that buyers value by using a(n) ________ strategy. A) defender B) extender C) dodger D) contender
c
Scenario: Sam Dearing, Budding International Financier Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work. 102) Sam's mentor is excited about the wheat prices in France and the United States because he sees an opportunity to buy wheat in the United States and sell it in France, which is known as a(n) ________. A) exchange rate profit B) violation of purchasing power parity C) arbitrage opportunity D) violation of the law of one price
c
Scenario: TeleToys International TeleToys International, a U.S.-based company, recently opened 18 toy stores in Brazil, acquired a women's clothing store company in Canada, and closed its men's clothing store chain in Australia. The company has a structure that organizes its global operations into geographic regions. 96) The closing of TeleToys' Australian men's clothing store chain can best be described as a(n) ________ strategy. A) organic growth B) stability C) retrenchment D) acquisition
c
Scenario: TeleToys International TeleToys International, a U.S.-based company, recently opened 18 toy stores in Brazil, acquired a women's clothing store company in Canada, and closed its men's clothing store chain in Australia. The company has a structure that organizes its global operations into geographic regions. 97) If TeleToys wants buyers to perceive its products as unique, it should follow which type of strategy? A) Retrenchment B) Global C) Differentiation D) Low-cost leadership
c
Scenario: Trader's Paradise Trader's Paradise is a global merchant that sells a variety of products. The company operates in 48 different countries (some developed, some developing) and some former communist countries. The company faces substantial risks given differing conditions in foreign exchange markets. 94) To insure against potential losses that result from adverse changes in exchange rates, Trader's Paradise should use currency ________. A) conversion B) speculation C) hedging D) arbitrage
c
Scenario: Happyland Happyland, a country of about 48 million people with beautiful beaches, vast natural resources, and a highly skilled labor force, is encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software. The net result of trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. If Happyland is successful at attracting foreign investment, transactions involving those investments would appear in the country's ________. capital account service account income payments account merchandise account
capital account
33) Nations undergoing economic integration desire to accomplish each of the following EXCEPT ________. A) increase cross-border investment B) raise living standards for their people C) increase cross-border trade D) establish socialist government
d
Scenario: Moonland Union Twenty-six nations, A through Z countries of Moonland region, have decided to cooperate with one another to eliminate trade barriers among them and create Moonland Union. They are not sure, however, to what extent they want to cooperate. Some countries in Moonland Union are interested not just in free trade among themselves and a common trade policy against nonmembers, but also in removing all barriers to the movement of labor and capital among themselves. This type of integration is best described as a(n) ________. free trade area economic union customs union common market
common market
Scenario: Happyland Happyland, a country of about 48 million people with beautiful beaches, vast natural resources, and a highly skilled labor force, is encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software. The net result of trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. Looking at Happyland's international trade situation, the country is experiencing a ________. current account deficit natural resources account surplus current account surplus capital account surplus
current account surplus
Scenario: Learning the Americas' Way The newly-formed countries that emerged after the break up of the United Frontier States (UFS) are interested in learning more about integration in the Americas. Because the former UFS nations have many similarities with the countries of North and South America, they believe they can learn from the integration experience in the Americas. To that end, they pose the following questions. The Andean Community most closely resembles a ________. free-trade area customs union common market political union
customs union
31) All of the following factors of production are internationally mobile EXCEPT ________. A) labor B) financial capital C) capital equipment D) land
d
32) A company selling in a country with a strong currency while sourcing from a country with a weak currency ________. A) suggests unethical conduct B) generally faces government penalties C) ends up going bankrupt D) improves its profits
d
32) The pattern of imports and exports that occurs in the absence of trade barriers is called ________. A) an embargo B) protectionism C) infant industry D) free trade
d
34) Which of the following is NOT a potential goal of regional economic integration? A) Protection of intellectual property rights B) Reduced environment degradation C) Creation of a political union D) Reduced cross-border investment
d
36) A company's stakeholders include all of the following EXCEPT ________. A) suppliers B) employees C) consumers D) competitors
d
36) Economic integration whereby countries remove all barriers to trade among themselves, but each country determines its own barriers against nonmembers, is called a(n) ________. A) economic union B) customs union C) common market D) free trade area
d
36) Which of the following created renewed determination to further reduce barriers to trade? A) Consumer demand B) Advancements in telecommunications C) Portfolio investment trends D) Uruguay Round of trade negotiations
d
37) The ease with which bondholders and shareholders may convert their investments into cash is called ________. A) barter B) hedging C) arbitrage D) liquidity
d
38) Companies seek cross-border mergers and acquisitions for each of the following reasons EXCEPT to ________. A) get a foothold in new geographic markets B) increase a firm's global competitiveness C) fill in gaps in companies' product lines in a global industry D) free up company budgets for increased R & D
d
38) Predictable exchange rates reduce the need for ________. A) currency conversion B) globalization C) financial planning D) currency hedging
d
39) Which of the following is NOT a purpose of the international capital market? A) Reduces risk for lenders B) Expands the money supply for borrowers C) Reduces the cost of money to borrowers D) Preserves hard currencies to finance trade deficits
d
40) Which of the following is NOT one of the four main theories that attempts to explain why companies engage in foreign direct investment? A) International product life cycle theory B) Market imperfections theory C) Eclectic theory D) Mercantilism
d
41) To be the largest global company in each industry in which we compete is an example of an objective at the ________. A) individual department level B) business-unit level C) consumer level D) corporate level
d
42) According to the international product life cycle, 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? A) Standardized product stage B) Maturing product stage C) Declining product stage D) New product stage
d
43) For the law of one price to apply, products must be all of the following EXCEPT ________. A) entirely produced within each particular country B) identical in quality in all countries C) identical in content in all countries D) identical in quantity in all countries
d
43) The world's three most important financial centers are ________. A) Bonn, Zurich, and New York B) London, Amsterdam, and Sydney C) New York, Tokyo, and Bombay D) Tokyo, London, and New York
d
45) An offshore financial center is usually characterized by each of the following EXCEPT ________. A) very few regulations B) economic and political stability C) excellent telecommunications D) high taxes
d
45) Canada and the United States are early examples of ________. A) customs unions B) free-trade areas C) economic unions D) political unions
d
45) Which of these divides a company's activities into primary and support activities central to creating customer value? A) Mission statement analysis B) Location analysis C) Multinational analysis D) Value chain analysis
d
46) 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. A) market power B) perfect market C) international product life cycle D) market imperfections
d
46) Which of the following is NOT true about inflation? A) It is the result of the supply and demand for a currency. B) It erodes people's purchasing power. C) It raises the prices of goods and services. D) It is controlled by lowering interest rates.
d
48) The ________ theory states that firms undertake foreign direct investment when the features of a particular location combine with ownership and internalization advantages to make a location appealing for an investment. A) rational production B) international product life cycle C) market imperfections D) eclectic
d
48) ________ is an example of monetary policy. A) Increasing taxes B) Lowering taxes C) Increasing government spending D) Selling government securities
d
64) Which of these employs statistical models based on fundamental economic indicators to forecast exchange rates? A) Efficient market view B) Fundamental analysis C) Fisher effect D) Technical analysis
d
49) A(n) ________ is the advantage of conducting a particular economic activity in a specific area because of the characteristics of that place. A) industry advantage B) production advantage C) comparative advantage D) location advantage
d
49) Each of the following is an important booking center EXCEPT ________. A) Bahrain B) Singapore C) Monaco D) Iceland
d
49) Which of the following is NOT a result of trade creation? A) Lower costs tend to lead to higher demand for goods. B) Buyers can acquire goods and services at lower cost. C) Consumers are faced with a wider selection of goods. D) Imported goods are available at higher prices.
d
50) All of the following are potential drawbacks of regional integration EXCEPT ________. A) loss of national sovereignty B) shifts in employment C) trade diversion D) greater consensus
d
50) All of these are primary activities in a firm's value chain EXCEPT ________. A) operations B) inbound and outbound logistics C) customer service D) human resource management
d
51) According to the eclectic theory, each of the following advantages must be present for a company to undertake foreign direct investment EXCEPT ________. A) location B) ownership C) internationalization D) localization
d
51) All of the following are true of trade diversion EXCEPT that it ________. A) is the opposite of trade creation B) can unintentionally reward a less-efficient producer within the trading bloc C) can increase prices of products D) guarantees consumers a wider selection of goods
d
51) Which of these is a support activity in a firm's value chain? A) Operations B) Inbound and outbound logistics C) Customer service D) Human resource management
d
51) ________ involves using taxes and government spending to influence the money supply indirectly. A) Monetary policy B) Domestic policy C) The law of one price D) Fiscal policy
d
52) Typical buyers of bonds include all of the following EXCEPT ________. A) medium- to large-sized banks B) pension funds C) mutual funds D) governments in need of funds
d
53) Eurobonds account for ________ percent of all international bonds. A) 20 to 25 B) 30 to 40 C) 50 to 65 D) 75 to 80
d
55) The rule that the nominal interest rate is the sum of the real interest rate and the expected rate of inflation over a specific period is called ________. A) the law of one price B) purchasing power parity C) the cross rate rule D) the Fisher effect
d
58) A subsidiary built abroad from the ground up is called a(n) ________. A) portfolio investment B) distributive channel C) acquisition D) greenfield investment
d
59) A country experiencing inflation higher than that of another country should see the value of its currency ________. A) rise to match the real interest rate B) rise to match the nominal interest rate C) rise D) fall
d
60) Purchasing power parity is better at predicting ________ exchange rates. A) European B) short-term C) spot D) long-term
d
60) The appeal of purchasing existing facilities is reduced by the potential for each of the following EXCEPT ________. A) obsolete equipment B) unsuitable location C) poor relations with workers D) low wages for local workers
d
61) All of the following are benefits of acquisitions EXCEPT the ________. A) acquisition of goodwill the company has built up over the years B) acquisition of the brand recognition of the existing company C) ability to use alternate methods to finance the purchase of the company D) acquisition of a plant or physical facility with obsolete equipment
d
61) The Maastricht Treaty did all of the following EXCEPT ________. A) called for a common currency B) established targets for monetary union C) called for political union of member nations D) called for a customs union of member nations
d
62) Foreign bonds issued and traded in Asia outside Japan are called ________. A) bulldog bonds B) yankee bonds C) samurai bonds D) dragon bonds
d
62) The efficient market view holds that prices of financial instruments ________. A) do not reflect all publicly available information B) are dependent on economic efficiency C) are not dependent on economic efficiency D) reflect all publicly available information at any given time
d
62) Which of the following was NOT called for in the Maastricht Treaty? A) Banking in a single, common currency B) Monetary targets for countries wishing to take part in monetary union C) Political union of the member nations D) Government debt less than 70 percent of GDP
d
63) A ________ strategy can create cost savings due to product and marketing standardization. A) retrenchment B) multidomestic C) multinational D) global
d
13) If the law of one price is applied and upheld, an arbitrage opportunity arises.
f
65) Deposits to the Eurocurrency market originate from all of these EXCEPT ________. A) governments with excess funds generated by a prolonged trade surplus B) commercial banks with large deposits of excess currency C) international companies with large amounts of excess cash D) nongovernmental organizations seeking to avoid taxes
d
65) Which of the following is LEAST likely to motivate foreign direct investment? A) Customer knowledge B) Following clients C) Following rivals D) Minimizing competition
d
65) Which of these employs charts of past trends in currency prices and other factors to forecast exchange rates? A) Efficient market view B) Fundamental analysis C) Fisher effect D) Technical analysis
d
66) All of the following are true of the euro EXCEPT that it ________. A) eliminates exchange rate risk for business deals between members B) reduces transaction costs by eliminating the cost of converting currencies C) makes prices between markets more transparent D) is not accepted among merchants in France, Germany, and Italy
d
66) To capitalize on buyer perceptions of high quality, a watchmaker might produce in which of the following countries? A) China B) Thailand C) Mexico D) Switzerland
d
67) The practice of "following clients" can be expected in industries having ________. A) few suppliers B) many suppliers C) supply clusters D) suppliers and manufacturers with close working relationships
d
67) Which of the following countries is expected to have difficult negotiations regarding its application for European Union membership? A) Bulgaria B) Czech Republic C) Romania D) Turkey
d
69) The gold standard is a ________ because it fixed nation's currencies to the value of gold. A) managed float system B) floating exchange-rate system C) bartered system D) fixed exchange-rate system
d
69) Yardsticks most commonly used to measure growth include all of the following EXCEPT ________. A) geographic coverage B) number of business units C) market share D) average age of facilities
d
70) The market in which currencies are bought and sold and their prices determined is called the ________. A) Eurocurrency market B) international capital market C) international bond market D) foreign exchange market
d
71) Which of the following records transactions involving the export of services? A) Income receipts account B) Capital account C) Income payments account D) Current account
d
72) Methods of growth include all of the following EXCEPT ________. A) acquisitions B) joint ventures C) strategic alliances D) inorganic growth
d
72) Which of the following is NOT recorded in the capital account? A) U.S. private assets B) U.S. official reserve assets C) Foreign official assets D) Unilateral transfers
d
73) Investors use the foreign exchange market for each of the following EXCEPT ________. A) currency hedging B) currency speculation C) currency arbitrage D) currency prospecting
d
74) The North American Free Trade Agreement comprises a market of ________ consumers. A) 120 million B) 220 million C) 320 million D) 445 million
d
74) Which of the following is LEAST likely to affect the exchange rate between two currencies? A) The size of the transaction B) The trader conducting the transaction C) General economic conditions D) The recipient of the converted currency
d
76) Each of the following were advantages of the gold standard EXCEPT ________. A) reducing exchange-rate risk B) imposing strict monetary policies C) correcting trade imbalances D) increasing exchange-rate fluctuation
d
77) Which of the following is a national account that records transactions involving the purchase or sale of assets? A) Current account B) Merchandise account C) Service account D) Capital account
d
78) Main objectives of the Andean Community include all of the following EXCEPT ________. A) tariff reduction B) a common external tariff C) common policies in transportation D) a common currency
d
78) When a U.S. company buys 40 percent of the publicly traded stock of a French company on France's stock market, the U.S. balance of payments records the transaction as an ________. A) inflow of capital recorded with a plus sign B) inflow of capital recorded with a minus sign C) outflow of capital recorded with a plus sign D) outflow of capital recorded with a minus sign
d
79) An economic condition in which a trade deficit causes a permanent negative shift in a country's balance of payments is called ________. A) revaluation B) managed float system C) the Fisher effect D) fundamental disequilibrium
d
79) Currency arbitrage is ________. A) the practice of insuring against potential losses that result from adverse changes in exchange rates B) the profit-motivated purchase and sale of interest-paying securities denominated in different currencies C) the purchase or sale of a currency with the expectation that its value will change and generate a profit D) the instantaneous purchase and sale of a currency in different markets for profit
d
79) If a Japanese citizen invests in the Australian stock market, the transaction would show up on the capital account of ________. A) Japan B) Australia C) neither Japan nor Australia D) both Japan and Australia
d
87) Each of the following is an objective of the Association of Southeast Asian Nations (ASEAN) EXCEPT ________. A) promote economic, social, and cultural development in the region B) safeguard the region's economic and political stability C) serve as a forum in which differences can be resolved fairly and peacefully D) halving members' tariff rates from an average of 15 percent to 7.5 percent
d
88) If a currency's forward rate is higher than its spot rate, the currency is trading at a ________. A) discount B) swap rate C) derivative rate D) premium
d
Scenario: ABC Software ABC Software is a producer of educational software for small children. The company has operations in Switzerland and would like to expand its foreign production with a new facility in China. 103) If ABC Software holds a currency option to purchase Swiss francs at SF1.67/$ in 30 days, and at the end of the 30 days the exchange rate is SF1.70/$, ABC Software ________. A) is required to follow through with a currency exchange B) would exercise its currency option C) has failed to hedge against exchange rate risk D) would not exercise its currency option
d
Scenario: ABC Software ABC Software is a producer of educational software for small children. The company has operations in Switzerland and would like to expand its foreign production with a new facility in China. 104) The company's financial advisors recommend that ABC Software conduct most of its business in a vehicle currency. ABC Software has learned that all of the following are true of vehicle currencies EXCEPT ________. A) a vehicle currency is a currency used as an intermediary to convert funds between two other currencies B) the U.S. dollar, Japanese yen, British pound, and European Union euro are all examples of vehicle currencies C) the U.S. dollar became a vehicle currency after World War II when all of the world's major currencies were tied indirectly to the dollar because it was the most stable currency D) the Chinese won is expected to become a vehicle currency in the near future as China's position in world trade continues to grow
d
Scenario: Beanstalk International Beanstalk International is rapidly growing. The company wants to follow a strategy of adapting its products and marketing in each national market to suit local preferences. Beanstalk is intent on creating value for its customers. 91) Which of the following would be considered a primary activity in creating value for customers, as opposed to a support activity? A) Firm infrastructure B) Procurement C) Human resource management D) Logistics
d
Scenario: Beanstalk International Beanstalk International is rapidly growing. The company wants to follow a strategy of adapting its products and marketing in each national market to suit local preferences. Beanstalk is intent on creating value for its customers. 92) Which of these would be considered a support activity in creating value for Beanstalk's customers, as opposed to a primary activity? A) Production B) Marketing and sales C) Customer service D) Technology development
d
Scenario: Color-Me-Green, Inc. Color-Me-Green, Inc., a U.S.-based clothing merchant, has started doing business internationally. Having subsidiaries in several countries at year-end, the company must integrate the financial information from all its subsidiaries into the U.S. home office. 95) In Country B, Color-Me-Green is faced with a tight labor market and a low unemployment rate. This low unemployment rate will most likely cause ________. A) the government to cut interest rates B) organizations to lower wages C) the government to raise tariffs D) inflation to occur
d
Scenario: Just-for-Kids, Inc. Just-for-Kids, Inc., is a toys and clothes manufacturer based in San Diego, California. The company has received an inquiry from an overseas company to do business. Tom Dodd is the owner of the company researching the opportunity and how exchange rates will affect its international business activities. 91) If the nation had raised and not lowered its currency's value, its actions would be called ________. A) valuation B) devaluation C) fundamental disequilibrium D) revaluation
d
Scenario: Redding Club Redding Club is a recording and music distribution company with a significant market presence in its native India—an emerging market. Redding's CEO, Bill Woods, an immigrant from England, is concerned whether the company will be able to compete against a large, multinational music corporation that is targeting India as part of its growth strategy. 103) If Bill decides that Redding Club's best chance for success is to simply face the large multinational head- on, the company would pursue a(n) ________ strategy. A) defender B) extender C) dodger D) contender
d
Scenario: Sally goes to Japan Sally Johnson has identified a market for her company's products in Japan. She is excited about expanding her company, but knows she needs to learn how the foreign exchange market works before she can successfully sell her products abroad. 98) If Sally sees a quote of ¥117.87/$ she knows that all of the following are true EXCEPT ________. A) the yen is the quoted currency B) this is an indirect quote on the dollar C) this is a direct quote on the yen D) the quote is in U.S. terms
d
Scenario: TeleToys International TeleToys International, a U.S.-based company, recently opened 18 toy stores in Brazil, acquired a women's clothing store company in Canada, and closed its men's clothing store chain in Australia. The company has a structure that organizes its global operations into geographic regions. 98) Which of the following features would TeleToys be LEAST likely to use to create the perception of unique products? A) Brand image B) Quality reputation C) Product design D) Low cost
d
Scenario: TeleToys International TeleToys International, a U.S.-based company, recently opened 18 toy stores in Brazil, acquired a women's clothing store company in Canada, and closed its men's clothing store chain in Australia. The company has a structure that organizes its global operations into geographic regions. 99) The company's organizational structure can best be referred to as a(n) ________ structure. A) international division B) global product C) global matrix D) international area
d
13) When trade diversion occurs, buyers will likely pay less for products
f
14) A multinational strategy is most appropriate for companies that do not have foreign direct investments but rather export their products to foreign markets.
f
Scenario: Trader's Paradise Trader's Paradise is a global merchant that sells a variety of products. The company operates in 48 different countries (some developed, some developing) and some former communist countries. The company faces substantial risks given differing conditions in foreign exchange markets. 95) If Trader's Paradise purchases and sells the European Union euro simultaneously in different markets for profit, it would be engaging in currency ________. A) conversion B) speculation C) hedging D) arbitrage
d
Scenario: Trader's Paradise Trader's Paradise is a global merchant that sells a variety of products. The company operates in 48 different countries (some developed, some developing) and some former communist countries. The company faces substantial risks given differing conditions in foreign exchange markets. 97) When doing business with former communist countries, Trader's Paradise insists on getting paid in hard currency. This means they are paid in which of the following? A) The former communist country's currency B) Coins but not bills C) Bartered goods D) A convertible currency
d
Scenario: Moonland Union Twenty-six nations, A through Z countries of Moonland region, have decided to cooperate with one another to eliminate trade barriers among them and create Moonland Union. They are not sure, however, to what extent they want to cooperate. Country M wants member nations to harmonize their tax, monetary, and fiscal policies and to create a common currency. Country M is requesting a(n) ________. free trade area economic union customs union common market
economic union
1) If the money supply increases, its price—in the form of interest rates—also increases.
f
10) A rise in a country's currency forces borrowers to shell out more local currency to pay off the interest owed on bonds denominated in an unaffected currency.
f
10) One result of trade creation is that buyers pay higher prices for imported goods and services after trade barriers are removed
f
10) Predictable exchange rates increase the need for currency hedging.
f
11) The greatest benefit of regional integration is trade diversion
f
11) The international bond market consists of all stocks bought and sold outside the issuer's home country.
f
12) An exchange rate tells us whether a specific product will actually cost more or less in a particular country.
f
13) All of Europe's currencies combined are referred to as Eurocurrency.
f
Scenario: Learning the Americas' Way The newly-formed countries that emerged after the break up of the United Frontier States (UFS) are interested in learning more about integration in the Americas. Because the former UFS nations have many similarities with the countries of North and South America, they believe they can learn from the integration experience in the Americas. To that end, they pose the following questions. The North American Free Trade Agreement is best considered a ________. free trade area customs union common market political union
free trade area
Scenario: Global Manufacturing, Inc. (GMI) GMI is a fast-growing U.S. company that wants a production system that makes each of its product's two components in the location where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI purchased an existing company in Brazil to produce component A and built a subsidiary in Thailand to produce component B. GMI's subsidiary for component B in Thailand can be best described as a(n) ________. greenfield investment acquisition portfolio investment merger
greenfield investment
Scenario: Global Manufacturing, Inc. (GMI) GMI is a fast-growing U.S. company that wants a production system that makes each of its product's two components in the location where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI purchased an existing company in Brazil to produce component A and built a subsidiary in Thailand to produce component B. GMI's production system can best be described as ________. following clients mandated benefits rationalized production market power production
rationalized production
Scenario: Happyland Happyland, a country of about 48 million people with beautiful beaches, vast natural resources, and a highly skilled labor force, is encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software. The net result of trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. If Happyland markets its beaches and attracts tourists, the tourism-related income would be recorded in its ________. capital account service account income payments account merchandise account
service account
1) A company selling in a country with a strong currency while sourcing from a country with a weak currency improves its profits.
t
1) Many early trade theories were created at a time when most factors of production either could not be moved or could not be moved easily across national borders.
t
1) Strategy is the set of planned actions managers take to help a company meet its objectives.
t
1) The pattern of imports and exports that would result in the absence of trade barriers is called free trade.
t
1) Trade agreements are lowering trade barriers and opening new markets for goods and services.
t
10) According to the market imperfections theory, one common market imperfection is trade barriers.
t
10) Production is an example of a primary activity.
t
11) An exchange rate tells us how much of one currency we must pay in order to receive a certain amount of another.
t
11) Human resource management is an example of a support activity
t
11) Trade barriers and specialized knowledge are both examples of market imperfections.
t
12) A market imperfection that can encourage foreign direct investment is the possibility that a company will create a future competitor by charging another company for access to its knowledge
t
12) Economic integration can unintentionally reward a less efficient producer within a trading bloc
t
12) The spread of privatization is encouraging the growth of the international equity market.
t
12) When analyzing primary activities, managers often look for areas in which the company can increase the value provided to customers.
t
13) The eclectic theory states that firms undertake foreign direct investment when the features of a particular location combine with ownership and internalization advantages to make a location appealing for investment
t
13) The external business environment consists of all the elements outside a company that can affect its performance.
t
15) A multinational strategy entails having a separate strategy for each nation in which a company markets its products.
t
16) In foreign direct investment, 100 percent ownership of a company does not guarantee its complete control.
t
16) Low unemployment rates cause higher inflation.
t
17) A global strategy does not allow a company to modify its products except for the most superficial features.
t
17) Building a subsidiary abroad from the ground up is called a greenfield investment
t
17) Interest arbitrage is the profit-motivated purchase and sale of interest-paying securities denominated in different currencies.
t
18) According to the concept of purchasing power parity, exchange rates adjust to different rates of inflation in different countries.
t
18) Rationalized production is a system of production in which each of a product's components is produced in the location where the cost of producing that component is lowest
t
18) The Maastricht Treaty called for eventual political union of the member nations
t
19) A growth strategy is designed to increase the scale or scope of a corporation's activities
t
19) A market is efficient if prices of financial instruments quickly reflect new public information made available to traders.
t
19) A potential problem with a rationalized production model is that a work stoppage in one country can bring the entire production process to a standstill
t
19) In any exchange rate, the quoted currency is always the numerator and the base currency is always the denominator
t
19) The European Parliament fulfills its role of adopting European Union law by debating and amending legislation
t
2) A group of nations in a geographic region undergoing economic integration is called a regional trading bloc.
t
20) Exchange rate risk is the risk of adverse changes in exchange rates.
t
20) The Council of the European Union (EU) is the legislative body of the EU
t
11) Nations often restrict trade in goods and services to achieve cultural objectives, the most common being protection of national identity.
t
1. Scenario: Not-So-Free Freeland Freeland is a semi-closed economy whose government believes in protecting national identity and becoming a self-sustaining country. The government's priority is to protect local jobs and provide opportunities to Freeland's emerging industries to flourish without the threat of external competition. Freeland's protection of its national identity is an example of which of the following? Political motive Economic motive Cultural motive Systematic motive
Cultural motive
Scenario: Not-So-Free Freeland Freeland is a semi-closed economy whose government believes in protecting national identity and becoming a self-sustaining country. The government's priority is to protect local jobs and provide opportunities to Freeland's emerging industries to flourish without the threat of external competition. The Freeland government's effort to protect local jobs is an example of which of the following motives? Political Economic Cultural Systematic
Political
Scenario: Not-So-Free Freeland Freeland is a semi-closed economy whose government believes in protecting national identity and becoming a self-sustaining country. The government's priority is to protect local jobs and provide opportunities to Freeland's emerging industries to flourish without the threat of external competition. The belief that Freeland's emerging industries need protection from international competition during their development phase is an example of which of the following? The national security argument The emerging embargo argument The infant industry argument The import subsidy argument
The infant industry argument
33) Which of the following is an example of a political motive behind government intervention in trade? A) Promote a strategic trade policy B) Gain influence over other nations C) Protect against unwanted cultural influence D) Protect young industries from competition
b
1. Scenario: Badland Joins the World Badland, a former totalitarian economy and pariah state, is taking steps toward a free market economy. The government wants to encourage trade but also wants to find a balance where local businesses and industries are not destroyed. If Badland wants to restrict unwanted trade, which of the following would be LEAST appropriate? Increase tariffs Impose a quota Reduce tariffs Impose a currency control
Reduce tariffs
28) When a company exports a product at a price higher than the price normally charged in its domestic market, it is said to be dumping.
f
36) Which of the following industries is typically protected for national security reasons? A) Agriculture B) Textile C) Cosmetics D) Housing
a
40) Which of the following is an example of an economic motive for nations' attempts to influence international trade? A) Pursue strategic trade policy B) Protect jobs C) Respond to "unfair" trade D) Preserve national security
a
43) Which of the following is NOT a problem associated with the infant industry argument? A) It can cause domestic companies to become overly innovative. B) Once protection of an industry is given, it can be politically difficult to eliminate. C) Protection can do more economic harm than good. D) Governments might have difficulty identifying the industries worth protecting.
a
49) Which of these countries are seen as a threat to national cultures around the world? A) United States B) India C) Russia D) France
a
50) Which of the following is NOT an example of an instrument that government uses to promote trade? A) Tariffs B) Subsidies C) Export financing D) Foreign trade zones
a
57) Which of the following government agencies provides insurance services to exporters and other companies investing abroad? A) Overseas Private Investment Corporation B) Federal Deposit Insurance Corporation C) World Trade Organization D) Organization of Petroleum Exporting Countries
a
61) Businesses can obtain financing from the Export-Import Bank through all the following EXCEPT the ________. A) marketing assistance program B) city/state program C) working capital guarantee program D) credit information services program
a
62) A common purpose of many companies' facilities in foreign trade zones is ________. A) final product assembly B) acquisition of raw materials C) product design D) to increase the total amount of a good's production cost
a
65) Which of the following adds to the cost of an imported product by levying an additional tax upon it? A) Tariffs B) Quotas C) Local content requirements D) Embargoes
a
66) A tariff levied by the government of a country that is exporting a product is called a(n)________. A) export tariff B) ad valorem tariff C) compound tariff D) specific tariff
a
68) A tariff levied by the government of a country that a product is passing through on its way to a final destination is called a(n) ________ tariff. A) transit B) domestic C) export D) import
a
71) A(n) ________ tariff is levied as a specific fee for each unit of an imported product. A) specific B) compound C) ad valorem D) specialized
a
82) Country A implements a ban on trade in two products with Country B. This is an example of a(n) ________. A) embargo B) tariff-quota C) tariff D) voluntary export restraint
a
90) An additional tariff placed on an imported product that a nation believes is receiving an unfair subsidy is called a(n) ________. A) countervailing duty B) ad valorem duty C) dumping duty D) compounded tariff
a
37) Which of the following is causing farmers to increase their efficiencies in many developed nations? A) Protection under national security guidelines B) Exposing agribusiness to market forces C) Providing extensive government subsidies D) Labeling agricultural products as dual-use
b
41) The ________ argument says that a country's emerging industries need protection from international competition during their development. A) national security B) infant industry C) strategic trade policy D) GATT treaty
b
42) The notion that as an industry grows and matures it gains the knowledge it needs to become more innovative, efficient, and competitive is known as the ________. A) maturing industry argument B) infant industry argument C) entrant industry argument D) extant industry argument
b
45) ________ believe that government intervention can help companies take advantage of economies of scale and be the first movers in their industries. A) Opponents of globalization B) New trade theorists C) Critics of strategic trade policy D) Cultural imperialists
b
46) The term chaebol refers to ________. A) Japanese multinational powerhouses B) South Korean global conglomerates C) Vietnamese free trade policies D) Chinese personal relationships
b
48) Unwanted cultural influence in a nation is referred to as ________. A) cultural protectionism B) cultural imperialism C) cultural capitalism D) cultural dumping
b
51) Which of the following is an example of a common instrument used by government to promote trade? A) Tariffs B) Subsidies C) Quotas D) Local content requirements
b
53) Which of the following is a method of restricting trade? A) Export financing B) Local content requirements C) Subsidy D) Foreign trade zones
b
55) Which of the following is NOT true of governments? A) They often promote exports by helping companies finance their export activities. B) They may promote imports through the use of subsidies. C) They can promote exports by offering loans with below-market interest rates. D) They may promote exports by offering loan guarantees.
b
56) When a government guarantees it will repay the loan of a company if the company should default on repayment, this is an example of a(n) ________. A) subsidy B) loan guarantee C) infant industry protection D) loan repayment clause
b
59) Taken together, small businesses account for ________ percent of all transactions handled by the Export-Import Bank. A) less than 20 B) over 80 C) approximately 50 D) 100
b
67) Tariffs can be classified into all of the following categories EXCEPT ________. A) transit B) direct C) export D) import
b
72) A(n) ________ tariff is levied on an imported product and calculated partly as a percentage of its stated price and partly as a specific fee for each unit. A) specific B) compound C) ad valorem D) specialized
b
74) Using tariffs to generate government revenue is most common among ________. A) developed countries B) less-developed countries C) advanced economies D) communist nations
b
79) A lower tariff rate for a certain quantity of imports and a higher rate for quantities that exceed the quota is called a(n) ________. A) embargo B) tariff-quota C) tariff D) voluntary export restraint
b
31) Governments impose trade barriers for all of the following reasons EXCEPT ________. A) to protect national security B) to gain influence over other nations C) to respond to other nation's fair trade practices D) to protect jobs
c
38) Products designated as dual use require ________ before export can take place. A) multi-language translation documents B) better consumer-use instructions C) special government approval D) World Trade Organization clearance
c
47) Which of these is the main cultural motive behind government intervention in trade? A) Promote a strategic trade policy B) Protect jobs C) Protect national identity D) Protect young industries from competition
c
58) Which of the following finances the export activities of companies in the United States and offers insurance on foreign accounts receivable? A) Ex-Ante Bank B) Ex-CEO Bank C) Export-Import Bank D) In-Out Bank
c
70) A(n) ________ tariff is levied as a percentage of the stated price of an imported product. A) specific B) compound C) ad valorem D) specialized
c
73) Which of the following statements is NOT true? A) Tariffs are a source of government revenue. B) Tariffs protect domestic producers. C) Tariffs lower the effective prices of imports. D) Tariffs can can keep producers from increasing efficiency.
c
75) A restriction on the amount of a good that can enter or leave a country during a certain period of time is called a(n) ________. A) export subsidy B) local content requirement C) quota D) tariff
c
84) If a country stipulates that a specified amount of a good or service be supplied by producers in the domestic market, this restriction device is an example of a(n) ________. A) administrative delay B) currency control C) local content requirement D) voluntary export restraint
c
85) All of the following statements are true of local content requirements EXCEPT ________. A) many developing countries use local content requirements as a strategy to boost industrialization B) companies can circumvent local content requirements by locating production facilities in nations that impose the restrictions C) local content requirements hurt domestic producers through their effect on prices D) local content requirements force companies from other countries to employ local resources in their production processes
c
86) 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 ________. A) restructuring B) local bureaucracy C) administrative delays D) global strategy failures
c
87) Restrictions on the convertibility of a currency into other currencies are referred to as ________. A) administrative delays B) local bureaucracy C) currency controls D) convertibility delays
c
89) Which of the following is NOT a way in which the Uruguay Round of Negotiations modified the original General Agreement on Tariffs and Trade (GATT) treaty? A) It clearly defined intellectual property rights. B) It established the World Trade Organization to regulate trade between nations. C) It drastically reduced tariffs and nontariff barriers in telecommunications. D) It included international trade in services for the first time.
c
3) Governments may intervene in markets to protect both imports and exports in industries deemed essential to national security.
t
1. Scenario: Excelsior's Limited Excelsior's Limited, a maker of health and beauty aids, is expanding its presence in several countries around the world. Excelsior's president has been surprised at some of the responses the company has received from other countries. When Excelsior's Limited tried to convert its earnings from one country, the government stipulated that the company had to exchange its currency at a very unfavorable rate. This is an example of a(n) ________. administrative delay currency control subsidy tariff
currency control
34) Which of the following is NOT an example of a political motive behind government intervention in trade? A) Respond to other nation's unfair trade practices B) Preserve national security C) Protect jobs D) Protect young industries from competition
d
35) Which of the following is NOT true? A) Governments intervene in markets to ensure access to a domestic supply of certain items in the event that war could restrict their availability. B) Industries considered essential to national security often receive government-sponsored protection. C) Governments may intervene to protect both imports and exports. D) It is difficult to make the case to protect industries for the purpose of preserving national security.
d
39) When a product has both industrial and military applications, they are said to have ________. A) cultural imperialism B) a free trade designation C) an unfair trade advantage D) dual uses
d
44) Each of the following can be the result of protection from international competition EXCEPT ________. A) consumers often end up paying more for products B) there are fewer incentives to cut production costs or improve quality C) companies become more reliant on protection D) strategic trade policy dictates trading patterns
d
52) All of the following are methods of restricting trade EXCEPT ________. A) tariff B) quota C) local content requirement D) subsidy
d
60) A designated geographic region in which merchandise is allowed to pass through with lower custom duties and/or fewer customs procedures is called a(n) ________. A) chaebol zone B) special subsidy zone C) international customs zone D) foreign trade zone
d
63) Which of the following is NOT true about maquiladoras? A) They employ hundreds of thousands of people. B) They are foreign trade zones along Mexico's northern border. C) They import materials or parts from the United States without duties, perform some processing on them, and export them back to the United States. D) They have shown little success because of the immense amount of paperwork involved.
d
64) Government trade promotion agencies do all of the following EXCEPT ________. A) organize trips for trade officials and business people to visit other countries B) open trade offices in other countries C) advertise in other countries to promote the nation's exports D) place voluntary export restraints on companies that fail to export adequately
d
76) All of the following are true of quotas EXCEPT ________. A) they may be used to protect domestic producers by placing a limit on the amount of goods allowed to enter the country B) they help domestic producers maintain their market shares and prices C) domestic producers benefit from them because their market is protected D) they cause the prices of intermediate goods to decrease
d
77) Country A imposes a tariff on its exports at the request of another nation. This is an example of a(n) ________. A) embargo B) tariff-quota restraint C) independent tariff D) voluntary export restraint
d
78) Countries might impose a(n) ________ in response to the threat of an import quota or total ban on a product by an importing nation. A) embargo B) tariff-quota restraint C) independent tariff D) voluntary export restraint
d
81) Suppose imports entering a nation under a quota limit of 8,500 tons of rice are charged a tariff of 15 percent, but subsequent imports of rice that do not make it under this quota limit are charged a tariff of 68 percent. This is an example of a(n) ________. A) import subsidy B) price factor C) GATT-enforced regulation D) tariff-quota
d
83) Which of the following is NOT a true statement about embargoes? A) An embargo may be placed on one or a few goods or may completely ban trade in all goods. B) An embargo is the most restrictive nontariff barrier available. C) An embargo is usually employed for political reasons. D) Embargoes are used frequently today because they are easy to implement.
d
88) The ________ altered U.S. trade policy from a stance of free trade to one of protectionism. A) General Agreement on Trade and Tariffs B) Multi-Fibre Arrangement C) Normalized Trade Relations Act D) Smoot-Hawley Act
d
When a product has both industrial and military applications, they are said to have ________. cultural imperialism a free trade designation an unfair trade advantage dual uses
dual uses
10) Supporters of strategic trade policy argue that it results in decreased national income.
f
12) The main cultural motives behind government intervention in trade include protecting jobs and preserving national security.
f
17) A tariff levied by the government of a country that a product is passing through on its way to its final destination is called an import tariff.
f
29) Although dumping is an act by a company, not a country, the World Trade Organization punishes the country where the company doing the dumping is based.
f
1. Scenario: Excelsior's Limited Excelsior's Limited, a maker of health and beauty aids, is expanding its presence in several countries around the world. Excelsior's president has been surprised at some of the responses the company has received from other countries. Excelsior's Limited tried to sell its product in Canada, but it was told the product must be at least 40 percent locally made. This is an example of a(n) ________. administrative delay local content requirement local service proviso discriminatory production practice
local content requirement
1. Scenario: Not-So-Free Freeland Freeland is a semi-closed economy whose government believes in protecting national identity and becoming a self-sustaining country. The government's priority is to protect local jobs and provide opportunities to Freeland's emerging industries to flourish without the threat of external competition. Freeland's restriction of free trade could be attributed to each of the following EXCEPT ________. political motives economic motives cultural motives systematic motives
systematic motives
16) Creation of foreign trade zones caused development of companies called maquiladoras along the border inside Mexico.
t
19) A compound tariff is levied on an imported product and calculated partly as a percentage of its stated price, and partly as a specific fee for each unit.
t
20) Tariffs tend to exact a cost on countries as a whole because they lessen citizens' gains from trade.
t
21) A government may impose import quotas to force companies from other nations to compete against one another for the limited amount of imports allowed.
t
23) A voluntary export restraint (VER) refers to a quota that a nation imposes on its exports, usually at the request of another nation.
t
24) Export quotas hurt consumers in importing nations because of reduced selection and perhaps higher prices.
t
