International Business 3660 Exam 1

what is often see as the lender of last resort?

International Monetary Fund (IMF)

Which of the following theories explains global trade in terms of the international differences in labor productivity?

Ricardo's theory of comparative advantage

A pen costs £50 in Britain. An identical pen costs $70 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?

The US offers a better deal

the practice of "gift-giving" between the parties to a business negotiation is considered right and proper behavior in many Asian cultures, while some Westerners view the practice as a form of bribery. What is this an example of?

an ethical dilemma

what is one reason why managing an international business is different from managing a purely domestic business?

an intl business must find ways to work within the limits imposed by govt intervention in the international trade and investment system

an international business is

any firm that exports or imports

Unlike firms pursuing a global standardization strategy, firms pursuing an international strategy

are not confronted with pressures to reduce their cost structure

T or F: The convention on Combating Bribery of Foreign Public Officials in International Business Transactions obliges member states to make facilitating payments made to expedite routine government action on a criminal offense

false

T or F: The emergence of single markets will make the business environment within each grouping less competitive.

false

T or F: The fast-food industry is a good example of a business sector where licensing is a poor option for FDI.

false

T or F: The infant industry argument relies on an assumption that firms can make efficient long-term investments by borrowing money from the domestic or international capital market.

false

T or F: The location-specific advantages argument associated with John Dunning explains why firms prefer FDI to licensing or to exporting.

false

T or F: The new trade theory stresses that countries should have favorable factor endowments to excel in the production of a good

false

T or F: The ultimate controlling unit within the EU is the European Parliament.

false

T or F: The way to increase the profitability of a firm is to create less-expensive products.

false

T or F: There is consensus that EU is what economists would call an optimal currency area.

false

T or F: Trade diversion occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.

false

T or F: a civil law system tends to be more adversarial than a common law system

false

T or F: a common feature of many right-wing dictatorships is that they support socialist or communist ideas

false

T or F: cultural differences have no effect on the way an intl firm conducts its business around the globe

false

T or F: entrepreneurs and business-owners of high uncertainty avoidance cultures will be more willing to take risks and make changes

false

T or F: in calculating data in some countries, the official figures take into account the barter agreements as part of daily business

false

T or F: it can be more costly to do business in a country where there are no laws and regulations with regard to product safety

false

T or F: people who violate folkways are considered to be evil or bad

false

T or F: since the demise of communism in the late 1980s, the number of command economies has risen dramatically

false

T or F: the global capital market limits the opportunity for businesses and individuals to build a diverse financial portfolio.

false

T or F: the naive immoralist claims that a multinational's home country standards of ethics are the appropriate ones for companies to follow in foreign countries

false

T or F: the value systems and norms of a country have little influence on the costs of doing business in that country

false

A firm needs to develop a mechanism for ensuring it maintains an appropriate mix of tactics and strategies for minimizing its foreign exchange exposure. Which of the following is one of the common tactics that should be employed?

firms need to, as far as possible, model and forecast future exchange rate movements

Amazon.com was the earliest major online bookstore which allowed it to generate brand awareness and have a significant presence in the market. It has had a head start on later entrants to the online bookstore market

first-mover advantages

A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a _____.

fixed exchange rate

Which strategy makes most sense when there are strong pressures for cost reductions and minimal demands for local responsiveness?

global standardization strategy

A global capital market benefits borrowers by lowering the cost of capital and

increasing the supply of funds available for borrowing

Two factors that helped global capital markets take off in the last decades of the 20th century were _____ and _____.

information technology; deregulation by governments

Increasingly, the International Monetary Fund (IMF) has been acting as the macroeconomic police of the world economy by

insisting that countries seeking significant borrowings adopt IMF mandated macroeconomic policies

_____ is also known as the market imperfections theory.

internalization theory

A managed float is the exchange rate policy where the government

intervenes in the exchange rate system only in a limited way

what is true about the caste system?

it is a rigid form of social stratification

Which of the following is a home-country policy aimed at limiting outward FDI flow?

limiting capital outflows

The threat of antidumping action affects a firm by

limiting its ability to use aggressive pricing to gain market share in a country

the term ______ refers to the values and norms that are shared among employees of an organization

organizational culture

The extent to which a firm's future international earning power is affected by changes in exchange rates in the long-run is known as _____.

economic exposure

What is the term for unit cost reductions associated with a large amount of output?

economies of scale

what action was implemented in the Uruguay Round, finalized in December 1993?

establishment of WTO

kids working for low wage rates at factory vs without jobs on street corners leads to an

ethical dilemma

a set of moral principals, or values, that are used to guide and shape behavior

ethical system

to make sure that a business behaves in an ethical manner, a number of companies have hired _____, who are responsible for making sure the company's code of ethics is followed in every business decision

ethics officers

A(n) _____ is any currency banked outside its country of origin.

eurocurrency

Which of the following does global expansion allow firms to achieve?

expand the market for their domestic product offerings by selling those products in international markets

T or F: a code of ethics is a formal statement of the ethical priorities that a business follows

True

Most economists would probably argue that the best interests of international business are served by

a free trade stance

Free trade refers to a situation where _____.

a government does not try to influence what its citizens can buy from global markets

The Eurocurrency market has two significant drawbacks: _____ and _____.

a higher probability of a bank failure due to lack of regulation; foreign exchange risk

which of the following is a more attractive place to do business?

a nation with a market-based economic system

indulgence refers to

a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun

T or F: "not free" countries are characterized by some restrictions on political rights and civil liberties, often in the context of corruption, weak rule of law, ethnic strife, or civil war

false

T or F: An efficient market has many impediments to the free flow of goods and services.

false

T or F: An import quota is a specific tax levied on imports.

false

T or F: Changing a firm's strategic posture to build an organization capable of supporting a transnational strategy is a relatively simple task.

false

T or F: Economic arguments for intervention are concerned with protecting the interests of certain groups within a nation, often at the expense of other groups, or with achieving some objective that lies outside the sphere protecting the environment or human rights.

false

T or F: Fixed exchanged rates can help a country deal with economic crises.

false

T or F: Governments always act in the national interest of their countries when they intervene in the economy.

false

T or F: Hofstede's power distance dimension focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities

false

T or F: In a command economy, certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning

false

T or F: Kantian ethics hold that the moral worth of actions or practices is determined by their consequences

false

T or F: New trade theorists argue that getting a first-mover advantage is not a significant determinant of international trade.

false

T or F: Problems of limited liquidity are limited to less developed nations, which tend to have smaller domestic capital markets.

false

T or F: Profitability is calculated by dividing the total sales of the firm by total invested capital.

false

T or F: Responding to pressures to be locally responsive requires a firm to standardize its products.

false

T or F: Since the 1960s, a notable trend in the demographics of the multinational enterprise has been the rise of US multinationals

false

T or F: Small government deficits are an underlying cause of a foreign debt crisis.

false

T or F: The Jamaica agreement banned International Monetary Fund members from entering the foreign exchange market to even out fluctuations.

false

T or F: The PPP theory tells us that a country with a high inflation rate will see an appreciation in its currency exchange rate.

false

_____ suggests that a government should use subsidies to support promising firms that are active in newly emerging industries.

strategic trade policy

Which of the following is less likely to add to the pressure for a firm to be locally responsive?

switching costs for consumers

The experience curve refers to

systematic reductions in production costs that have been observed to occur over the life of a product

which of the following aspects of Protestantism paved the way for the subsequent emphasis on individual economic and political freedoms?

the emphasis on individual religious freedom

General Motors' stand against apartheid in South Africa was based upon what came to be known as

the human rights movement

which of the following is true about the economic risks of doing business in a country?

the inflation rate in a country is an indicator of the economic risks of doing business in a country

Hofstede's masculinity vs femininity dimension examined

the relationship between gender and work roles

folkways are

the routine conventions of everyday life

one of the UN's Millennium Goals was to cut in half the number of people living in extreme poverty by 2015. Which of the following is an accurate statement concerning this goal or its impact?

this goal was reached five years ahead of schedule

Tariff barriers raise the costs of exporting products to a country (or of exporting partly finished products between countries). Which of the following is a likely consequence of these barriers?

this may put a firm at a competitive disadvantage to indigenous competitors in that country

many of the national markets of Eastern Europe, Latin Ameria, Africa, and Asia may still be underdeveloped, but they are potentially enormous. Which of the following is a risk to business moving into these regions?

there is no guarantee that democracy will thrive in many of the world's newer democratic states

Under the gold standard, when United States has a trade surplus

there will be a net flow of gold from other countries to the United States

A _____ rate means the value of the currency is fixed relative to a reference currency and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

pegged exchange

the benefits, costs, and risks associated with doing business in a country are a function of that country's

political, economic, and legal systems

The _____ is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost.

pragmatic nationalist view

The _____ theory argues that such advanced nations as the United States have an incentive to develop consumer products and hence such nations tend to produce newer products.

product life-cycle

_____ can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under global agreements.

regional economic integration

Which of the following is an example of an advanced factor that a nation will possess as proposed by Porter?

skilled labor

A Japanese tourist in New York goes to a bank to convert his yens into dollars. The exchange rate that will be used for conversion will be the _____.

spot exchange rate

GNI/person figures can be misleading because they don't consider differences in the cost of living

true

T or F: A Chinese petroleum company sets up a crude oil refining facility in Vietnam. This is an example of a greenfield investment.

true

T or F: A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

true

T or F: A currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it.

true

T or F: According to the radical view, the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.

true

T or F: An integrated international capital market is more volatile compared to a nonintegrated market.

true

T or F: Direct effects arise when a foreign MNE employs a number of host-country citizens.

true

T or F: Dumping is viewed as a method by which firms unload excess production in foreign markets.

true

T or F: During the late 1980s and early 1990s, a wave of democratic revolutions swept the world

true

T or F: If the spot rate is $1 = ¥120, and the 30-day forward rate is $1 = ¥130, the dollar is selling at a premium in the forward market.

true

T or F: Offshore production refers to FDI undertaken to serve the home market.

true

T or F: Paul Samuelson's critique looks at what happens when a rich country enters into a free trade agreement with a poor country.

true

T or F: Speculative buying and selling of currencies can create volatile movements in exchange rates under the present foreign exchange system.

true

T or F: Superior value creation relative to rivals does not necessarily require a firm to have the lowest cost structure in an industry, or to create the most valuable product in the eyes of consumers.

true

T or F: The Bretton Woods agreement called for a system of fixed exchange rates that would be policed by the International Monetary Fund.

true

T or F: The GATT was a multilateral agreement whose objective was to liberalize trade.

true

T or F: The inefficient market school argues that investing in exchange rate forecasting services would be a waste of money.

true

T or F: The movement toward regional economic integration has been most successful in Europe.

true

T or F: The rapid growth of information technology allows for 24-hours-a-day trading in the financial world.

true

T or F: The rate at which one currency is converted into another is known as the exchange rate.

true

T or F: The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade.

true

T or F: Theories of international trade claim that promoting free trade is generally in the best interests of a country, although it may not always be in the best interest of an individual firm.

true

T or F: Underlying most trade theories is the notion that different countries have particular advantages in different productive activities.

true

T or F: While a nation as a whole may benefit significantly from a regional free trade agreement, certain groups within the country may lose.

true

T or F: a mudarabah contract of Islamic banks is similar to a profit-sharing scheme

true

T or F: building an organizational culture that places a high value on ethical behavior requires incentive and reward systems that reward people who engage in ethical behavior

true

T or F: deregulation involves the establishment and operation of private enterprises

true

T or F: in a market economy, a supply restriction occurs when a single firm monopolizes a market

true

T or F: in the early twentieth century, the socialist ideology split into two broad camps: communists and social democrats

true

T or F: one of the biggest dangers confronting a company that goes abroad for the first time is the danger of being ill-informed

true

Learning effects

typically disappear after a while, in spite of the complexity of the task

as a philosophy for business ethics, utilitarianism focuses attention on the need to

weigh carefully all of the social benefits and costs of a business action

In which of the following situations would FDI deteriorate the current account of the host country's balance of payments?

when a foreign subsidiary imports a substantial number of its inputs from abroad

When is a currency said to be externally convertible?

when only nonresidents can convert it into a foreign currency without any limitations

Which of the following accounts for about 55 percent of the world's GNP and 49 percent of world trade?

APEC

Which of the following theories proposes that a country should specialize in producing those goods for which it has an absolute advantage?

Adam Smith's theory

Which of the following is the African grouping that started to implement a customs union in 2005?

EAC

The emerging role of the _____ in competition policy suggests the EU is increasingly willing and able to intervene and impose conditions on companies proposing mergers and acquisitions.

European Commission

In the 1986 Uruguay Round, GATT members sought to write rules for promoting which of the following?

GATT's monitoring and enforcement mechanisms

The WTO argues that by removing all tariff barriers and subsidies to agriculture, which of the following would occur?

Global economic growth would rise

To achieve full economic union, the European Union introduced a common currency, the euro, controlled by a central EU bank. Although most member states have signed on, _____ remains an important holdout.

Great Britain

_____ argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that boosts national income at the expense of other countries.

Paul Krugman

Which of the following is the most important vehicle currency by trade volume?

US dollar

what was created in 1944 by 44 nations that met in Breton Woods, NH to promote economic development?

World Bank

which of the following exemplifies privatization?

a country sells its postal services to a consortium of companies that runs it as a profit making venture without any state funding

values are

abstract ideas about what a group believes to be good, right, and desirable

Porter argues that a nation's firms should

adopt policies that promote strong competition within domestic markets

opponents of globalization argue that falling trade barriers

allow firms to move manufacturing activities to countries with lower wage rates

The Foreign Corrupt Practices Act was amended to

allow for "facilitating payments"

according to the findings of the World Values Survey

as countries get richer, there seems to be a shift from survival values to well-being values

Investors using the global capital market have a wider range of investment opportunities than a purely domestic capital market. One of the most significant consequences of their choice is that they

can reduce their risk to below what could be achieved in a strictly domestic market

what is the most widely practiced religion in the world?

christianity

in Samuel Huntington's thesis, global terrorism is a product of the ______

clash of value systems and ideology

historically, command economies were found in ______ where collectivist goals were given priority over individual goals

communist countries

which of the following philosophies can be traced back to the ancient Greek philosopher Plato?

collectivism

Which of the following is true about core competence?

core competence skills are typically expressed in product offerings that other firms find difficult to match or imitate

which factor contributed to the Great Depression?

countries progressively raised trade barriers against each other

globalization has enabled organizations to reduce their costs of production by

creating manufacturing units in developing countries

A(n) _____ occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate.

currency crisis

Which account keeps track of the export and import of goods and services in a country?

current account

A _____ eliminates trade barriers between member countries and adopts a common external trade policy, but does not allow free movement of factors of production between member nations.

customs union

From an international business perspective, some argue that what is ethical

depends on one's cultural perspective

If lots of people want euros and euros are in short supply, and a few people want Japanese yen and yen are in plentiful supply, the yen is likely to _____ against the euro.

depreciate

What are first-mover advantages?

economic and strategic advantages that accrue to early entrants into an industry

The _____ shows all of the different positions a firm can adopt with regard to adding value to the product and low cost assuming the firm's internal operations are configured efficiently to support a particular position.

efficiency frontier

the role of the government in a market economy involves

encouraging vigorous free and fair competition among private producers

A borrower can hedge against unpredictable movements in foreign exchange rates that can make the global capital market riskier by

entering into a forward contract

T or F: using Hofstede's dimensions of social culture, research has shown that companies headquartered in cultures where masculinity and power distance are important attributes were more likely to emphasize the importance of behaving ethically

false

The risk that arises from volatile changes in exchange rates is commonly referred to as

foreign exchange risk

The lack of progress in the Doha Round negotiations has resulted in countries

forging ahead with their own bilateral agreements

According to the _____, international production should be distributed among countries according to the theory of comparative advantage.

free market view

Identify the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements.

free trade areas

_____ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements.

fundamental analysis

countries with free market economies in which property rights are protected tend to have ______ than command economies or economies where property rights are poorly protected

greater economic growth rates

One of the consequences of the global financial crisis of 2008 and 2009 for hedge funds, which are private investment funds, was a(n)

growing concern that deregulation had gone too far

which of the following is true about planned economies?

in a planned economy, the state owns all means of production

The lowering of trade and investment barriers among countries in a trade group has led to

increased price competition throughout the EU and NAFTA

_____ involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold.

licensing

A banking crisis refers to

loss of confidence in the banking system

When a firm borrows funds from the global capital market, it must weigh the benefits of a

lower interest rate against the risks of an increase in the real cost of capital due to adverse exchange rate movements

Firms usually respond to pressures for cost reduction by trying to

lower the costs of value creation

Different accounting conventions can make the problem of lack of information about the quality of foreign investments by

making direct comparisons difficult

The creation of a single market through regional economic integration offers significant opportunities. Which of the following is one of these opportunities?

markets that were formerly protected from foreign competition are increasingly open

globalization critics argue that the decline in unskilled wage rates is due to the

migration of low wage manufacturing jobs offshore

If General Electric, a U.S. based corporation, purchases a 12 percent interest in a company in Italy, that purchase would be an example of a(n) _____.

minority acquisition

during the late 1980s and early 1990s, totalitarian governments collapsed and were replaced by democratically elected governments that were typically _____ than their predecessors had been

more committed to free market capitalism

the ethical obligations of a multinational corporation toward employment conditions, human rights, corruption, and environmental pollution are

not always clear-cut

Host governments use a wide range of controls to restrict FDI in one way or another. The two most common are _____ and performance requirements.

ownership restraints

Economist Martin Feldstein has coined the term _____ to pertain to long-term, cross-border capital flows.

patient money

A country bases the valuation of its currency on a reference currency. The value of the country's currency is changed based on the changes in the value of the reference currency. This is an example of a _____ exchange rate system.

pegged

at the Doha Round of the WTO in late 2001, an agenda was established to

phase out subsidies to agricultural producers

which of the following is a feature of right-wing totalitarianism?

provision of partial individual economic freedom along with restricted individual political freedom

The _____ suggests that given relatively efficient markets, the price of a "basket of goods" should be roughly equivalent in each country.

purchasing power parity theory

UN has developed the Human Development Index (HDI) to measure the

quality of human life in different nations

the ______ committed themselves to achieving socialism without resorting to violent revolution and dictatorship

social democrats

If a country increases its money supply rapidly under a fixed exchange rate regime

the country will face high levels of price inflation

Which of the following is one of the attractions of the Eurobond market?

the tax status is favorable

the stock of foreign direct investment refers to

the total cumulative value of foreign investments

which statement pertains to changes in the global economy of the 21st century?

the world is moving toward an economic system that is more favorable for intl business

which of the following statements is true about trademarks?

trademarks are designs and names by which businesses differentiate their products

Constant returns to specialization occurs when

units of resources remain stable for any number of goods produced

contracts drafted under a common law framework tend to be

very detailed with contingencies spelled out