International management Exam 2
enter into a forward contract
A South Korean firm wants to hedge against unpredictable movements in foreign exchange rates which can make the global capital market riskier. What should the company do to achieve this?
It will cost more lira to pay back the dollar-based loans
A company in Turkey holds a loan in U.S. dollars. What does the downward pressure on the value of the Turkish lira mean for this company?
licensing agreement
A company that wants to use scenes from the Walt Disney movie "Frozen" in its advertising campaign would have to have a ________ with the Disney company to use the movie.
quickly building a global presence.
A franchising strategy is typically associated with
bring together those who want to invest money with those who want to borrow money.
A function of a capital market is to
increasing the supply of funds available for borrowing.
A global capital market benefits borrowers by lowering the cost of capital and
eurocurrency
A(n) ________ is any currency banked outside its country of origin.
joint venture
Access to local partner's knowledge and shared development costs and risks are advantages of which foreign market entry mode?
New jobs in Japan are created to facilitate U.S. investment. Effect on host country: employment effect
According to the video, Japan's Toyota has invested $25 billion in production facilities in the United States. Which is not a correct match between an action occurring because of Toyota's investment in the United States and the effect on the host country?
Licensing does not give a firm the tight control over production, marketing, and strategy in a foreign country that may be required to maximize its profitability.
After licensing its brand in Japan for a number of years, Burberry decided to open its own stores in the country. Which disadvantage of licensing best explains Burberry's decision to end its licensing agreements in Japan?
licensing does not give a firm the tight control over production, marketing, and strategy in a foreign country that may be required to maximize its profitability
After licensing its brand in Japan for a number of years, Burberry decided to open its own stores in the country. Which disadvantage of licensing best explains Burberry's decision to end its licensing agreements in Japan?
They impose significant costs on consumers in the form of higher prices.
Alexander Hamilton argued that tariffs are an effective means of protecting infant industries until they are better able to compete. Which is not true of tariffs used to protect infant industries?
Canada
All of the countries below are considered to be significant investors in foreign markets over the last 20 years except
economic
Apple and other large technology firms are anticipating a sustained rise in the value of the dollar in foreign exchange markets. The firms are facing ________ risk.
preempt rivals and capture demand
Apple has a first-mover with many of its products, which means that Apple is able to
buying currency forward to hedge against future increases.
Apple has tried to protect the dollar value of its foreign sales by
translation risk
Apple's 2015 fourth quarter earnings were $80.8 billion, yet the company reported just $75.9 billion after factoring in exchange rate movements. Apple's lower earnings are a result of
foreign exchange rate
Apple, Microsoft, Google, and other major technology companies have all reported lower earnings as a result of the strong dollar. The adverse consequences of unpredictable changes in exchange rates is called
face higher levels of risk
As compared to capital markets in the United States or Europe, investors in China
specific
As part of its effort to protect its auto makers from foreign competition, suppose Brazil levied a tariff based on a proportion of the value of the product. Brazil would be imposing a(n) _______ tariff.
are taxes levied on imports or exports.
Brazil used tariffs to protect its auto industry in the 1950s. Tariffs
the drop in the value of the Brazilian real.
Brazilian coffee farmers have benefitted from
the licensee bears the cost and risk of developing the market
Burberry originally entered Japan via a licensing contract with a Japanese retailer. A key advantage of this type of strategy is that
the licensee bears the cost and risk of developing the market.
Burberry originally entered Japan via a licensing contract with a Japanese retailer. A key advantage of this type of strategy is that
a Greenfield investment
Burberry's current investment in Japan can best be characterized as
a greenfield investment.
Burberry's current investment in Japan can best be characterized as
holding a variety of stocks in a diversified, especially internationally
By _____________________________, the losses incurred when some stocks fail to live up to their promises are offset by the gains enjoyed when other stocks exceed their promise.
build its presence in the foreign market
By acquiring an established enterprise, a firm can rapidly
government intervention
Companies engaged in significant foreign exchange activities need to be aware that the current system is a mixed system combining speculation and
setting up a greenfield venture.
Connor's company produces bicycles and wants to establish a wholly owned subsidiary in Austria. It can do this by acquiring an established firm in Austria or by
increase in value
Dimitri's company is interested in a hedge fund that positions itself to make "long bets." That means it will invest in funds that are anticipated to
patient
Economist Martin Feldstein has coined the term ________ money to pertain to long-term, cross-border capital flows.
preempt competitors
Firms will make acquisitions to _______________________, which is particularly important in markets that are rapidly globalizing.
bring together complementary skills.
Forming a strategic alliance is a way to
the yuan appreciated relative to the dollar
From 2005 to 2015, the value of Chinese yuan relative to the U.S. dollar changed from 8.27 yuan per dollar to 6.0875 yuan per dollar. Which of the following is consistent with this change?
dirty float
If Air-Omnibus was in China, it would not face the problem it did because China allows its currency to vary in value against the dollar, yen, and euro within certain limits. This is known as a
Greenfield venture
If a firm is entering a country where there are no incumbent competitors, ______________________ is preferred.
licensing
If a firm's know-how, skills, and capabilities can be protected by contract, and if tight control over foreign operations is not vital to remain competitive, and there are reasons to believe that additional costs through transportation or tariffs would be high, the most effective approach would be
foreign direct investment
If consumers in different countries desire different product attributes, it would be best to engage in
The European company will benefit from its relatively strong euro.
If the United States has a weak dollar relative to the euro, what is the impact for a European importer buying products from the United States that are priced in dollars?
exporting
If your household goods can be efficiently produced through economies of scale, it would be a good idea to use a(n) _______ strategy.
exporting or foreign direct investment
If your proprietary know-how of "green" processes is difficult to transfer to other firms, the most effective approach would be
a weak currency boosts export sales for the country
In 2014, the value of the U.S. dollar relative to the euro was about 30 percent weaker than its value in 2001. How is a weak currency an advantage in trade?
an effective mechanism to encourage brand status.
In 2015, Burberry, the British luxury apparel company, opened a limited number of wholly owned stores in Japan with a goal of having 35 to 50 stores by 2018. Burberry's stores in Japan can best be described as
foreign direct investment
In 2015, Burberry, the British luxury apparel company, opened a limited number of wholly owned stores in Japan with a goal of having 35 to 50 stores by 2018. Burberry's stores in Japan can best be described as
Under a floating exchange rate system, the value of a currency is determined by the market forces of supply and demand
In 2018, investors worried about the uncertainty in the Turkish economy, began exchanging their lira investments for U.S. dollars. Under a floating exchange rate system, how is the value of a currency determined?
Under a floating exchange rate system, the value of a currency is determined by the market forces of supply and demand.
In 2018, investors worried about the uncertainty in the Turkish economy, began exchanging their lira investments for U.S. dollars. Under a floating exchange rate system, how is the value of a currency determined?
The cost of capital is lower in the global market.
In mid-2018, the U.S. government owed $6 trillion to foreign governments. Why does the U.S. government borrow money to finance its budget from foreign countries rather than from domestic sources?
a tax levied on imports.
In response to claims from U.S. steel producers that Chinese producers were dumping their product in the U.S. market, the United States responded by imposing tariffs on steel imports from China. A tariff is
demand and supply
In the foreign exchange market the relative value of any two currencies is determined by their
can reduce their risk to below what could be achieved in a strictly domestic market.
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
dispersing production to different locations around the globe
Maintaining strategic flexibility can take the form of ________ as a hedge against currency fluctuations.
anticipated synergies....
Many acquisitions fail because ______
take an active role in working with governments to produce favorable conditions
Many industries, including textiles, are affected by government actions, so the firm should
short term capital
Martin Feldstein credits Mexico's economic problems in the 1990s to too much ________ flowing in and out of the country.
two
Most often, joint ventures involve ________ parties with each holding an equal percent ownership stake.
first mover advantage
One ___________________________ is the ability to preempt rivals and capture demand by establishing a strong brand name.
growing concern that deregulation had gone too far.
One of the consequences of the global financial crisis of 2008 and 2009 for hedge funds, which are private investment funds, was a(n)
pegged
Prior to 2005, China had a ________ exchange rate system.
diversifying a portfolio internationally
Research by Solnik suggests that a fully diversified US portfolio is only about 27 percent as risky as a typical individual stock. By _______________________, an investor can reduce the level of risk even further.
aquisition
Rinaldo's Ravioli Ranch based in San Francisco plans to buy Maria's Marinara, which is based in Italy. Maria's Marinara has been in business for 12 years and demonstrates amazing profits. What type of entry mode is Rinaldo's using?
joint venture
Shared ownership can result in conflicts for control over direction, strategy, and operations if differences emerge with partners.
contracting out manufacturing operations in order to shift production as economic conditions change
Since the firm is producing textiles, it can build strategic flexibility and reduce economic exposure by
build market share or capture first-mover advantages
Small-scale entry gives the firm time to collect information, but it may make it more difficult for the firm to _______________.
licensing agreement
Starbucks used a ________ to transfer the Starbucks format to its partner in Japan.
a joint venture in Japan
Starbucks' initial foray into foreign markets involved
rapid large-scale market entry
Strategic commitments, like ___________________, can have an important influence on the nature of competition.
an ad valorem tariff.
The 13 percent tariff the European Union imposed on imports of Chinese steel is
higher probability of bank failure; foreign exchange risk
The Eurocurrency market has two significant drawbacks: ________ and ________.
floating
The Turkish lira lost about 40 percent of its value against the U.S. dollar in the first part of 2018. Which type of exchange rate system does Turkey follow?
advances in information technology and deregulation by governments
The U.S. government is just one player in global capital markets. What is driving the growth of global capital markets?
influx of capital and technology
The United States benefits as a recipient of foreign investment in which of the following ways?
its favorable military power.
The United States is an attractive destination for foreign investment for all of the following reasons except
$4 trillion
The amount invested by U.S. firms in foreign markets between 1998 and 2014 was about
speculative financial bubbles have led to excess borrowing
The benefit-cost-risk trade-off is likely to be least favorable in developing nations that operate with a mixed or command economy or where _____________________________.
a greenfield venture in a foreign country
The big advantage of _____________________________ is that it gives the firm a much greater ability to create the kind of organizational culture and operations it wants.
the forward exchange market is far from perfect as a predictor of future exchange rates
The business should use the forward exchange market knowing
exporting
The effect of bulky or heavy products on transportation costs can make _______ an inappropriate strategy.
managed float
The exchange rate system in place in China today can best be described as a ________ exchange rate system.
economic exposure
The extent to which a firm's future international earning power is affected by changes in exchange rates is called
japan and UK
The four major currencies of the world that are free to float against each other are the U.S. dollar, the European Union's euro, and the currencies from
Domestic consumers and domestic producers gain, while foreign producers and the home government lose.
The infant industry argument suggests that protecting infant industries from foreign competitors will allow them time to become large enough to enjoy economies of scale. Who typically wins and who loses from a government policy to protect infant industries?
increases risks for foreign investors
The lack of financial transparency by many Chinese firms
the exchange rate
The rate at which one currency is converted into another is
rising value of the euro
The reason Air-Omnibus was not celebrating despite selling more aircrafts than Crow-Wing in 2003 was because of the
economic exposure
The relationship between the U.S. dollar and the European Union's euro has been up and down. In 2018, for example, a strong U.S. economy together with persistent economic weakness in Europe resulted in American exports to the euro zone being 17 percent more expensive when priced in euros. Which type of exchange rate exposure are managers dealing with in this longer-term scenario?
Greenfield investment
The world flow of foreign direct investment between 1990 and 2017 increased 600 percent. If a company decides to establish a new operation in a foreign country, that company has engaged in
collect publicly-available information on potential allies
To increase the probability of selecting a good partner for forming a strategic alliance, a firm should
Global capital markets provide a wider range of investment opportunities than purely domestic markets.
Together, Japan and China have lent the United States more than $2 trillion. What are the benefits to these countries of investing in global capital markets?
Toyota is concerned that its ability to export from Japan could be compromised by U.S. tariffs and quotas.
Toyota produces 1.2 million vehicles per year in the United States. Which best explains why Toyota has chosen to produce its vehicles in the United States rather than exporting from Japan?
invest directly in target markets.
Toyota's $25 billion investment in the U.S. market indicates that the Japanese company believes that the United States is a strategically important market. When considering future international expansion, if Toyota has valuable know-how that cannot be protected with a licensing contract and also faces high transportation costs, Toyota shoul
It helps Turkey's trade deficit
Turkey's president is concerned that halting the fall of the Turkish lira by raising interest rates will make his government less popular. What is the upside of a weak lira?
information technology; deregulation by governments
Two factors that helped global capital markets take off in the last decades of the 20th century were ________ and ________.
adopting a pegged exchange rate regime imposes monetary discipline on a country
Until 2005, China maintained a fixed exchange rate system. Which is a benefit of this approach?
the car should be less expensive for the US consumer
What is the impact of a strong dollar relative to the euro for a U.S. consumer buying a Porsche produced in Germany with parts from Slovakia?
pegged
What type of exchange rate regime is present in Vietnam?
gold or sliver
When international trade was limited in the past, payments for goods purchased from another country were made in
Government intervention is necessary for protecting jobs and industries from unfair foreign competition.
Which argument best explains why the United States imposed tariffs on imports of Chinese steel?
The exchange rate for the yuan is set with reference to a basket of currencies
Which is true of China's current exchange rate system?
Interest rates on debt loans are lower in global capital markets than in domestic capital markets.
Which is true of global capital markets?
They are pro-producer and anti-consumer.
Which is true of tariffs like those the United States assessed on steel imported from China?
Vietnam's currency is pegged to the dollar.
Which of the following has contributed to the problems Vietnam is facing with its coffee revenues?
its generally the most costly method of serving a foreign market
Which of the following is a disadvantage of establishing a wholly owned subsidiary?
A firm can give away more than it receives when forming an alliance
Which of the following is a disadvantage that a firm faces when forming a strategic alliance?
ability to earn returns from process technology skills in countries where FDI is restricted
Which of the following is an advantage of turnkey contracts?
FDI may be accompanied by some loss of economic independence
Which of the following is not a potential benefit to Japan from Burberry's decision to invest in the country?
FDI may be accompanied by some loss of economic independence.
Which of the following is not a potential benefit to Japan from Burberry's decision to invest in the country?
The tax status is favorable.
Which of the following is one of the attractions of the Eurobond market?
economic growth
While the present wealth of customers in a national market is an important factor, the firm must also consider living standards and _______________________.
increase in US interest rates, US money supply expansion, Indias restriction on foreign capital
Why do you think the value of the Indian rupee declined against that of the U.S. dollar after the U.S. Fed had announced that it would begin to wind down its economic stimulus program? Check all that apply.
Foreign bonds; Eurobonds
______ are sold outside of the borrower's country and denominated in the currency in which they are issued, and ________ are normally underwritten by an international syndicate of banks and placed in countries other than the one in which the bond is denominated.
dumping
______ refers to selling goods in a foreign market at below their cost of production or as selling goods in a foreign market at below their "fair" market value.
pioneering
_______ costs are typically associated with early entrants into a market and avoided by later entrants.
the United States
_______ has been the world's foreign largest investor since World War II.
systematic
_________________ risk refers to movements in a stock portfolio's value that are attributable to macroeconomic forces affecting all firms in an economy. This risk is the level of nondiversifiable risk in an economy.
The volatile exchange rates associated with the current floating exchange rate regime
_________________________ tend to counteract the risk-reducing effects on international portfolio diversification.