International Business Test #3

Which strategy should firms pursue when they are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm's global network of operations?

Transnational

In which mode of market entry does a contractor agree to handle every detail of the operation for a foreign client, and hand over the operation once it is fully functional?

Turnkey Project

Green Grocer Foods hired an independent contractor to oversee the development of a new operations unit in China. The contractor was responsible for hiring services to build the actual plant and ensuring that personnel were trained on the plant equipment so it would run smoothly when it was turned over to Green Grocer Foods. What type of entry mode does this demonstrate?

Turnkey project

Carson Components Inc., based in Missouri, decided to set up a new operation in Belgium. This is a greenfield venture, which is a form of which entry mode?

Wholly owned subsidiary

Quadrangle Corporation, an American high-tech company, wants to set up operations in a foreign country. The company needs to select an entry mode that offers protection of its proprietary technology. Which entry mode is most suitable for Quadrangle Corporation?

Wholly owned subsidiary

Which entry mode should a firm with a core competency in technological know-how generally select?

Wholly owned subsidiary

An example of the production function of the value chain is

A bank originating a loan for a customer.

As the human resource director, Trisha provides each manager with a breakdown of the metrics for employee performance measurement. She asks them to evaluate their staff against the standards provided in these metrics. Trisha is providing the managers with a(n) _____________ device.

Control

Under a licensing agreement, a licensor grants intangible property rights to the licensee. This would include....

Copyrights

Which situation would require a business to allow for customization in its product because of an infrastructure difference in a foreign nation?

Difference in consumer electrical systems across continents.

A(n) _____________ system refers to one in which a country's currency is nominally allowed to float freely against other currencies but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value.

Dirty-float

Advocates of the floating rate system argue that....

Floating rates help adjust trade imbalances.

Which form of entry into a foreign market is a specialized form of licensing?

Franchising

As an investor studying the gold standard, Kyle knows that he would need 44 euros to purchase one ounce of gold. These 44 euros represent the....

Gold par value

Translation exposure refers to the....

Impact of currency exchange rate changes on the reported financial statements of a company.

According to the _____________, for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

International Fisher effect

The Bretton Woods agreement created which two multinational institutions?

International Monetary Fund and the World Bank

What is a support activity of the value chain?

Logistics

Marketing and sales, research and development, and human resources are all aspects of a company's....

Operations

Within a strategic alliance, opportunism refers to....

The ability to gain first-mover advantage (??)

The movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions, is called....

The bandwagon effect

Assume that the exchange rate between the euro and the dollar is €1.00 = $1.50. An American tourist in Germany is buying a product whose price is €80. How much in U.S. dollars would the tourist have to pay to buy the product?

$120

The investment manager at AllRight Time Inc. reminds the board that the foreign exchange market is a mixed system. The investment manager wants the board to realize that rates are driven by....

A combination of government intervention and speculative activity.

In a floating exchange rate system, a current account deficit is likely to be corrected by....

A depreciation in its exchange rate.

One risk associated with a joint venture is that....

A firm that enters into a joint venture risks giving control of its technology to its partner.

What occurs when two parties agree to exchange currency and execute the deal at some specific date in the future?

A forward exchange

Rae feels it is best for her company to pay their foreign supplier in Panama this month even though they will receive product for another six months. She recently learned that the currency in Panama is expected to appreciate and, by paying the supplier now, her company will save money. This is an example of....

A lead strategy

Assume the euro/dollar exchange rate quoted in Tokyo at 6 a.m. is €1 = $1.00. If the New York euro/dollar exchange rate at the same time (5 p.m. New York time) is €1 = $1.35, a dealer could make a profit through....

Arbitrage

Kendall Wood Products Corp. purchased securities on the London Stock Exchange and then immediately resold them on the New York Stock Exchange at a higher price. The profits from this transaction were used to buy new machinery for the mill. This company engaged in....

Arbitrage

A country is said to be in _____________ when the income its residents earn from exports is equal to the money its residents pay to other countries for imports.

Balance-of-trade equilibrium

Gondola Granola is an American health food grocery store chain with locations in 20 countries. When the company enters a new foreign market, it usually selects a combination of franchising and master subsidiaries. These master subsidiaries are joint ventures with local partners. Specifically, these joint ventures are politically more acceptable and they....

Bring a degree of local knowledge to the subsidiary.

Assume that the interest rate on borrowings in Argentina is 3 percent, but the interest rate on deposits in British banks is 9 percent. A trader borrows 1 million Argentine pesos, then converts the money into British pounds and deposits it in a British bank. What is the trader involved in?

Carry trade

What is a common reason for the failure of an acquisition?

Clash between the cultures of the acquiring and acquired firms.

An American company sold heavy building materials to the government of Taiwan. Instead of receiving U.S. dollars, the company agreed to take payment in the form of Taiwanese goods. This is an example of....

Countertrade

What refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Currency swap

The executive managers of Drum-de-Drum-drum, a U.S.-based percussion equipment manufacturer, want to reduce the vulnerability of the company to unpredictable exchange rate movements. What would provide the company with a hedge against currency fluctuations?

Dispersing production to different locations around the globe.

The rate of return that a firm makes on its invested capital (ROI) is calculated by....

Dividing the net profits of the firm by total invested capital.

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

Economic exposure

The reductions in unit cost achieved by producing a large volume of a product are called....

Economies of scale

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

Experience curve

Carolina Furniture Inc. is concerned with the possibility of high transportation costs and the threat of tariff barriers when entering into a foreign market. Based on this, which entry mode should the furniture company avoid?

Exporting

In countries that adopt a _____________ exchange rate system, the values of currencies are set against each other at some mutually agreed-on exchange rate.

Fixed

The exchange rate for converting the U.S. dollar into other currencies is continuously adjusted depending on the laws of supply and demand. This illustrates a _____________ exchange rate.

Floating

A greenfield venture may be too slow to establish a sizable presence when....

Global competitors are interested in establishing a presence.

In the semiconductor industry, there are strong pressures for cost reductions, while demands for local responsiveness are minimal. As a result, Intel Corporation, which operates in this industry, focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies. According to this information, which strategy is Intel pursuing?

Global standardization

American-based Trenton Inc. has decided to establish a wholly owned subsidiary in Argentina. To decide whether to acquire an enterprise in the market or to establish a greenfield venture, the company evaluated the pros and cons of each strategy. In the end, Trenton Inc. opted to establish a greenfield venture. What was likely a major point in favor of greenfield ventures?

Greenfield ventures provide a much greater ability to build the kind of subsidiary company that a firm wants.

Jacob is the chief financial officer for RinseAll Detergent products. His company is interested in investing in a facility in Indonesia, but he is worried about unpredictable fluctuations in future exchange rates, which could cost his company millions of dollars. One way to ensure against this exchange risk is for Jacob to use....

Hedging

The World Bank's initial mission was to....

Help finance the building of Europe's economy by providing low-interest loans.

The _____________ postulates that top managers typically overestimate their ability to create value from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities.

Hubris hypothesis

According to Michael Porter, differentiation strategy leads a company to focus on....

Increasing the attractiveness of a product.

What market is one in which prices do not reflect all available information?

Inefficient

Companies pursue a(n) _____________ strategy when they take the products first produced for their domestic market and sell them internationally with only minimal local customization.

International

Microsoft is an example of a company using a(n) _____________ strategy. The company produces the majority of its work in its U.S. headquarters and sells its products internationally with minimal customization.

International

An advantage of exporting is....

It avoids the costs of establishing manufacturing operations in the host country.

One disadvantage of licensing as a mode of entry into foreign markets is that....

It can cause the firm to quickly lose control over its technology.

How did the Marshall Plan overshadow efforts by the World Bank?

It let the United States loan money directly to European nations for rebuilding efforts.

Which form of entry into a foreign market is more likely to provide a company with access to a local partner's knowledge?

Joint venture

Carlos is the manager of an American company. He expects the value of the British pound to appreciate in the near future and so delays the collection of payments from British customers until the next month. Which tactic is Carlos using to minimize the foreign exchange exposure?

Lag strategy

Assume that the exchange rate between the U.S. dollar and the Japanese yen is $1 = ¥150. A book that retails for $10 in New York should sell for ¥1,500 in Tokyo, if there are no trade barriers and transportation costs, according to the....

Law of one price

When Geoff first started his job, it took him an entire week to produce the materials. Now that he has been doing the task for six months, he has found more efficient ways to create the materials and can get this task done in just one day. This is an example of....

Learning effects

Garrett's Tea Corp. plans to increase profits by providing custom tea blends to the various countries it sells to. The company wants to match the tastes and preferences of the consumer in each of these markets. What type of strategy is Garrett's Tea Corp. using?

Localization

Silk 'n Satin Corporation is seeking to lower the costs of value creation and achieve a low-cost position. As a result, it plans to move its manufacturing plant from the United States to Thailand, which is the optimal location for production. This strategic move will most likely allow the company to realize....

Location economies

According to the Bretton Woods agreement, the task of the IMF would be to....

Maintain order in the international monetary system.

Which system allows some currencies to float freely but the majority are either controlled by government intervention or pegged to another currency?

Managed-float

When companies behave recklessly because they know they will be saved if things go wrong, it is called a....

Moral hazard

TransWare Inc., based in Atlanta, has a plant in Russia that builds road equipment. Each year this plant has been profitable, but TransWare Inc. is not able to convert the profits into U.S. dollars and take them out of the country. What type of convertibility does this represent?

Nonconvertible

The currency of Panama, the balboa, is fixed relative to the U.S. dollar. As a result, the U.S. dollar exchange rate determines the exchange rate between the Panama balboa and other currencies. This is an example of a _____________ exchange rate.

Pegged

In terms of organization architecture, _____________ refers to the employees of the organization, the strategy used to recruit, compensate, and retain those individuals, and the type of people that they are in terms of their skills, values, and orientation.

People

A country in a state of fundamental disequilibrium suffers from....

Permanent adverse shifts in the demand for their products.

Krinkle Chips is entering a foreign market and is spending significant funds on educating customers about their line of low-fat veggie chips. These costs are an example of _____________ costs.

Pioneering

At Kleen-Korp International, the board of directors meets each year to determine how resources will be allocated. The Kleen-Korp board will be determining the firm's....

Processes

An example of a pioneering cost is the cost of....

Promoting a new product

Fast Fleet Trucking, an American company, is planning to enter South Korea. While the company has operations abroad, it has no experience with Asian markets. Fast Fleet Trucking needs a type of entry that allows the company to collect information and learn about the South Korean market while limiting its exposure. What is the most suitable form of entry for Fast Fleet Trucking?

Small-scale entry

The rate at which a foreign exchange dealer converts one currency into another currency on a particular day is the....

Spot exchange rate

Cooperative agreements between potential or actual competitors are called....

Strategic alliances

In terms of the approaches to exchange rate forecasting, _____________ is based on the premise that there are analyzable market trends and waves and that previous trends and waves can be used to predict future trends and waves.

Technical analysis

A weakness of the Bretton Woods system was that it could not work if....

The U.S. dollar was under speculative attack.

Under the fixed exchange rate regime established at Bretton Woods, _____________ served as the reference point for all other currencies.

The U.S. dollar.

A currency is considered freely convertible when....

The country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

When a country adopts a strict currency board system, it means that....

The government lacks the ability to set interest rates.