SOM 354 Exam 3
For an international business, which of the following is most likely to be an outcome of protectionism and nationalism in a host-country? A) Requirement of standardization of products or services B) Pressure for cost reduction C) Decrease in the significance of local responsiveness D) Increase in the attractiveness of location economies E) Pressure for localization of production
E) Pressure for localization of production
Which of the following is a primary activity in the operations of a firm? A) Human resource function B) Information systems C) Company infrastructure D) Logistics function E) Research and development
E) Research and development
The yen/dollar exchange rate is ×120 = $1 in London and ×123 = $1 in New York at the same time. What is the net profit if a dealer takes $1,000,000 to purchase ×123,000,000 in New York and engages in arbitrage by selling it in London? A) $25, 000 B) $46, 666 C) $34, 000 D) $39, 454 E) $20, 390
A) $25, 000
Steven converted $1,000 to ×105,000 for a trip to Japan. However, he spent only ×50,000. During this period, the value of the dollar weakened against the yen. Considering a current exchange rate of $1 = ×100, how many dollars did Steven spend on the trip? A) $450 B) $500 C) $550 D) $600 E) $523
A) $450
Which of the following was a reason that led to the collapse of the gold standard in 1939? A) A cycle of competitive currency devaluations by various countries B) Difficulty and complexity in using the gold standard to determine the exchange rate C) The inability of the gold standard to act as a mechanism for achieving balance-of-trade equilibrium by all countries D) Expansion in the volume of international trade in the wake of the Industrial Revolution E) Agreement by governments to convert paper currency into gold on demand at a fixed rate
A) A cycle of competitive currency devaluations by various countries
Robben Inc. converts $1,000,000 into euros when the exchange rate is $1 = €0.75. After three months, the company converts this back into dollars when the exchange rate is $1 = €0.80. Which of the following is the outcome of this transaction? A) A loss of $62,500 B) A loss of $50,000 C) A gain of $50,000 D) A gain of $62,500 E) A loss of $66,667
A) A loss of $62,500
Which of the following is a way in which an enterprise with some market power might limit arbitrage so that their price discrimination policy works? A) Differentiating otherwise identical products among nations along some line, such as design or packaging B) Selling its products at higher prices than normal to break even by selling fewer units C) Limiting sales of its products to only a few nations D) Pricing its products identically despite huge differences in demand across different markets E) Adopting a pricing strategy that matches what competitors charge in each of the different national markets
A) Differentiating otherwise identical products among nations along some line, such as design or packaging
Which of the following shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position? A) Efficiency frontier B) Experience curve C) Surplus curve D) Demand-value model E) Optimal output model
A) Efficiency frontier
Which of the following has no impediments to the free flow of goods and services, such as trade barriers? A) Efficient market B) Currency Board C) European Monetary System D) Economic Union E) Carry trade
A) Efficient market
Which of the following terms best represents the systematic reductions in production costs that have been observed to occur over the life of a product? A) Experience curve B) Efficiency frontier C) Global web D) Dispersion linkage E) Economies of scale
A) Experience curve
Which of the following is a disadvantage of large-scale entry into a foreign market? A) Decrease in a firm's exposure to the foreign market B) Availability of fewer resources to support expansion in other desirable markets C) Inability to build rapid market-share irrespective of the scale of entry D) Limited product acceptance due to the avoidance of potential losses E) Difficulty attracting customers and distributors for the product
B) Availability of fewer resources to support expansion in other desirable markets
According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry? A) Comparison and standardization B) Differentiation and low-cost C) Value creation and generalization D) Profitability and strategic fit E) One-size-fits-all and zero-sum
B) Differentiation and low-cost
Cost reduction pressures tend to be particularly intense in industries that: A) create customized products. B) create products that serve universal needs. C) produce products that have inelastic demand. D) serve different customers with different needs. E) are not involved in international business.
B) create products that serve universal needs.
The International Monetary Fund has been criticized for: A) its lack of power and authority. B) encouraging moral hazard among banks. C) using external experts to gain knowledge about a country. D) its lack of a "one-size-fits-all" approach to macroeconomic policy. E) keeping its operations open to outside scrutiny.
B) encouraging moral hazard among banks.
Which of the following refers to the gold standard? A) Conducting international trade by physically exchanging gold B) The quality of merchandise to be maintained for it to be exportable C) Pegging currencies to gold and guaranteeing convertibility D) The most valuable currency in the world at any given point in time E) The common global standard of gold quality to be maintained
C) Pegging currencies to gold and guaranteeing convertibility
Which of the following strategies is a firm most likely to pursue when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness? A) Localization strategy B) Global standardization strategy C) Nationalization strategy D) Transnational strategy E) International strategy
D) Transnational strategy
Which of the following statements is true about a currency board system? A) A currency board authorizes the government to print money and set interest rates. B) This system is a true fixed exchange rate regime, because the domestic currency is fixed against other currencies. C) A currency board can issue additional domestic currency even when there are no foreign exchange reserves to back it. D) Under a strict currency board system, interest rates adjust automatically based on the supply and demand of domestic currency. E) To convert domestic currency on demand into another currency, a currency board takes grants from the International Monetary Fund.
D) Under a strict currency board system, interest rates adjust automatically based on the supply and demand of domestic currency.
Which of the following strategies focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets? A) International strategy B) Global standardization strategy C) Nationalization strategy D) Transnational strategy E) Localization strategy
E) Localization strategy
Which of the following arises when people behave recklessly because they know they will be saved if things go wrong? A) Ethical dilemma B) Tragedy of the commons C) Risk compensation D) Systemic risk E) Moral hazard
E) Moral hazard
Which of the following factors determines the value that an international business can create in a foreign market? A) Type of political system in the foreign market B) Per capita income in the foreign market C) Population density in the foreign market D) Political stability of the foreign market E) Nature of indigenous competition
E) Nature of indigenous competition
In which kind of exchange rate is the value of the currency 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? A) Dirty-float B) Flexible C) Floating D) Real E) Pegged
E) Pegged
What triggers the conflict of interest over strategy and goals in joint ventures? A) Trying to realize location and experience curve economies B) Risk of being subject to adverse government interference C) Local partner's knowledge of host country's competitive conditions D) Giving control of core technology to the foreign partner E) Shifts in relative bargaining power of venture partners
E) Shifts in relative bargaining power of venture partners
Which of the following allows two or more firms to share the fixed costs (and associated risks) of developing new products or processes? A) Franchising agreement B) Global web C) Dispersion linkage D) Free trade agreement E) Strategic alliance
E) Strategic alliance
Which of the following is an example of a first-mover advantage? A) The increased probability of surviving in a foreign market B) The avoidance of pioneering costs that a later entrant into the foreign market has to bear C) The ability to let later entrants ride ahead on the experience curve D) The opportunity to observe and learn from the mistakes of other entrants E) The ability to create switching costs that tie customers into one's products or services
E) The ability to create switching costs that tie customers into one's products or services
A French company wants to invest 20 million euros for three months. The company found that investing in a Thai money market account would give it a higher interest rate than domestic investments. Which of the following is true about this investment? A) The investment is risk-free because the Thai money market is considered to be more stable and secure than other markets. B) The investment is risk-free because such investments also lock foreign exchange rates for the duration of the investment. C) The investment is not risk-free because money market instruments are considered to be the most speculative of all investments. D) The investment is risk-free because money market investments are considered to be equivalent to bank deposits. E) The investment is not risk-free because foreign currency movements in the intervening period can affect the profitability of the firm.
E) The investment is not risk-free because foreign currency movements in the intervening period can affect the profitability of the firm.
Which of the following weakens the link between relative price changes and changes in exchange rates predicted by purchasing power parity (PPP) theory by violating the assumption of efficient markets? A) Government intervention in cross-border trade B) Excessive growth in money supply C) The relationship between money supply and price inflation D) The insignificant impact of transportation costs on international trade E) The impact of increase in currency on relative demand and supply conditions of currencies
A) Government intervention in cross-border trade
Which of the following is true of international firms considering foreign expansion? A) If the firm's core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner. B) The timing and scale of entry of foreign expansion are minor details in comparison with the choice of foreign market. C) Politically unstable and less developed nations offer favorable benefit-cost-risk trade-off conditions. D) The long-run economic benefits of doing business in a country are solely a function of the country's population size. E) The costs and risks associated with foreign expansion are higher in economically advanced nations.
A) If the firm's core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner.
Which of the following is a great strength of the gold standard? A) It contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries. B) It helped establish the dollar as a predominant vehicle currency. C) It helped to establish a common currency across the globe to fund international trade. D) It helped governments raise foreign exchange reserves thereby increasing economic stability. E) It helped reduce inflation to near-zero levels in all countries engaged in international trade
A) It contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries.
Which of the following is true of a banking crisis? A) It leads to individuals and companies withdrawing their deposits from banks. B) It results in low government deficits. C) It occurs due to asset price deflation. D) It results in a sharp appreciation in the value of the currency. E) It happens due to a decline in domestic borrowing.
A) It leads to individuals and companies withdrawing their deposits from banks.
Which of the following is true of a localization strategy? A) It makes sense if the value added by customization supports higher pricing. B) It allows a firm to capture the cost reductions of mass-producing a standardized product. C) It involves longer production runs. D) It substantially reduces local demand. E) It reduces duplication of functions.
A) It makes sense if the value added by customization supports higher pricing.
Which of the following is true of inflation? A) It occurs when the quantity of money in circulation rises faster than the stock of goods and services. B) It occurs when securities are purchased in one market for immediate resale in another. C) It occurs when two parties agree to exchange currency and execute a deal at a specific date in the future. D) It occurs when output increases faster than the money supply. E) It occurs when the demand for a particular currency is more than the supply.
A) It occurs when the quantity of money in circulation rises faster than the stock of goods and services.
Which of the following is a reason why a relatively poor country may be an attractive target for inward investment? A) Rapid economic growth B) High cost of living C) Less developed infrastructure D) Currency depreciation E) Political instability
A) Rapid economic growth
What gives a firm tight control for coordinating a globally dispersed value chain? A) Setting up wholly owned marketing subsidiaries B) Using foreign marketing agents C) Signing joint-venture agreements D) Establishing a greenfield venture E) Installing manufacturing units in locations with optimal factor conditions
A) Setting up wholly owned marketing subsidiaries
Which of the following is true when a government is strongly committed to controlling the rate of growth in money? A) The country's future inflation rate may be low. B) The country will struggle to match money supply with adequate supply of goods and services. C) The country's economy will be marked by an abundance of liquidity. D) The country will see a good number of populist measures not funded by taxation. E) The country's currency will steadily depreciate significantly and instantly in the foreign exchange market.
A) The country's future inflation rate may be low.
Assume that the dollar is selling at a premium on the 30-day dollar/euro forward market. Which of the following is true of the foreign exchange dealers' market's expectations about the dollar over the next 30 days? A) The dollar will appreciate against the euro. B) The dollar/euro exchange rate will be steady. C) The dollar will buy more euros with a spot exchange than with a 30-day forward exchange. D) The market is undecided about the direction of currency movement. E) The dollar will depreciate against the euro.
A) The dollar will appreciate against the euro.
Which of the following is the reason for the failure of purchasing power parity theory and international Fisher effect in predicting short-term movements in exchange rates? A) The impact of investor psychology on short-run exchange rate movements B) The strong relationship between interest rate differentials and subsequent changes in spot exchange rates C) Government intervention in cross-border trade that violates the assumption of efficient markets D) The impact of interest rates and short-term exchange rate movements E) The strong relationship between inflation rates and interest rates
A) The impact of investor psychology on short-run exchange rate movements
What is meant by arbitrage? A) The purchase of securities in one market for immediate resale in another to profit from a price discrepancy B) To provide insurance or hedge against the risks that arise from volatile changes in exchange rates C) Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates D) A transaction between two parties that involves exchanging currency and executing a deal at some specific date in the future E) To borrow in one currency where interest rates are low and use the proceeds to invest in another currency where interest rates are high
A) The purchase of securities in one market for immediate resale in another to profit from a price discrepancy
In which of the following situations can an international business command higher prices for a particular product in a foreign market? A) When the product offers greater value to customers in the foreign market B) When sales volumes is relatively low in the foreign market C) When domestic competitors are selling alternatives at reduced prices D) When the product is widely available in the foreign market E) When the product is more suitable to other foreign markets
A) When the product offers greater value to customers in the foreign market
The Fisher effect states that: A) a country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I). B) in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price. C) by comparing the prices of identical products in different currencies, it is possible to determine the "real" or purchasing power parity exchange rate that would exist if markets were efficient. D) when the growth in a country's money supply is faster than the growth in its output, price inflation is fueled. E) a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower.
A) a country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I).
Vornoda Inc., a multinational clothing and accessory brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, Vornoda Inc. should: A) disperse production to different locations around the globe. B) avoid using instruments like forward market and swaps. C) not contract out manufacturing. D) pursue strategies that increase its economic exposure. E) restrict its low-value-added manufacturing to one location.
A) disperse production to different locations around the globe.
A firm's profitability is maximized when it: A) ensures that it has the right organization structure in place to execute its strategy. B) strips all the value out of its product offering. C) does not configure its internal operations to reduce costs. D) picks a position on the efficiency frontier that is not viable. E) creates products similar to the products of its competitors.
A) ensures that it has the right organization structure in place to execute its strategy.
Small-scale entry into a foreign market makes it difficult to build market share because it: A) is associated with a lack of commitment demonstrated by the foreign firm. B) leads to increased exposure to a foreign market. C) necessitates rapid entry into a foreign market. D) requires that extra time be spent in analyzing a foreign market. E) leads to escalating strategic commitments.
A) is associated with a lack of commitment demonstrated by the foreign firm.
To reduce the risks of failure of an acquisition, managers must: A) move rapidly after an acquisition to put an integration plan in place. B) ensure that the work cultures are significantly different from each other. C) encourage and facilitate management turnover. D) pay more for the acquired unit to please its existing employees. E) acquire a firm without wasting time on screening.
A) move rapidly after an acquisition
The amount of value a firm creates is measured by: A) the difference between its costs of production and the value that consumers perceive in its products. B) dividing the net profits of the firm by total invested capital. C) the difference between the previous year's profitability and the current year's profitability. D) the sum of the profitability of the last two fiscal years. E) dividing the market price of its products by the price that customers are actually willing to pay.
A) the difference between its costs of production and the value that consumers perceive in its products.
Which of the following is an argument for a floating exchange rate system? A) Unpredictability of exchange rate movements makes business planning difficult. B) Each country should be allowed to choose its own inflation rate. C) Speculation in exchange rates dampens the growth of international trade and investment. D) Trade deficits can be determined by the balance between savings and investment in a country, not by the external value of its currency. E) Removal of the obligation to maintain exchange rate parity destroys a government's monetary control.
B) Each country should be allowed to choose its own inflation rate.
Firms that pursue which of the following strategies focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies? A) Transnational B) Global standardization C) International D) Localization E) Nationalization
B) Global standardization
Which of the following is a common underlying macroeconomic cause of financial crises? A) Increases in the value of domestic currency B) Increases in stock and property prices C) Narrowing current account deficit D) Decline in domestic borrowing E) Low relative price inflation rates
B) Increases in stock and property prices
Which of the following was the weakness of the Bretton Woods system? A) It could be wrecked by heavy borrowings from the World Bank and the International Monetary Fund. B) It could not work if the U.S. dollar was under speculative attack. C) It allowed the countries to engage in competitive currency devaluations. D) The inflexibility of the system resulted in high unemployment. E) It forced fiscal and monetary discipline on participating nations
B) It could not work if the U.S. dollar was under speculative attack.
Which of the following is an argument for a fixed exchange rate system? A) Trade balance adjustments do not require the intervention of the International Monetary Fund. B) It ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation. C) Speculations in exchange rates boost exports and reduce imports. D) Governments can contract their money supply without worrying about the need to maintain parity. E) Each country should be allowed to choose its own inflation rate.
B) It ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation.
Which of the following occurs when a government increases the money supply? A) It causes a decrease in demand for goods and services. B) It makes it easier for banks to borrow from the government. C) It causes price deflation as the money supply exceeds goods and services output. D) It results in an overall decrease in credit. E) It makes it difficult for individuals and companies to borrow from banks.
B) It makes it easier for banks to borrow from the government.
Which of the following conditions is most favorable to reap gains from global scale economies? A) Lack of universal needs B) Low demand for local responsiveness C) National differences in accepted business practices D) High pressure to delegate production to domestic subsidiaries E) High pressures for cost reduction
B) Low demand for local responsiveness
Of all the value creation activities in a firm, which of the following creates value by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs? A) Information systems B) Marketing and sales C) Human resources D) Production E) Logistics
B) Marketing and sales
According to the critics of the International Monetary Fund (IMF), how should the problem of moral hazard exhibited by banks be resolved? A) The IMF should free all banks from the obligation of financial reporting. B) The banks should be forced to pay the price for their rash lending policies. C) The IMF should bail out the banks whose loans gave rise to financial crises. D) The IMF should establish a mechanism for accountability. E) The IMF should use a "one-size-fits-all" approach to macroeconomic policy.
B) The banks should be forced to pay the price for their rash lending policies.
Which of the following is true of the determination of exchange rates? A) While the differences in relative demand and supply provide an accurate explanation for appreciation of currencies, they fail to explain depreciation. B) The differences in relative demand and supply cannot explain or predict the conditions under which a particular currency will be in demand or not. C) Differences in relative demand and supply explain the factors underlying the phenomenon behind the demand for and supply of a currency. D) Differences in relative demand and supply do not explain the determination of exchange rates. E) The differences in relative demand and supply alone provide a high-level understanding of what's behind the determination of exchange rates.
B) The differences in relative demand and supply cannot explain or predict the conditions under which a particular currency will be in demand or not.
An American company imports laptop computers from Japan. The company knows that after a shipment arrives, it must pay in yen to the Japanese supplier within 30 days. In a particular exchange, the American company must pay the Japanese supplier ×150,000 for each computer at the current dollar/yen spot exchange rate of $1 = ×110. The company intends to resell the computers the day they arrive for $1,600 each but it does not have the funds to pay the Japanese supplier until the computers have been sold. Which of the following will happen if the exchange rate after 30 days is $1 = ×90? A) The importer will incur a loss of approximately $236 per computer. B) The importer will incur a loss of approximately $67 per computer. C) The importer will incur a loss of approximately $90 per computer. D) The importer will earn a profit of approximately $236 per computer. E) The importer will earn a profit of approximately $67 per computer.
B) The importer will incur a loss of approximately $67 per computer.
Which of the following refers to the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values? A) Purchasing power parity B) Transaction exposure C) Forward exchange rate D) Translation exposure E) Economic exposure
B) Transaction exposure
The architects of the Bretton Woods agreement built limited flexibility into the fixed exchange rate system in order to: A) facilitate competitive currency devaluations. B) avoid high unemployment. C) increase money supply and thereby price inflation. D) widen balance-of-payments gap between countries. E) avoid balance-of-trade equilibrium between countries.
B) avoid high unemployment.
Assume that the yen/dollar exchange rate quoted in London at 3 p.m. is ×120 = $1, and the New York yen/dollar exchange rate at the same time (10 a.m. New York time) is ×123 = $1. Which of the following transactions would yield immediate profit? A) Currency swap B) Carry trade C) Arbitrage D) Forward exchange E) Currency speculation
C) Arbitrage
Which of the following transactions is used to move out of one currency and into another for a limited period without incurring foreign exchange risk? A) Arbitrage B) Carry trade C) Currency swap D) Currency speculation E) Spot exchange
C) Currency swap
Which of the following is most likely to necessitate the delegation of marketing functions to national subsidiaries? A) Pressures for decreasing consumer surplus B) Pressures for increasing consumers' reservation price C) Differences in distribution channels D) Pressures for increasing economies of scale E) Lack of product customization
C) Differences in distribution channels
Which of the following is true of the efficient market school of thought toward exchange rate forecasting? A) Accurate predictions of future spot rates can be calculated from publicly available information. B) Forward rates are not unbiased predictors of future spot rates. C) Inaccuracies in predictions will not be consistently above or below future spot rates; they will be random. D) Forecasts might provide better predictions of future spot rates than forward exchange rates do. E) Prices do not reflect all available information about the market.
C) Inaccuracies in predictions will not be consistently above or below future spot rates; they will be random.
Firms that pursue which of the following strategies take products first produced for their domestic market and sell them across various markets with only minimal local customization? A) Localization B) Nationalization C) International D) Global standardization E) Transnational
C) International
Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, this would require the: A) country to make its exports more expensive. B) country to import more than it exports. C) International Monetary Fund to agree to a currency devaluation. D) government to undertake activities that led to exchange rate appreciation. E) government to expand monetary supply in the economy.
C) International Monetary Fund to agree to a currency devaluation.
Which of the following is a characteristic of the floating exchange rate regime? A) The use of monetary policy by the government is restricted. B) It eliminates volatility and uncertainty associated with exchange rates. C) It allows for automatic trade balance adjustments. D) It limits the destabilizing effects of exchange rate speculation. E) It allows for greater monetary discipline.
C) It allows for automatic trade balance adjustments.
Which of the following is a drawback of the purchasing power parity theory? A) It does not explain change in exchange rates in terms of change in relative prices. B) It cannot predict exchange rate changes for countries with high rates of inflation and underdeveloped capital markets. C) It does not appear to be a strong predictor of short-run movements in exchange rates covering time spans of five years. D) It does not address inflation in situations where governments control the rate of growth in money supply. E) It cannot explain when the demand of a particular currency would exceed its supply and vice versa.
C) It does not appear to be a strong predictor of short-run movements in exchange rates covering time spans of five years.
How does possessing a core competence help a firm? A) It reduces the scope of transfer of skills to foreign markets. B) It reduces a firm's dependence on its logistics function. C) It enables a firm to reduce the costs of value creation. D) It helps a firm to create value in such a way that premium pricing is impossible. E) It reduces the need to replicate a business model in a foreign market.
C) It enables a firm to reduce the costs of value creation.
Which of the following occurs when two parties agree to exchange currency and execute the deal at some specific date in the future? A) Carry trade B) Spot exchange C) Currency swap D) Forward exchange E) Arbitrage
D) Forward exchange
Which of the following premises is technical analysis, an approach to exchange rate forecasting, based on? A) The foreign exchange market is efficient and forward exchange rates are the best predictors of future spot exchange rates. B) Price and volume data cannot be used to determine past trends. C) Previous market trends and waves can be used to predict future market trends and waves. D) Since forward exchange rates are the best predictors of future spot rates, it makes no sense to invest in forecasting. E) Econometric models drawn from economic theory are best suited to predict exchange rate movements.
C) Previous market trends and waves can be used to predict future market trends and waves.
A distinction can be drawn between firms whose core competency is in which of the following? A) Acquisitions and greenfield ventures B) Scale of entry and strategic commitments C) Technological know-how and management know-how D) Cost reductions and entry mode E) Location and experience curves
C) Technological know-how and management know-how
What is meant by economic exposure? A) The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values B) The extent of disparity in prices, when expressed in the same currency, of similar products in different countries C) The extent to which a firm's future international earning power is affected by changes in exchange rates D) The extent to which the quantity of money in circulation rises faster than the stock of goods and services E) The impact of currency exchange rate changes on the reported financial statements of a company
C) The extent to which a firm's future international earning power is affected by changes in exchange rates
Which of the following is an advantage of franchising as a mode of entry into foreign markets? A) Manufacturing concerns can be effectively coordinated across adjacent processes. B) The franchiser can support its short-term interests in a country with an unstable economy. C) The franchiser is relieved of many of the costs and risks of opening a foreign market on its own. D) The franchiser can easily maintain uniform quality across many geographically dispersed franchisees. E) The franchiser is allowed to take profits out of one country to support competitive attacks in another.
C) The franchiser is relieved of many of the costs and risks of opening a foreign market on its own.
Which of the following is an advantage of acquisitions as a means of entering foreign markets? A) It is much easier to change the culture of an existing organization than build a new organization. B) They give firms access to valuable intangible assets while minimizing a pileup of tangible assets. C) They are quick to execute and help firms to rapidly build their presence in the target foreign market. D) It is easier to convert the operating routines of acquired units than establish routines in new subsidiaries. E) Acquired firms are often undervalued and hence assets can be purchased at minimal prices.
C) They are quick to execute and help firms to rapidly build their presence in the target foreign market.
A global car manufacturer wants to start production in China. While catering to local responsiveness, what can the firm do to get scale economies? A) Increase the duplication of functions required for each operation. B) Manufacture only one type of car and sell it in all the international markets. C) Use common vehicle platforms and components across many different models. D) Increase costs whenever possible. E) Shorten the production runs for each component.
C) Use common vehicle platforms and components across many different models.
Jupiter Systems is a high-tech firm looking to set up operations in a foreign country. The firm's core competency is in technological know-how. Which of the following modes of entry would be most favorable to the firm if it wants to keep a tight control over its technology? A) Joint venture B) Turnkey project C) Wholly owned subsidiary D) Licensing E) Franchising
C) Wholly owned subsidiary
An aspect of the Bretton Woods agreement was a commitment not to use: A) the system of fixed exchange rates. B) the U.S. dollar as a reference currency. C) devaluation as a weapon of competitive trade policy. D) funds from the International Monetary Fund and the World Bank. E) gold as a measure to fix the value of currencies.
C) devaluation as a weapon of competitive trade policy.
An early entrant find may find itself at a disadvantage if it: A) has a core competence based on control over technological know-how. B) incurs low development costs. C) faces a subsequent change in business regulations in the host-country. D) considers a greenfield strategy. E) is trying to realize location and experience curve economies.
C) faces a subsequent change in business regulations in the host-country.
One of the reasons why a firm typically charges for a good or service less than the value placed on that good or service by the customer is because: A) the firm frequently modifies its products to compete with the products introduced by other firms. B) it is highly unlikely that the same good or service will be available to the customers from other firms. C) it is normally impossible to segment a market based on each customer's reservation price. D) the firm attempts to create value for the consumers by providing them a wide range of products. E) the value creation results in a corresponding reduction in costs of production.
C) it is normally impossible to segment a market based on each customer's reservation price.
The two phenomena that help explain the experience curve are: A) standardized manufacturing and global web. B) efficiency frontier and location economies. C) learning effects and economies of scale. D) leveraging subsidiary and local responsiveness. E) technology inputs and wealth transfer.
C) learning effects and economies of scale.
If a value creation activity of a firm can take place in Mexico most effectively, then that activity of the firm must be based in Mexico. Firms that pursue such a strategy are most likely to realize: A) the experience curve. B) demographic advantages. C) location economies. D) a position inside the efficiency frontier. E) economies of scale.
C) location economies.
Managing an alliance successfully requires building interpersonal relationships between the firms' managers, or what is sometimes referred to as: A) interorganizational synergy. B) symbiotics. C) relational capital. D) power equilibrium. E) intraorganizational coordination.
C) relational capital.
Which term was not defined in the International Monetary Fund's Articles of Agreement but was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products? A) Capital flight B) Break-even point C) Competitive disadvantage D) Fundamental disequilibrium E) Diseconomies of scale
D) Fundamental disequilibrium
Spring, an American firm, recently acquired another company, Tazel Inc., in Indonesia. The high-level managers at Tazel quit because they could not cope with the domineering and straightforward approach of their American counterparts. This illustrates how acquisitions may fail because: A) an acquiring firm overpays for the assets of an acquired firm. B) managers overestimate their ability to create value from an acquisition. C) there is a clash between the cultures of the acquired and the acquiring firm. D) inadequate pre-acquisition screening has been done. E) integration of operations between the two firms takes longer than forecasted.
C) there is a clash between the cultures of the acquired and the acquiring firm.
Which of the following is an advantage of choosing exporting as a mode of entry into foreign markets? A) A firm has the ability to engage in global strategic coordination. B) A firm can earn returns from process technology skills in countries where FDI is restricted. C) A firm has access to local partner's knowledge. D) A firm can avoid the cost of establishing manufacturing operations in the host country. E) A firm shares the development costs and risks with its host partner.
D) A firm can avoid the cost of establishing manufacturing operations in the host country.
Which of the following support functions is most likely to involve dealing with the organizational structure, control systems, and culture of the firm? A) Logistics B) Inventory management C) Human resources D) Company infrastructure E) Information systems
D) Company infrastructure
Which of the following is a reason why firms often overpay for the assets of an acquired firm? A) Studies supporting the rise of failed companies post acquisitions B) Evidence of high management turnover post acquisitions C) Inevitable clash between cultures of acquiring and acquired firms D) Interest of more than one party in acquiring a particular firm E) The success rate of acquisitions exceeding that of failures
D) Interest of more than one party in acquiring a particular firm
Which of the following observations about the International Monetary Fund (IMF) is true? A) In recent years, the IMF has begun to urge countries to oppose fiscal stimulus and monetary easing. B) In recent years, the IMF has begun to make its policies more tight and inflexible. C) The IMF can force countries to adopt the policies required to correct economic mismanagement. D) Internal political problems can affect a government's commitment to taking corrective action in return for an IMF loan. E) In response to the global financial crisis of 2008-2009, the IMF began to adopt a "one-size-fits-all" approach to macroeconomic policy.
D) Internal political problems can affect a government's commitment to taking corrective action in return for an IMF loan.
Which of the following is a reason for the failure of the purchasing power parity (PPP) theory to predict exchange rates accurately? A) It does not consider government influence on a nation's money supply. B) It does not take into account the practice of arbitrage. C) It assumes that the markets are not efficient. D) It assumes away transportation costs and trade barriers. E) It does not take into account the law of one price.
D) It assumes away transportation costs and trade barriers.
Which of the following is a disadvantage of greenfield ventures? A) It is much more difficult to build an organizational culture from scratch than to change the culture of an existing unit. B) They have a higher potential for throwing up unpleasant surprises. C) A firm does not have the freedom to build the kind of subsidiary that it wants. D) It is slower to establish than acquisitions. E) Companies find it difficult to avoid falling into the trap of the hubris hypothesis.
D) It is slower to establish than acquisitions.
Which of the following is true of a transnational strategy? A) It is used when the pressures for cost reductions are low. B) It is easy to implement because it does not place any conflicting demands on a company. C) It enables the one-way flow of core competencies. D) It is used by firms that try to achieve low costs through location economies, economies of scale, and learning effects. E) It is usually used when the pressure for local responsiveness is relatively low.
D) It is used by firms that try to achieve low costs through location economies, economies of scale, and learning effects.
Which of the following is true of monetary contraction in a fixed exchange rate system? A) It requires low interest rates. B) It can lead to high price inflation. C) It puts downward pressure on a fixed exchange rate. D) It leads to an inflow of money from abroad. E) It increases the demand for money.
D) It leads to an inflow of money from abroad.
Which of the following is true of a country that is running a deficit on a balance-of-payments current account? A) It will lead to very low interest rates in the country. B) It is importing fewer goods and services than it is exporting. C) It is engaging in neo-mercantilism. D) It may result in depreciation of the country's currency on the foreign exchange market. E) It will lead to a shortage of the country's currency in the foreign exchange market.
D) It may result in depreciation of the country's currency on the foreign exchange market.
Which of the following is an implication of a currency crisis? A) It occurs due to a sharp appreciation in the value of a currency. B) A country in currency crisis faces sharp decreases in stock and property prices. C) A country in currency crisis is not eligible for loans from the International Monetary Fund. D) It results in the government sharply increasing interest rates to defend the prevailing exchange rate. E) It forces authorities to block large volumes of international currency reserves.
D) It results in the government sharply increasing interest rates to defend the prevailing exchange rate.
Which of the following is the function of a value chain that controls the transmission of physical materials through the value chain, from procurement through production and into distribution? A) Human resource B) Research and development C) Marketing D) Logistics E) Finance
D) Logistics
Argonia Republic is in trade surplus with Kamboly. Under the gold standard, which of the following statements is true until a balance-of-trade equilibrium is achieved? A) The demand for traded goods in Argonia Republic will increase. B) The prices of the traded goods in Kamboly will increase. C) Kamboly will start to buy more goods from Argonia Republic. D) The money supply in Kamboly will be reduced due to the flow of gold to Argonia Republic. E) There will be a net flow of gold from Argonia Republic to Kamboly.
D) The money supply in Kamboly will be reduced due to the flow of gold to Argonia Republic.
In terms of foreign exchange, which of the following is true of leading and lagging strategies? A) They are used to minimize economic exposure of companies. B) They involve accelerating payments from strong-currency to weak-currency countries. C) They primarily protect long-term cash flows from adverse changes in exchange rates. D) They can help firms minimize their transaction and translation exposure. E) They are limited by governments because they create pressure on strong currencies.
D) They can help firms minimize their transaction and translation exposure.
Which of the following is a reason why governments limit convertibility of their currency? A) To control currency appreciation B) To promote neo-mercantilism C) To encourage foreign investments D) To preserve their foreign exchange reserves E) To encourage capital flight
D) To preserve their foreign exchange reserves
Which of the following is a function of the foreign exchange market? A) To enable companies to engage in capital flight when countertrade is not possible B) To reduce the economic exposure of a firm C) To eliminate volatile changes in exchange rates D) To provide some insurance against foreign exchange risk E) To protect short-term cash flow from adverse changes in exchange rates
D) To provide some insurance against foreign exchange risk
Firms that pursue which of the following strategies differentiate their product offering across geographic markets to account for local differences? A) International B) Nationalization C) Multidomestic D) Transnational E) Global standardization
D) Transnational
The currency of the country of Venadia falls sharply in value against the currency of Lutetia, a neighboring country. Which of the following is a consequence of this exchange rate movement? A) Lutetia's products will achieve a competitive pricing in Venadia. B) There will be no difference in the volume or direction of trade. C) Lutetia's exports to Venadia will increase, because Lutetian goods will become cheaper in Venadia. D) Venadia's exports to Lutetia will increase, because Venadian goods will become cheaper in Lutetia. E) Venadia's products will cost more in Lutetia.
D) Venadia's exports to Lutetia will increase, because Venadian goods will become cheaper in Lutetia.
Which of the following entry modes into a foreign market best serves a high-tech firm? A) Turnkey projects B) Joint ventures C) Exporting D) Wholly owned subsidiaries E) Franchising
D) Wholly owned subsidiaries
The risks associated with learning to do business in a new culture are less if the firm: A) imposes strict marketing guidelines on how to do business. B) engages in global strategic coordination. C) realizes substantial location economies. D) acquires an established host-country enterprise. E) enters a greenfield venture in the host country.
D) acquires an established host-country enterprise.
A firm's ability to increase its profitability and profit growth by expanding globally is constrained: A) due to the dispersion of individual value creation activities. B) due to customer surplus. C) due to the leveraging of skills developed in foreign operations. D) by the imperative of localization. E) by the economies of scale.
D) by the imperative of localization.
The appropriateness of the strategy that a firm chooses to use in an international market varies with the extent of pressures for: A) customer surplus and product standardization. B) product standardization and cost reductions. C) quality improvement and product standardization. D) cost reductions and local responsiveness. E) customer surplus and quality improvements.
D) cost reductions and local responsiveness.
The nominal interest rate is 9 percent in Brazil and 6 percent in Japan. Applying the international Fisher effect, the Brazilian real should: A) depreciate by 1.5 percent against the Japanese yen. B) appreciate by 15 percent against the Japanese yen. C) appreciate by 3 percent against the Japanese yen. D) depreciate by 3 percent against the Japanese yen. E) appreciate by 1.5 percent against the Japanese yen.
D) depreciate by 3 percent against the Japanese yen.
Focusing primarily on increasing the attractiveness of a product is referred to as a: A) low-cost strategy. B) target-identification strategy. C) standardization strategy. D) differentiation strategy. E) profitability strategy.
D) differentiation strategy.
Firms that compete in the global marketplace typically face two types of competitive pressure: A) pressures for increasing investment and pressures to minimize consumer surplus. B) pressures for global promotions and pressures to move down the efficiency frontier. C) pressures for product standardization and pressures to move up the experience curve. D) pressures for cost reductions and pressures to be locally responsive. E) pressures for labor skill enhancement and pressures to minimize economies of scale.
D) pressures for cost reductions and pressures to be locally responsive.
When dominant enterprises in an industry exercise a degree of pricing power, setting different prices in different markets to reflect varying demand conditions, it is referred to as: A) price skimming. B) premium pricing. C) psychological pricing. D) price discrimination. E) price leadership.
D) price discrimination.
If a basket of goods costs $100 in the United States and €120 in Europe, what would the purchasing power parity theory's prediction of the dollar/euro exchange rate be? A) $1 = €0.80 B) $1 = €1 C) $1 = €1.10 D) $1 = €0.90 E) $1 = €1.20
E) $1 = €1.20
According to the Fisher effect, if the "real" rate of interest in a country is 4 percent and the expected annual inflation is 9 percent, what would the "nominal" interest rate be? A) 36 percent B) 2.25 percent C) 5 percent D) 9 percent E) 13 percent
E) 13 percent
Which of the following statements is true about the current monetary system? A) Instruments such as the forward market and swaps increase the foreign exchange risk a company faces. B) Use of instruments such as the forward market and swaps has decreased since the breakdown of the Bretton Woods system. C) The current foreign exchange market works exactly as depicted in the purchasing power parity theory. D) The present monetary system lacks the volatile movements in exchange rates that existed in a fixed exchange rate system. E) A combination of government intervention and speculative activity drives the current foreign exchange market.
E) A combination of government intervention and speculative activity drives the current foreign exchange market.
Which of the following is a risk of entering developing nations like India and China on a large scale? A) Fear of rapid imitation of technology B) Lack of control over quality C) High management turnover D) Lower potential for long-term rewards E) Absence of prior foreign entrants
E) Absence of prior foreign entrants
How can firms avoid incurring high transport costs when exporting bulk products? A) By taking a minority equity interest B) By setting up subsidiaries irrespective of market reach C) By entering into a turnkey project with a foreign firm D) By reducing the quantity of the product offering E) By manufacturing bulk products regionally
E) By manufacturing bulk products regionally
Which of the following refers to a system under 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? A) Pegged float B) Clean float C) Capital float D) Fixed float E) Dirty float
E) Dirty float
All International Monetary Fund (IMF) loan packages come with conditions attached. Which of the following is prevented due to these policies of the IMF? A) Privatization of state-owned assets B) Trade liberalization C) Elimination of restrictive import licensing D) Deregulation of the economy to increase competition E) Excessive government spending and debt
E) Excessive government spending and debt
Licensing is NOT attractive to which of the following firms? A) Firms lacking the capital to develop operations overseas B) Firms with intangible properties with business applications that it does not want to develop itself C) Firms unwilling to commit substantial financial resources to an unfamiliar market D) Firms wanting to explore markets but prohibited from doing so by investment barriers E) Firms requiring tight control of operations for realizing experience curve and location economies
E) Firms requiring tight control of operations for realizing experience curve and location economies
Which of the following modes of entry is suitable for service firms where the risk of losing control over the management skills or technological know-how is not much of a concern, and where the firms' valuable asset is their brand name? A) Licensing B) Turnkey projects C) Cross-licensing D) Exporting E) Franchising
E) Franchising
What is a firm engaging in when it insures itself against foreign exchange risk? A) Currency swap B) Currency speculation C) Carry trade D) Arbitrage E) Hedging
E) Hedging
Which of the following holds true for a pegged exchange rate system? A) Pegged exchange rates are popular among many of the world's largest and developed nations. B) It is similar to a floating exchange rate system rather than a fixed system. C) Adopting a pegged exchange rate regime increases inflationary pressures in a country. D) The value of a pegged currency falls when the reference currency rises in value. E) It is necessary for a country whose currency is chosen for the peg to pursue a sound monetary policy.
E) It is necessary for a country whose currency is chosen for the peg to pursue a sound monetary policy.
Which of the following is true of the differences in relative demand and supply of currencies? A) While they provide an accurate explanation for appreciation of currencies, they fail to explain depreciation. B) They provide a high-level understanding of exchange rates. C) They cannot be used to explain the determination of exchange rates. D) While they provide an understanding of the major factors underlying exchange rates, they exclude minor factors. E) They cannot explain or predict when the demand of a particular currency would exceed its supply and vice versa.
E) They cannot explain or predict when the demand of a particular currency would exceed its supply and vice versa.
The collapse of the fixed exchange rate system has been traced to the: A) failure of the International Monetary Fund to impose monetary discipline. B) increased taxes in the United States to finance its welfare programs. C) Marshall Plan, under which the United States lent money heavily to European nations. D) inflexibility of the fixed exchange rate system that led to high unemployment. E) U.S. macroeconomic policy package of 1965-1968.
E) U.S. macroeconomic policy package of 1965-1968.
The interest rate on borrowings in Rhodia is 2 percent and the interest rate on bank deposits in Maritia is 7.5 percent. In this scenario, a carry trade would be to: A) borrow money in Maritian currency, convert it into Rhodian currency, and deposit it in a Rhodian bank. B) invest in bank deposits of Rhodia and reinvest the earnings in Maritia. C) invest in bank deposits of Maritia and reinvest the earnings in Rhodia. D) borrow money in Rhodian currency and invest in stocks with good growth potential in Rhodia. E) borrow money in Rhodian currency, convert it into Maritian currency, and deposit it in a Maritian bank.
E) borrow money in Rhodian currency, convert it into Maritian currency, and deposit it in a Maritian bank.
The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will see: A) a decrease in its money supply. B) a decrease in interest rates. C) the collapse of the gold standard. D) appreciation in its currency exchange rate. E) depreciation in its currency exchange rate.
E) depreciation in its currency exchange rate.
By dispersing different stages of its value chain to those locations around the world where the value added is maximized or where the costs of value creation are minimized, a firm creates a(n): A) integral circle. B) worldwide circle. C) dispersal chain. D) international mesh. E) global web.
E) global web.
Pressures for cost reduction are intense in firms: A) with persistent low capacity. B) that produce products that are well differentiated. C) with no international competition. D) whose major competitors are based in high-cost locations. E) in which consumers face low switching costs.
E) in which consumers face low switching costs.
A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if: A) the product is already being offered by local companies in the nations that the company enters. B) there is a high inflation in the nations that the company enters. C) the product is a generic product that requires little differentiation. D) the product is perceived to be very costly in the home country of the company. E) indigenous competitors in the nations that the company enters lack comparable products.
E) indigenous competitors in the nations that the company enters lack comparable products.
The value creation activities of a firm are categorized as: A) primary activities and core activities. B) strategic activities and functional activities. C) ancillary functions and tertiary functions. D) goal-oriented activities and organizational activities. E) primary activities and support activities.
E) primary activities and support activities.
In international business, an advantage of being a late entrant in a foreign market is the ability to: A) create a cost advantage over first movers. B) capture demand by establishing a strong brand name. C) build sales volume and ride down the experience curve before early entrants. D) create switching costs that tie customers into products or services. E) ride on an early entrant's investments in learning and customer education.
E) ride on an early entrant's investments in learning and customer education.
In exporting, problems with local marketing agents can be overcome by: A) entering into cross-licensing agreements with foreign firms. B) changing agents frequently. C) engaging in turnkey projects and exporting process technology to foreign firms. D) selling intangible property to a franchisee and insisting on rules to conduct the business. E) setting up wholly owned subsidiaries in foreign nations to handle local marketing.
E) setting up wholly owned subsidiaries in foreign nations to handle local marketing.
Turnkey projects being short-term propositions can be disadvantageous for a firm if a country subsequently proves to be a major market for the output of the process that has been exported. The firm can get around this problem by: A) competing with the local firm in the global market. B) establishing a joint venture with a local firm. C) withholding vital process technology from the local firm. D) selling competitive advantage to competitors. E) taking a minority equity interest in the operation.
E) taking a minority equity interest in the operation.
The speculative element of the carry trade is that its success is based upon a belief that: A) hedging insures a company against foreign exchange risks. B) increasing money supply will not drive inflation. C) liquidity is the key factor in determining interest rates. D) spot exchange rates are more favorable than forward exchange rates. E) there will be no adverse movement in exchange rates or interest rates.
E) there will be no adverse movement in exchange rates or interest rates.
The euro/dollar exchange rate is €1 = $1.20. According to the law of one price, how much would a camera that retails for $300 in New York sell for in Germany? A) €360 B) €320 C) €300 D) €150 E) €250
E) €250