IBUS EXAM 2
If a basket of goods costs $400 in the United States and 40,000 yen in Japan, PPP theory predicts that the dollar/yen exchange rate should be
$.01 per Japanese yen.
If the exchange rate is 1 British pound to $1.35, an American in London will need ______ to purchase a purse priced at 20 pounds.
$27
An American tourist in Japan is interested in buying a souvenir that costs 1800 yen. How much is this in dollars if the exchange rate is $1 to Y400.
$4.50
The most typical joint venture involves a _________________ stake in ownership between two companies.
50-50
Given equivalent factor costs, which three conditions should have the most influence on a firm's decision on where to develop a production site?
Cultural Economic Political
Flexible manufacturing involves a range of manufacturing technologies designed to do what three things?
Improve quality control Reduce setup times Increase utilization of machines
Which agreement was an attempt at regional economic integration in the United States?
North American Free Trade Agreement
By threatening ______ trade sanctions, one country can convince another country to open its markets.
punitive
Acquisitions are considered __________________ to execute.
quick
In which entry mode, does a firm own 100 percent of the stock?
wholly owned subsidiary
In __________ Britain withdrew from the European Union following _________.
2016 Brexit
Before the United Kingdom decided to exit the EU, how many total countries were involved by 2014?
28
The United States-Mexico-Canada Agreement renegotiated NAFTA and requires automakers to produce _____ of a vehicle's content in North America to qualify for zero tariffs.
62.5%
What are the considerations that help determine where an international firm will locate its production facilities?
Ability to minimize costs and improve quality
Mercosur is a free trade pact started in 1988 by which two South American economies? (Check all that apply.)
Argentina Brazil
A firm is considering two countries as sites for production facilities. Both countries have similar factor costs and political climates. Country A has poor infrastructure; Country B has access to technology and relatively easy transport of raw materials. Country _____________ seems to offer better location economies.
B
Under the Andean Pact, which two members received special concessions based on the size of these countries?
Bolivia Ecuador
In 1969, which countries created the Andean Pact that was modeled on the EU, but was not as successful in achieving regional groups objectives?
Bolivia, Chile, Colombia, Ecuador, Peru
As noted in the text, the US government used the threat of trade sanctions to try to convince the _____ government to enforce its intellectual property laws since massive copyright infringements in that country have cost US companies millions of dollars in lost revenue.
Chinese
What two factors are critically important to the success of global supply chain coordination?
Coordination Integration
What are two impediments to establishing economic integration? (Check all that apply.)
Costs of integration Concerns over national sovereignty
What are three reasons that caused the global trading system erected under GATT to be strained during the 1980s and 1990s?
Countries found ways to get around GATT regulations the persistent trade system in the United States the economic success of Japan
What are the four main institutions responsible for determining economic policy in the EU?
Court of Justice Council of the European Union European Commission European Parliament
What is the key way a company can reduce economic exposure?
Distribute production facilities and assets to various locations
What are the two schools of thought regarding the prediction of future exchange rates?
Efficient market school Inefficient market school
What are two requirements countries must take to qualify for EU membership?
Establish stable democratic government Respect human rights
What two political factors led to the development of the European Union?
Europe's desire to hold its own on the world's political and economic stage. The devastation of western Europe during the two world wars.
Which two groups represent major trading blocks in Europe?
European Free Trade Association European Union
Because of its economic and political influence, the _____ is considered the most significant trading bloc in Europe.
European Union
One of the reasons the European Union was originally formed was because
Europeans desired a lasting peace after enduring two devastating world wars.
What are three advantages of regional market integration that can result in cost savings to a business?
Free movement of goods across borders Harmonized product standards Simplified tax regimes
What are three forms of economic integration?
Free trade area Common market Full political union
____________ is the acronym for the multilateral agreement established in 1947 aimed at the abolition of quotas, tariffs and subsidies in order to liberalize trade
GATT
Artisan Inc. needs to find a company that will store its products and when requested provide customization—then ship the products to the final customer. What type of facility can help Artisan Inc. with this?
Global distribution center
In the mid-1800s, ____________ was the first nation to officially follow free trade
Great Britain
Which two factors would lead a firm to choose a concentrated production configuration?
High fixed costs High minimum efficient scale of production
Which three factors would lead a company to adopt a decentralized production configuration strategy?
High trade barriers Low fixed costs Low value-to-weight ratio
Flexible manufacturing involves a range of manufacturing technologies designed to do what three things?
Increase utilization of machines Reduce setup times Improve quality control
The inventory model used to decrease costs by having inventory arrive at a manufacturing plant only when it is needed is called ______ inventory.
JIT
In the campaign to leave the EU, certain groups voted to stay and others voted to leave. What were two characteristics of those who wanted to leave?
Less educated Older
A company that engages in international purchasing, but does so in a reactive and uncoordinated way, is at which level of global purchasing?
Level II
A company that engages in global purchasing activities that are integrated across worldwide locations and functional groups is at which level of global purchasing?
Level V
The most important foreign exchange trading center is ______ with 43 percent of the activity.
London
The five most important foreign exchange trading centers in terms of level of activity are
London, New York, Zurich, Tokyo, and Hong Kong.
What committed EU members to adopt a common currency by January 1, 1999?
Maastricht Treaty
The trade pact developed in 1988, initially between Argentina and Brazil, is called ______.
Mercusor
What are two advantages of exporting?
Not having to establish manufacturing operations in host country Helps a firm achieve experience curve and location economies
What are two potential "hidden" costs of outsourcing production to a foreign location?
Poor product quality High employee turnover
What are the two main functions of the foreign exchange market?
Provide insurance against foreign exchange risk Currency conversion
What are two ways trade barriers hamper a firm's productive activities ?
Quotas limit the ability to serve a country from outside locales they raise the cost of exporting products
What are three moderately decent predictors of long-term changes in exchange rates?
Relative monetary growth Nominal interest rate differentials Relative inflation rates
Which economist was a key figure in the early free trade movement in Great Britain?
Ricardo
What are three strategic roles a foreign factory might have?
Server factory Offshore factory Outpost factory
Which three nations are a part of ASEAN?
Singapore Philippines Indonesia
What are the three broad groups of factors that a company should consider when making decisions on where to produce its products?
Technological factors Country factors Production factors
______ is considered the most successful attempt at regional economic integration.
The EU
During the 1980s and 1990s, the world trading system was strained by the persistent trade deficit in the world's largest economy, which was:
The United States
What occurs when a company practices dumping?
The firm is unloading excess production in a foreign market.
What three countries made up NAFTA?
US Mexico Canada
Which three groups are part of the upstream/inbound portion of the global supply chain?
Vendors Partners Suppliers
PPP theory predicts that changes in relative prices will result in
a change in exchange rates
what are two ways a company can set up a wholly owned subsidiary in a foreign country?
a greenfield venture acquire an established firm
If a firm is highly concerned about choosing a politically acceptable entry mode, the firm should choose
a joint venture
Bob's Bicycle Company is planning to enter into foreign markets where there are already well-established incumbent enterprises and in which global competitors are also interested in establishing a presence. Based on these circumstances, Bob's Bicycle Company should enter the foreign markets via ______.
acquisition
When a company decides that it will take too long to establish a sizable presence in a country, it will likely use _________________ to enter the country
acquisition C
A country might create safety standards for certain products that other nations can't comply with. As a result, these nations can't be involved with exporting parts for those goods and trade does not exist. These safety standards are a form of _________________.
administrative trade policy
If the demand for the yen outstrips its availability and if the supply of the dollar outweighs the demand, the yen will against the dollar.
appreciate
Which industry is most affected by stipulations of USMCA?
automobile
Which type of control of exposure is MOST effective at protecting resources efficiently and ensuring that each subunit adopts the correct mix of tactics and strategies?
centralized
Using a web-or ______-based information system allows a company to speed up production, if necessary, by flying in key parts to the facility.
cloud
When flexible manufacturing technologies are available, this bolsters the argument for _____ production configurations.
concentrated
Jameson Electric Corp. would use the foreign exchange market when it needs to
convert currency
An argument against regional free trade agreements contends that the benefits have been oversold, but ______ have often been ignored.
costs
A foreign exchange market is where one country's ______ is converted into that of another country.
currency
When trade barriers are high, fixed costs are low, important exchange rates are unstable, and the value-to-weight ratio is low, a ______ production configuration is preferred.
decentralized
Theoretically, a country in which price inflation is running wild should expect to see its currency Blank______ against that of countries in which inflation rates are lower.
depreciate
There are presently 19 trade blocs in Africa, and many of these blocs have been _____ for years.
dormant
When manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production, it is called ______________________.
dumping
Company A is based in Europe and does a large amount of business in the United States. The company fears that the euro will gain in strength against the dollar, so it sets up a local production facility in the United States. This is a way to reduce ______ exposure.
economic
Regional _____ integration creates agreements among countries in a specific geographic area in order to reduce and eventually remove tariff and nontariff barriers to the free flow of goods.
economic
The argument for strategic trade policy suggests a(n) ______ justification for government intervention in trade.
economic
The goal of NAFTA was to
eliminate tariffs on trade between the nations.
The WTO is more successful than GATT because the WTO has _______________ that makes it more effective
enforcement mechanisms
What is an example of a major strategic commitment by a company?
entering a foreign market on a significant scale
A tactic that reduces translation and transaction exposure is
entering into forward exchange rate contracts.
If a country places a 20% tax on dairy products exported to other nations in order to limit exports and have sufficient supplies of dairy products for the home country, it is using a(n) ______.
export tariff
Quick Auto Parts does not want to establish a manufacturing facility in Mexico but does want to get component parts to the 75 dealers it has in that country. Which form of entry should it use?
exporting
which of the following are the two most appropriate foreign market entry modes as pressures for cost reductions increase?
exporting wholly owned subsidiary
The extent to which income from individual transactions is affected by fluctuations in foreign exchange values is known as transaction ______.
exposure
which function did the creators of the WTO hope it would perform?
facilitate future trade deals
T OR F: a commitment that is strategic has a short term impact and is easy to reverse
false
T OR F: as the pressure to reduce costs increases, a firm will focus on location and experience curve economies. These firms would MOST LIKELY consider franchising and joint ventures entry mode.
false
True or False: Customers are an interacting organization within the upstream portion of the global supply chain.
false
True or False: The political structure responsible for economic policies in the EU consists of a single office known as the Court of Justice.
false
True or false: Krugman advocates that it is logical to expect the U.S. government to ignore special-interest politics when forming policy.
false
True or false: The term production is only used to denote a physical product.
false
GATT was put into place under the leadership of the U.S. government as a way to
foster free trade
_____________________ involves one firm selling intangible property to another firm and insisting that the receiver of the intangible property abides by strict rules on how it does business.
franchising
_____ trade is the economic policy of not discriminating against exports to or imports from foreign countries
free
when the government does not use quotas, taxes, or other means to restrict what its citizens can buy from or sell to another country, it is called ___________ trade
free
The Association of Southeast Asian Nations was formed with the intent to foster _____.
free trade
What is the least integrated form of economic integration?
free trade area
When a country allows both residents and nonresidents to purchase unlimited amounts of a foreign currency, the country's currency is
freely convertible
In an efficient market, prices are said to
fully reflect all available information.
Which approach to forecasting draws on economic theory to develop models that predict exchange rate movements?
fundamental
The concept that valuable knowledge does not just reside in a firm's domestic operations but can be found in foreign subsidiaries is known as ______.
global learning
_____ coordination refers to the integrated and coordinated decisions of key global supply chain activities.
global supply chain
A company that gains entry in a foreign market through _________________ has total control over the products or services manufactured or sold.
greenfield adventure
Starting a subsidiary from "scratch" where nothing is established is called a(n)
greenfield venture
A source factory __ than an offshore factory.
has a more significant strategic role
One drawback to basing production in a foreign location is the potential for poor product quality. This is an example of a(n) _______ cost of foreign production.
hidden
Entering a large developing nation like China before most other international companies, and entering on a large scale, will be associated with ________________ levels of risk. (Choose high or low.)
high
During the campaign for leaving the EU, one of the recent claims said that leaving the EU would allow the British to take back control of _____.
immigration
The United States has placed a limit on the amount of tuna in airtight containers that can be imported into this country. This is an example of an ______________.
import quota
What are the four main instruments of trade policy?
import quotas tariffs local content requirements antidumping duties
There has been a(n) _____ in regional economic integration in the past two decades.
increase
Which school of thought on exchange rate forecasting does NOT believe that forward exchange rates are the best predictors of future spot exchange rates?
inefficient
A(n) ______ is based on the theory that prices don't reveal all available information and more is needed to predict future spot exchange rates.
inefficient market
The ______________________ argument for trade intervention states that developing countries need to support new industries until they are strong enough to compete globally.
infant industry
The oldest argument for government intervention in trade where developing nations must protect their domestic industries until they are ready to compete globally is the ______ argument.
infant industry
The Fisher effect predicts that there is a strong relationship between ______ and interest rates.
inflation rates
The European Union's support for the common agricultural policy illustrates why strategic trade policy is problematic. In this instance, the government was influenced by _____________ to the detriment of consumers.
interest groups
One main reason why the IFE is NOT good at explaining short-term exchange rate movements is the impact of ______ in determining the expectations of market traders.
investor psychology
One main reason why the IFE is NOT good at explaining short-term exchange rate movements is the impact of ______ in determining the expectations of market traders.
investor psycholohy
What three statements are TRUE about franchising?
it is similar to a license but with a longer time commitment the franchisee commits to abiding by strict rules on how it does business the franchiser typically receives a royalty payment
An association of two or more companies engaged in a solitary business enterprise for profit without actual partnership or incorporation is called ____________________
joint venture
At Jackson Electric, the company's core competence is based in the proprietary technology it has developed for kitchen appliances. Which foreign entry mode should Jackson Electric avoid in order to protect this technology?
joint venture
If a firm is determining which foreign entry strategy to use, but is concerned with maintaining control over its proprietary technology, which two entry modes should it AVOID?
joint ventures licensing
What are the four issues currently at the forefront of the WTO agenda?
lack of intellectual property protection antidumping policies high tariffs on nonagricultural goods and services protectionism in agriculture
Country A wants to lower trade barriers with its neighbor, Country B. While both countries support free trade, they are both reluctant to lower their barriers because they are not sure the other country will reciprocate. What obstacle is preventing the advancement of free trade between these countries?
lack of trust
Two strategies that can be used to reduce translation and transaction exposure are:
lag strategy. lead strategy.
A firm enters a market on an ________________ scale when it commits significant resources to this effort
large
Conrad's US based company entered the European market long after its competitors had established themselves. This is known as _______________ entry.
late
When a business enters a foreign market after other foreign firms, the situation is defined as ___________________ entry.
late
Flexible manufacturing technology is also referred to as ______ production.
lean
what are three advantages of acquisitions?
less risky than greenfield ventures preempt the competition quick to execute
An _________ states that some percentage of a good must be produced domestically
local content requirement
In order to win a contract in Mexico, QVB Auto manufacturing must make 65% of the component parts of their vehicles in Mexico. This is an example of an _____________.
local content requirement
Web-based information systems can improve the ______ function by better tracking component parts, optimizing production schedules, and by providing good information about the company's supply chain.
logistics
When a company makes a make-or-buy decision, the strategic level is typically focused on the ______-term, while the operational level is more focused on the ______-term.
long; short
Lyttleton Enterprises, based in the United States, is considering operation in London, England. The costs and risks associated with doing business in London would be considered ___________________ because the country is economically advanced and politically stable.
low
The creation of a single market creates _____ costs of doing business.
lower
A government would impose administrative trade policies in order to
make it difficult for imports to enter a country
Whether a firm should perform a value creation activity themselves or outsource, it is called the _____ decision.
make or buy
What are two reasons a firm would choose NOT to enter a new market on a large scale?
may not have the resources available to commit to a large scale prefer to enter slowly so that it can become more familiar with the market
Since unit costs decrease as plant output increases, a ______ of output is necessary for a plant to realize all major plant-level scale economies.
minimum efficient scale
The ______ is the smallest amount of production a company can achieve while still taking full advantage of economies of scale with regards to supplies and costs.
minimum efficient scale
Reciprocal trade agreements between two or more partners are called __________ trade agreements.
multilateral
The stalled Doha Round has caused many nations to use _____ to foster trade.
multilateral trade agreements
Based on the objectives of the Single European Act, the principle of _____ states that a product standard developed in one EC country should be accepted in another.
mutual recognition
Manuel works on the assembly line at a factory in Mexico that produces component parts for a Japanese automaker. The factory is not involved in any decisions on the automobiles but is simply designed for parts production. This is an example of a(n) _____ factory.
offshore
The law of ______ is the economic theory that the price of a given security, asset, or commodity must have the same price when exchange rates are taken into consideration.
one price
Today, many nations are ____________ new trade policies associated with the WTO.
opposed to
African countries have attempted to form a continental trade agreement, but have been stymied by significant ______ turmoil.
political
Companies that want to have the least amount of risk when pursuing business in a foreign country should consider countries that are _________________________
politically stable
All the activities involved in creating a product are known as _____.
production
It would be common to use the term ____ to refer to the manufacturing process when discussing the global supply chain.
production
A business uses the _____ function to obtain raw materials it needs to manufacture goods.
purchasing
The process of a business or organization attempting to acquire goods or services to accomplish the goals of its enterprise is called
purchasing
An import ________ is a type of trade restriction that sets a physical limit on the quantity of a product that can be imported into the country in a set period of time
quota
The Single European Act abolished restrictions on cabotage, which is the
right of foreign truckers to pick up and deliver goods within another member state's borders.
The adverse consequences of unpredictable changes in exchange rates are called foreign exchange
risk
In a licensing deal, the licensor receives payment in the form of ______________ from the licensee.
royalties
GATT rules initially only dealt with trade in manufactured goods and commodities. With the increase in trade in the __________ sector, the Uruguay Round sought to establish agreements to cover this area.
service
GATT negotiations continue to deal with additional issues such as (Check the three that apply.)iss
services agricultural subsidies intellectual property
The impact of psychological factors and investor expectations makes it difficult for exchange rate theories to predict ______ changes in exchange rates.
short term
Which type of factory is used and treated the same as any factory in a global firm's home country?
source
Economic theories suggest that free trade allows countries to
specialize in producing goods and service that they are most efficient at producing.
A(n) ______ exchange rate is the price to exchange one currency for another for immediate delivery.
spot
An _______ is a payment made to the government to a domestic producer to help lower production costs so they are better able to compete with foreign imports
subsidy
The nationwide company, Nightingale Health Systems, received a tax break from the government when it was faltering and ready to declare bankruptcy. This subsidy helped the company with production costs and allowed it to have a stronger presence in the competitive health industry. This tax break is a type of ___________.
subsidy
The value of a currency is determined by the ______ of that currency relative to other currencies.
supply and demand
A tax on goods coming into or leaving a country is called an ___________
tariff
___________ constrain a firm's ability to export its products by raising the price of the exported product, which could put the firm at a competitive disadvantage with domestic firms in that country
tariff barriers
taxes placed on imports to protect domestic producers from foreign competition and to produce revenue for the government are called?
tariffs
what is considered the simplest instrument of trade policy?
tariffs
A key impediment to economic integration is that although a majority of citizens may benefit from free trade, certain groups may lose their jobs to low-cost and low-skilled labor in other countries as was the experience of some U.S. and Canadian workers in the ______ industry following the establishment of NAFTA.
textile
The Economist magazine version of the PPP uses ______ as a proxy for a "basket of goods."
the Big Mac
Costa Rica, El Salvador, Guatemala, and other countries formed a common market in the early 1960s that was called
the Central American Common Market.
According to _____, identical products sold in different countries must sell for the same price in competitive markets when their price is expressed in terms of the same currency.
the law of one price
The Fisher effect equates the nominal interest rate as
the required real interest rate + expected rate of inflation.
When considering the three basic decisions a firm must make when it decides to enter a foreign market, it must determine the market to enter, the timing of entrance, and __________________________
the scale
At the simplest of levels, exchange rates are determined by _____.
the supply and demand of currencies
What's the main reason a country would use export tariffs?
to ensure sufficient supply of a good within the country
Some economists argue that regional free trade agreements will provide global benefits only if
trade creation exceeds trade diversion.
Country A subsidizes oil development and Country B is losing any competitive advantage because of it. Krugman would agree that Country B hopes to minimize subsidies to prevent a
trade war
Krugman argues that if each country seeks to follow a strategic policy to protect its interests, this may need to a _______________.
trade war
________ exposure is the risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms.
transaction
Following Brexit, Great Britain withdrew from the European Union in 2016.
true
True or False: When discussing the global supply chain, production is sometimes referred to as operations.
true
True or false: One political reason for economic integration is the potential to minimize violent conflict between nations.
true
T OR F: foreign market entry decisions are based on the varying levels of risk and reward.
trueW
Unilateral lowering of trade barriers has not occurred mostly due to a lack of _____ among governments.
trust
A type of entry mode that is common in the chemical, pharmaceutical, and petroleum refining industries in which a contractor agrees to handle every detail of a project for a foreign client is called __________________________
turnkey project
Lisette works for Southwest Petroleum Corp. Her company is responsible for every aspect of setting up a refinery location for its clients. Southwest Petroleum builds the site, trains personnel, and notifies the client when the refinery is ready for operation. What foreign entry mode does this represent?
turnkey project
Paul Krugman would agree that while strategic trade policy seems appealing in theory, in reality, strategic trade policy is ___________
unworkable
The collapse of the Central American Common Market was a result of ______.
war between Honduras and El Salvador
What three basic decisions must firms evaluate when considering a foreign expansion?
which markets to enter on what scale to enter markets when to enter markets
What three basic decisions must firms evaluate when considering foreign expansion?
which markets to enter when to enter markets on what scale to enter markets
