International Business Midterm
Priyansh grew up in India, where caste systems have become less prevalent. Which of the following statements is true about a caste system?
A caste system is a rigid form of social stratification.
Which of the following exemplifies privatization?
A country sells its postal services to a consortium of companies that runs it as a profit making venture without any state funding.
Who was the author of The Wealth of Nations?
Adam Smith
Which of these is a characteristic of a pure command economy?
All businesses are owned by the state.
________ are sold outside of the borrower's country and denominated in the currency in which they are issued, and ________ are normally underwritten by an international syndicate of banks and placed in countries other than the one in which the bond is denominated.
Foreign bonds; Eurobonds
________ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements.
Fundamental analysis
To achieve full economic union, the European Union introduced a common currency, the euro, controlled by a central EU bank. Although most member states have signed on, ________ remains an important holdout.
Great Britain
Which of the following is true about planned economies?
In a planned economy, the state owns all means of production.
________ theory is also known as the market imperfections theory.
Internalization
The ________ is often seen as the lender of last resort.
International Monetary Fund (IMF)
Which of the following statements about globalization is NOT true?
It benefits everyone equally and unconditionally.
Johan's company has made a greenfield investment. What does this mean?
It established a new operation in a foreign country.
Modern socialists trace their intellectual roots to _____, although socialist thought clearly predates this individual.
Karl Marx
Regional economic integration offers significant opportunities for businesses. Which of the following is one of these opportunities?
Markets that were formerly protected from foreign competition are increasingly open.
Hofstede's cultural dimensions theory uses which of the following metrics to measure *the preference for achievement and assertiveness* versus *cooperation and caring for the weak*?
Masculinity vs. femininity (MAS)
In the reading, French farmers vandalized an under-construction branch of which international franchise in protest of American trade policies?
McDonald's
________ argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry boosts national income at the expense of other countries.
Paul Krugman
When a rich country enters into a free trade agreement with a poor country, the poor country benefits more than the rich country. This is the concept behind
Paul Samuelson's critique.
________ are controls over the behavior of the MNE's local subsidiary. The most common of these are related to local content, exports, technology transfer, and local participation in top management.
Performance requirements
What principle or theory argues that it is in a country's best interests to maintain a trade surplus?
Principle of mercantilism
________ can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under global agreements.
Regional economic integration
Which of the following theories explains global trade in terms of the international differences in labor productivity?
Ricardo's theory of comparative advantage
The basic objective of ASEAN is to foster freer trade among member countries and to achieve cooperation in their industrial policies. ASEAN can be found in which location?
Southeast Asia
A pen costs £50 in Britain. An identical pen costs $70 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?
The U.S. offers a better deal.
Which of the following is true about the economic risks of doing business in a country?
The inflation rate in a country is an indicator of the economic risks of doing business in a country.
Which of the following statements is true about the righteous moralist approach to ethics?
The righteous moralist approach is typically associated with managers from developed nations.
The steady rise of regional economic integration has recently seen some retrenchment. What factor is considered to be primarily responsible for this drawback?
The rise of populist politics
Which of the following is one of the attractions of the Eurobond market?
The tax status is favorable.
Many of the national markets of Eastern Europe, Latin America, Africa, and Asia may still be underdeveloped, but they are potentially enormous. Which of the following is a risk to businesses moving into these regions?
There is no guarantee that democracy will thrive in many of the world's newer democratic states.
Under the gold standard, what occurs when Japan has a trade surplus?
There will be a net flow of gold from the United States to Japan.
Tariff barriers raise the costs of exporting products to a country (or of exporting partly finished products between countries). Which of the following is a likely consequence of these barriers?
This may put a firm at a competitive disadvantage to indigenous competitors in that country.
Which of the following is the most important vehicle currency by trade volume?
U.S. dollar
Unlike firms pursuing a global standardization strategy, firms pursuing an international strategy
Unlike firms pursuing a global standardization strategy, firms pursuing an international strategy
In which of the following situations would FDI deteriorate the current account of the host country's balance of payments?
When a foreign subsidiary imports a substantial number of its inputs from abroad
When is a currency said to be externally convertible?
When only nonresidents can convert it into a foreign currency without any limitations.
The ________ was created in 1944 by 44 nations that met in Bretton Woods, New Hampshire to promote economic development.
World Bank
What organization was created in 1993, during the Uruguay round of trade talks?
World Trade Organization
Most economists would probably argue that the best interests of international business are served by
a free trade stance.
Free trade refers to a situation where
a government does not try to influence what its citizens can buy from global markets.
A lobbyist from California argues that the U.S. government needs to protect the U.S. semiconductor industry from foreign competition. She argues that semiconductors are now such important components of defense products that it would be dangerous to rely primarily on foreign producers for them. This is an example of ________ argument for government intervention.
a political
Geert Hofstede added the dimension of indulgence to the World Values Survey to refer to
a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun.
Porter argues that a nation's firms should
adopt policies that promote strong competition within domestic markets.
Opponents of globalization argue that falling trade barriers
allow firms to move production to countries with low wages
The Foreign Corrupt Practices Act was amended in order to
allow for "facilitating payments."
The government is considering placing additional taxes on foreign steel imports that are a proportion of the value of the imported steel. This is an example of
an ad valorem tariff.
Ford was the first company to mass-produce cars in the United States. This gave Ford a first-mover advantage, which is
an economic and strategic advantage that accrues to early entrants into an industry.
An American executive of a multinational home-furnishings chain finds that one of the company's production units in Philippines employs children to work in its factories. However, most of the children employed at the factory are orphans who will be sold as forced labor or pushed into prostitution if they lose their jobs. The executive finds that all the available alternatives seem ethically unacceptable. In this example, the American executive faces
an ethical dilemma.
The practice of "gift-giving" between the parties in a business negotiation is considered right and proper behavior in many Asian cultures, while some Westerners view the practice as a form of bribery. What is this an example of?
an ethical dilemma.
According to the findings of the World Values Survey;
as countries get richer, there seems to be a shift from survival values to well-being values.
The common law system is
based on tradition, precedent, and custom.
A function of a capital market is to
bring together those who want to invest money with those who want to borrow money.
Foreign direct investment occurs when a firm invests resources in
business activities outside its home country
Investors using the global capital market have a wider range of investment opportunities than a purely domestic capital market. One of the most significant consequences of their choice is that they
can reduce their risk to below what could be achieved in a strictly domestic market.
When _____ is emphasized, an individual's right to do something may be restricted on the grounds that it runs counter to "the good of society."
collectivism
A factory in Mexico produces millions of widgets a year, and has been able to reduce its costs per unit as it increased its production. This demonstrates the concept of
economies of scale.
The ________ shows all of the different positions a firm can adopt with regard to adding value to the product and low cost, assuming the firm's internal operations are configured efficiently to support a particular position.
efficiency frontier
The role of the government in a market economy involves
encouraging vigorous free and fair competition among private producers.
When a firm insures itself against foreign exchange risk, it is
engaging in hedging.
A South Korean firm wants to hedge against unpredictable movements in foreign exchange rates which can make the global capital market riskier. What should the company do to achieve this?
enter into a forward contract
The belief in the superiority of one's own culture is known as
ethnocentrism.
If Porter's theory is correct, we would expect his model to predict the pattern of international trade that we observe in the real world. For example, countries should be
exporting products from those industries where all four components of the diamond are favorable.
Factor endowments refer to the
extent to which a country is gifted with such resources as land, labor, and capital.
The Bretton Woods agreement implemented a system of ________ exchange rates.
fixed
A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a ________ rate.
fixed exchange
What is the name of the market in which the currency of one country is converted into currency of another country?
foreign exchange market
The lack of progress in the Doha Round negotiations has resulted in countries that are
forging ahead with their own bilateral and multilateral agreements.
Firms that pursue a transnational strategy are trying to simultaneously do many things. Which of the following is one of those things?
foster a multidirectional flow of skills between different subsidiaries
According to the ________ view, international production should be distributed among countries according to the theory of comparative advantage.
free market
Identify the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements.
free trade areas
The WTO argues that by removing all tariff barriers and subsidies to agriculture,
global economic growth would rise.
Jake's multinational company wants to reduce its costs by leveraging economies of scale, and it doesn't want to customize its products offerings or marketing plans for local conditions because that will increase costs. Which strategy should Jake's firm pursue?
global standardization strategy
Several studies have shown that economic advancement and _____ are important factors in societal change.
globalization
Initially, the Andean Community struggled, but in the late 1980s, this trend started to reverse when
governments of Latin America began to adopt free market economic policies.
Countries with free market economies in which property rights are protected tend to have ________ than command economies or economies where property rights are poorly protected.
greater economic growth rates
One of the consequences of the global financial crisis of 2008 and 2009 for hedge funds, which are private investment funds, was a(n)
growing concern that deregulation had gone too far.
The Eurocurrency market has two significant drawbacks: ________ and ________.
higher probability of bank failure; foreign exchange risk
A typical American value is an expectation that people have a right to live the way they want. Values are defined as
ideas about what a group believes to be good, right, and desirable.
Dimitri's company is interested in a hedge fund that positions itself to make "long bets." That means it will invest in funds that are anticipated to
increase in value.
A global capital market benefits borrowers by lowering the cost of capital and
increasing the supply of funds available for borrowing.
In a(n) _____ society, the welfare of society is best served by letting people pursue their own economic self-interest.
individualist
Two factors that helped global capital markets take off in the last decades of the 20th century were ________ and ________.
information technology; deregulation by governments
Increasingly, the International Monetary Fund (IMF) has been acting as the macroeconomic police of the world economy by
insisting that countries seeking significant borrowings adopt IMF-mandated macroeconomic policies.
A managed float is the exchange rate policy where the government
intervenes in the exchange rate system only in a limited way.
Which of the following is a disadvantage of a high degree of managerial mobility between companies?
lack of loyalty and commitment to an individual company
A French wind power company gives an Indonesian company the right to produce and sell wind turbines in return for a royalty fee on every unit sold. Which business practice is this an example of?
licensing
Computer Contractors has given a foreign entity the right to produce and sell its computer parts in return for a royalty fee on every unit sold. This is called
licensing.
Which of the following is a home-country policy aimed at limiting outward FDI flow?
limiting capital outflows
The threat of antidumping action affects a firm by
limiting its ability to use aggressive pricing to gain market share in a country.
Customizing a firm's products is most closely associated with a(n) ________ strategy.
localization
Globalization has allowed corporations to reduce their costs by
locating their factories in locations where the cost of the factors of production is lowest
A U.S. company imports raw materials from Africa, has manufacturing facilities in China, and uses a company in India for assembly. This company is benefiting from ________ economies.
location
A banking crisis refers to
loss of confidence in the banking system.
Nicaragua bases the valuation of its currency on the U.S. dollar. The value of Nicaragua's currency is changed based on the changes in the value of the dollar. This is an example of a ________ exchange rate system.
pegged
A ________ rate means the value of the currency is fixed relative to a reference currency and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.
pegged exchange
The ________ view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost.
pragmatic nationalist
The ________ theory argues that such advanced nations as the United States have an incentive to develop consumer products and hence such nations tend to produce newer products.
product life-cycle
The ________ suggests that given relatively efficient markets, the price of a "basket of goods" should be roughly equivalent in each country.
purchasing power parity theory
United Nations has developed the Human Development Index (HDI) to measure the
quality of human life in different nations.
In the case of command economies, deregulation involves
removing price controls.
Which of the following is an example of an advanced factor, as proposed by Porter, that a nation will possess?
skilled labor
A Japanese tourist in New York goes to a bank to convert his yen into dollars. The exchange rate that will be used for conversion will be the
spot exchange rate.
The total accumulated value of foreign-owned assets at a given time is called the ________ of FDI.
stock
Which trade policy argument suggests that a government should use subsidies to support promising firms that are active in newly emerging industries?
strategic trade policy
Which of the following is least likely to add to the pressure for a firm to be locally responsive?
switching costs for consumers
The experience curve refers to
systematic reductions in production costs that have been observed to occur over the life of a product.
What is the ultimate controlling authority within the EU because it has the power to turn legislation into law?
the European Council
If a country increases its money supply rapidly under a fixed exchange rate regime, then
the country will face high levels of price inflation.
The relative decline of the United States in the share of world output and world exports reflects
the growth in the economic development of the world economy.
The All-Emissions Corporation moved its automobile production plant to a country in South America because it could freely dump waste products into the nearby ocean. By doing this, the corporation was contributing to the concept of
the tragedy of the commons.
According to the law of one price, identical products sold in different countries must sell for the same price when
their price is expressed in terms of the same currency.
The government of Iran is ruled by religious figures and they ensure that citizens adhere to Islamic teachings. Iran is a ________ law system.
theocratic
Newly privatized entities often have little incentive to restructure their operations to become more efficient when
they continue to receive subsidies from the state.
Which of the following is a reason for the spread of democracy?
totalitarian regimes failing to deliver economic progress to the majority of their populations
Systems that emphasize collectivism tend toward
totalitarianism
Country A and Country B entered into a free trade agreement recently. After this, Country A started importing heavy machinery from Country B, which Country A had previously produced domestically at a higher cost. Which of the following has occurred in this scenario?
trade creation
When higher-cost external producers are replaced by lower-cost external producers within the free trade area, ________ occurs.
trade creation
In the 1986 Uruguay Round, GATT negotiations extended global trading rules to cover
trade in services.
One characteristic of learning effects is that they
typically disappear after a while, in spite of the complexity of the task.
Which of the following elements does NOT support the argument for floating exchange rates?
uncertainty
Constant returns to specialization occurs when
units of resources required to produce a good remain stable regardless of the country's position on the production possibility frontier.
People from every nation rely on the same petroleum and steel to drive their cars and build their homes. These two products are examples of ________ needs.
universal
Contracts drafted under a common law framework tend to be
very detailed with contingencies spelled out.
As a philosophy for business ethics, utilitarianism focuses attention on the need to
weigh carefully all social benefits and costs of a business action.
Economist Martin Feldstein has coined the term ________ money to pertain to long-term, cross-border capital flows.
patient
The extent to which a firm's future international earning power is affected by changes in exchange rates in the long-run is known as ________ exposure.
economic
Which of the following is true with respect to multinational firms?
Because of their pivotal role in international trade, firms can and do exert a strong influence on government policy toward trade.
The ________ benefits inefficient farmers and the politicians in the EU who rely on the farm vote, but not consumers in the European Union, who end up paying more for their foodstuffs.
Common Agricultural Policy (CAP)
Which of the following is true about core competence?
Core competence skills are typically expressed in product offerings that other firms find difficult to match or imitate.
Which regional trade bloc includes Kenya, Uganda, and Tanzania?
EAC
Which of the following refers to a set of moral principles, or values, that are used to guide and shape behavior?
Ethical system
A(n) ________ is any currency banked outside its country of origin.
Eurocurrency
The emerging role of the ________ in competition policy suggests the EU is increasingly willing and able to intervene and impose conditions on companies proposing mergers and acquisitions.
European Commission
Host governments use a wide range of controls to restrict FDI in one way or another. The two most common are ________ and performance requirements.
ownership restraints
One of the impediments to integration arises from
concerns over national sovereignty.
It has been argued that the success of Japanese enterprises in the global economy has been based partly on which of the following?
cooperation between a company and its suppliers on issues such as design, quality control, and inventory reduction
Which of the following factors contributed to the Great Depression of the 1930s? Anyone? Anyone?
countries progressively raising trade barriers against each other
Innovation and entrepreneurial activity help increase economic activity by
creating new products and markets.
A ________ occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate.
currency crisis
The short-term movement of funds from one currency to another as an attempt to profit from shifts in exchange rates is called
currency speculation.
A localization strategy focuses on increasing profitability by
customizing the firm's goods or services to local conditions.
The EU began as a ________, which eliminates trade barriers between member countries and adopts a common external trade policy, but does not allow free movement of factors of production between member nations.
customs union
A lag strategy involves
delaying collection of foreign currency receivables if that currency is expected to appreciate.
From an international business perspective, some argue that what is ethical
depends on one's cultural perspective.
If many people want euros and euros are in short supply, and a few people want Japanese yen and yen are in plentiful supply, the yen is likely to ________ against the euro.
depreciate
Assuming the 60-day forward exchange rate was $1 = ¥110 and the spot exchange rate was $1 = ¥120, the dollar is selling at a(n) ________ on the 60-day forward market.
discount
Firms respond to pressures for cost reduction by trying to
lower the costs of value creation.
The International Monetary Fund was established at the Bretton Woods conference to
maintain order in the international monetary system.
The idea that each country should be allowed to choose its own inflation rate is called the ________ argument.
monetary autonomy
During the late 1980s and early 1990s, totalitarian governments collapsed and were replaced by democratically elected governments that were typically ________ than their predecessors had been.
more committed to free market capitalism
Diminishing returns to specialization occur when
more units of resources are required to produce each additional unit.
The social rules and guidelines that prescribe appropriate behavior in a particular situation are called
norms
The ethical obligations of a multinational corporation toward employment conditions, human rights, corruption, and environmental pollution are
not always clear-cut.
Culture is
not static
Five airlines control 90 percent of the aviation sector of a country. The aviation industry in the country would be an example of a(n)
oligopoly.
The term _____ refers to the values and norms that are shared among employees of an organization.
organizational culture
