Quiz 1

Occurs when a firm invests resources in business activities outside its home country

Foreign Direct Investment

Which of the following was established to ensure that nation-states adhered to the rules down in trade treaties?

World Trade Organization: The World Trade Organization (WTO) (like the GATT before it) is primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states.

Which of the following best exemplifies foreign direct investment? a. Pure Pearls, a jewelry store in the United States, imports harvested pearls from Indonesia, Philippines, and Australia. b. Chivalry, a U.S.-based phone manufacturing company, has set up its own assembly plant in Japan to cater to the needs of the Asian market. c. Yin and Yang Inc., a Chinese firm, supplies buttons and zippers to major denim brands in the United Kingdom. d. Samantha started an Italian restaurant in her home country, the United States, after she took cooking lessons from a well-known chef in Italy. e. Delicate Love, a reputable florist company in Holland, exports tulips and roses throughout the globe.

b Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country.

According to the UN charter, one of the four purposes of the UN is to

be a center for harmonizing the actions of nations

Which of the following services cannot be outsourced to foreign nations?

delivering closing arguments for a lawsuit: Increasingly, companies are taking advantage of modern communications technology, particularly the Internet, to outsource service activities to low-cost producers in other nations. However, while corporations can outsource routine legal work to foreign nations to lower costs, they need attorneys to handle their trials and lawsuits—make opening statements and closing arguments, etc.

Which of the following has been reduced as a result of globalization?

differences in material culture: We are moving toward a world in which barriers to cross-border trade and investment are declining; perceived distance is shrinking due to advances in transportation and telecommunications technology; material culture is starting to look similar the world over; and national economies are merging into an interdependent, integrated global economic system.

The motive behind the high tariffs imposed by nations on imports of manufactured goods prior to WWII was to

protect domestic industries from foreign competition: During the 1920s and 1930s, many of the world's nation-states erected formidable barriers to international trade and foreign direct investment. Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods. The typical aim of such tariffs was to protect domestic industries from foreign competition.

The advent of containerization has

significantly lowered the costs of shipping goods and services over long distances: Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances.

Why was the World Bank set up?

to promote economic development: The World Bank was created in 1944 to promote economic development. It has focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments (such as building dams or roads).

The lowering of trade and investment barriers allows firms to base production at the optimal location for that activity

true

The World Trade Organization, the International Monetary Fund and its sister institution the World Bank, and the United Nations were all created by voluntary agreement between individual nation-states

true: Over the past half century, a number of important global institutions have been created to help manage, regulate, and police the global marketplace and to promote the establishment of multinational treaties to govern the global business system. These include the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO); the International Monetary Fund (IMF) and its sister institution, the World Bank; and the United Nations (UN). All these institutions were created by voluntary agreement between individual nation-states, and their functions are enshrined in international treaties.

The Uruguay Round extended GATT to cover services as well as manufactures goods

true: The Uruguay Round further reduced trade barriers; extended GATT to cover services as well as manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and established the World Trade Organization to police the international trading system.

Today, outsourcing efforts are confined to manufacturing activities

false: Early outsourcing efforts were primarily confined to manufacturing activities. Increasingly, however, companies are taking advantage of modern communications technology, particularly the Internet, to outsource service activities to low-cost producers in other nations.

After WWII, the advanced industrial nations of the West committed themselves to increasing barriers to the free-flow of goods, services, and the capital between nations

false: Having learned from past experience, the advanced industrial nations of the West committed themselves after World War II to progressively reducing barriers to the free flow of goods, services, and capital among nation

As a result of globalization, we have been moving toward a world in which national economies are relatively self-contained entities

false: Over the past five decades, a fundamental shift has been occurring in the world economy. We have been moving away from a world where national economies were relatively self-contained entities, isolated from each other by barriers to cross-border trade and investment; by distance, time zones, and language; and by national differences in government regulation, culture, and business systems.

Moore's Law predicts that every 18 months, the power of microprocessor technology decreases, while its cost of production increases

false: The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moore's law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months).

A multinational enterprise (MNE) is any business that exports goods or services to consumers in another country

false: it's a business that has productive activities in 2 or more countries

The globalization of markets and production and the resulting growth of world trade, foreign direct investment, and imports all imply that firms are finding it easier to protect themselves from attack by foreign competitors

false: they are finding their home markets under attack from foreign competitors

What is the shift toward a more integrated and interdependent world economy called?

globalization

Refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production.

globalization of production