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60) Coca-Cola has collaborative arrangements whereby it produces concentrate that it sells to
other companies to bottle its drinks. Which of the following terms best describes this type of
arrangement?
A) vertical integration
B) horizontal integration
C) link alliance
D) scale alliance
61) The extension of a company's activities into stages of production that absorb the company's
outputs is known as ________.
A) forward integration
B) backward integration
C) an internalization advantage
D) an ownership advantage
62) Making investments in distribution in order to leapfrog channels of distribution that are
tightly controlled by competitors is an example of ________.
A) an internalization advantage
B) an ownership advantage
C) forward integration
D) backward integration
63) Which of the following countries would a watchmaker most prefer to manufacture its
watches in, in order to capitalize on buyer perceptions of high quality?
A) China
B) Thailand
C) Mexico
D) Switzerland
64) Firms engage in FDI when the firms they supply have already invested abroad. This practice
of "following clients" is observed in industries having ________.
A) a huge number of clients
B) only large companies as clients
C) suppliers who are geographically scattered around the world
D) suppliers who have close working relationships with producers
65) Which of the following is true of a "follow the leader" scenario in the context of foreign
direct investment?
A) Companies that practice "follow the leader" supply each other with inputs.
B) Companies that practice "follow the leader" pressurize each other to follow environmentally
safe methods.
C) It is a frequent practice in industries with a limited number of large firms.
D) It is common in industries in which producers source component parts from suppliers.
66) A country's ________ is a summary of all economic transaction between one country and the
rest of the world, over a given period of time.
A) balance of payments
B) chart of accounts
C) global financial system
D) international monetary system
67) The ________ records exports and imports of goods and services, investment income, and
gifts.
A) current account
B) capital account
C) debt account
D) official reserves account
68) Which of the following is recorded in the capital account of a country's balance of payments?
A) income payments
B) income receipts
C) foreign official assets
D) unilateral transfers
69) Which of the following accounts within the current account of the United States' balance of
payments includes financial gains earned on U.S. assets held abroad?
A) income receipts account
B) income payments account
C) merchandise account
D) services account
70) The ________ account within the United States' current account includes financial gains
compensated to entities in other nations that is earned on assets they hold in the United States.
A) income receipts
B) income payments
C) merchandise
D) services
71) When a U.S. subsidiary in another country remits profits back to its parent company in the
U.S., the receipt of profits is recorded in the ________.
A) income receipts account and given a plus sign
B) income receipts account and given a minus sign
C) income payments account and given a plus sign
D) income payments account and given a minus sign
72) Which of the following occurs in a country's balance of payments when a country exports
more goods and services and receives more income from abroad than it imports and pays
abroad?
A) current account deficit
B) capital account surplus
C) current account surplus
D) capital account deficit
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Copyright © 2019 Pearson Education, Inc.
Scenario: Global Manufacturing Inc. (GMI)
Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which
two components of its product will be manufactured in locations where the cost of production is
lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to
purchase an existing company in Brazil to produce component A and build a subsidiary in
Thailand to produce component B.
73) In which of the following accounts would GMI's purchase of the company in Brazil appear?
A) the current account of the United States
B) the current account of Brazil
C) the capital account of the Thailand
D) the capital accounts of Brazil and the United States
74) Rationalized production is a system of production in which each of a product's components is
produced in the same location so that the cost of producing that product is lowest.
75) A potential problem with a rationalized production model is that a work stoppage in one
country can bring the entire production process to a standstill.
76) Describe any three management issues involved in foreign direct investment decisions.
77) Discuss the role entrepreneurs and small businesses play in the expansion of FDI. What are
some of the surprises that managers face as they invest in new markets abroad?
78) Explain the concept of balance of payments and describe its two major components.
79) Why is it important to assess R&D costs when considering FDI? Given its costs, how can
FDI benefit the host country with access to technology, management skills, and employment?
80) Partnerships between a government and a host company in the context of foreign direct
investment lead to ________.
A) increased exploitation of workers in the home country
B) domination of industries in the home country by large international firms
C) increased market access for the host company
D) increased control for the host country over its operations
81) A greenfield investment is another name for a company's decision to ________.
A) acquire an interest in an existing foreign operation
B) implement sustainable marketing practices
C) construct a new facility in a foreign market
D) build a facility for a local company
82) Which of the following is a reason behind intervention by a host country on matters related
to FDI?
A) to keep their balance of payments under control
B) to protect their outdated technology and management skills
C) to strictly encourage the establishment of sunset industries
D) to decrease the country's competitiveness in the global market
83) ________ are those that use outdated and obsolete technologies or employ low-wage
workers with few skills.
A) Business-agile enterprises
B) Sunset industries
C) Greenfield investments
D) Shell corporations
84) Ownership restrictions and performance demands are used by ________.
A) host countries to promote FDI
B) host countries to restrict FDI
C) home countries to promote FDI
D) home countries to restrict FDI
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Copyright © 2019 Pearson Education, Inc.
Scenario: Blickinstock at the Crossroads
Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To
that end, Blickinstock is trying to decide whether to purchase an existing company in a remote
region of Argentina or build its own subsidiary. Keith Moon, Blickinstock's vice president of
global business development, will be making a presentation to the board outlining the company's
options.
85) If Blickinstock's home government tries to stop the company from investing in Latin
America, the government is most likely trying to ________.
A) protect its balance of payments
B) prevent a monopoly situation from occurring
C) discourage the entry of a "sunset" company
D) protect the "sunset" companies in Latin America
86) A system of production in which each of a product's components is produced in the location
where the cost of producing that component is lowest is called ________ production.
A) rationalized
B) craft
C) job
D) customized
87) Which of the following statements is true of rationalized production?
A) It depends on a large number of distribution channels which leads to inefficiency.
B) It depends on a large number of distribution channels which increases the cost of production.
C) It can bring the entire production process to a standstill, if work is stopped in one country.
D) It is an unethical method of production as it uses questionable labor practices to reduce costs.
88) Which of the following is the type of production illustrated in the automobile industry?
A) customized production
B) rationalized production
C) job production
D) craft production
89) If a Japanese citizen invests in the Australian stock market, the transaction would show up on
the capital account in the balance of payments of ________.
A) Japan
B) Australia
C) both Japan and Australia
D) neither Japan nor Australia
90) The ________ records transactions involving the purchase and sale of assets.
A) current account
B) capital account
C) debt account
D) official reserves account
91) Home nations discourage foreign direct investment outflows because it ________.
A) discourages cooperation between countries
B) replaces jobs in the home nation
C) fails to protect the "sunset" industries in the home nation
D) decreases long-term competitiveness of companies
92) A home country encourages outflows of foreign direct investment because it ________.
A) helps in replacing jobs at home
B) sends resources out of the home country
C) tends to increase the long-term competitiveness of firms
D) takes the place of all the exports and imports in the country
93) Which of the following methods is being used when a host country provides lower tax rates
and low-interest loans to firms from abroad for encouraging inflows of foreign direct
investment?
A) financial incentives
B) sanctions
C) local content requirements
D) embargoes
94) Tax breaks on profits earned abroad and political pressures are used by ________.
A) host countries to promote FDI
B) host countries to restrict FDI
C) home countries to promote FDI
D) home countries to restrict FDI
95) Which of the following methods is used by a host country to restrict incoming foreign direct
investment?
A) differential tax rates for earnings abroad
B) insurance to cover the risk of overseas investments
C) low-interest loans to investors
D) performance demands
96) Which of the following is used by home-country governments to promote outbound foreign
direct investment?
A) political pressure
B) performance demands
C) ownership restrictions
D) sanctions
97) Which of the following is used by home country governments to limit outbound foreign
direct investment?
A) ownership restrictions
B) differential tax rates
C) tax breaks
D) low-interest loans
98) Which of the following methods will Happyland use to encourage foreign direct investment
inflows?
A) tax incentives
B) sanctions
C) ownership restrictions
D) performance demands
99) Which of the following methods will Happyland use to discourage foreign direct investment
inflows?
A) tax incentives
B) low-interest loans
C) performance demands
D) tax breaks
100) Ownership restrictions are never used by host countries to restrict incoming foreign direct
investment.
101) Performance demands made by host countries to restrict incoming FDI apply exclusively to
businesses in cultural industries.
102) Discuss why a host country might promote or restrict foreign direct investment.
103) Identify why a home country might support or discourage outgoing foreign direct
investment.
104) Explain the various methods that host countries use to restrict and promote foreign direct
investment.
