d.
Developing countries with significant hard currency reserves do not require countertrade
agreements.
23. According to the text, for which industry does the U.S. government support the use of countertrade?
a.
Weapons
c.
Textiles
b.
Computers
d.
Steel
24. Approximately how many commercial trade exchanges exist in the United States?
a.
40
c.
4,000
b.
400
d.
40,000
25. Which of the following is not a disadvantage of countertrade?
a.
Countertrade practices frequently restrict profit margins.
b.
Price setting is difficult because not all cost factors are known in advance.
c.
Prices are distorted as deliveries, which could take place over time, are made without
reference to changes in technology.
d.
Countertrade makes it difficult for consumers in low-income countries to have access to
soft consumer goods.
26. Which of the following is an advantage of countertrade agreements?
a.
Countertrade practices encourage economic efficiency.
b.
Countertrade allows firms from industrialized countries to sell products in markets that
would otherwise be inaccessible.
c.
Countertrade agreements often speed up the negotiation process.
d.
All of the above are countertrade advantages.
27. Which type of countertrade is the only type of exchange that does not involve monetary exchange?
a.
Barter
c.
Switch Trading
b.
Clearing Agreements
d.
Counterpurchase
28. In a clearing agreement, when an imbalance occurs and one country owes money to the other, ____ are
paid in an agreed upon hard currency.
a.
countervailing credits
c.
switch credits
b.
swing credits
d.
clearing credits
29. Buying a party’s position in a countertrade in exchange for hard currency and selling it to another
customer is known as a(n)
a.
Counterpurchase
c.
Switch trade
b.
Offset purchase
d.
Buyback agreement
30. Which type of countertrade involves parallel contracts?
a.
Clearing agreements
c.
Counterpurchases
b.
Switch trading
d.
Offset purchases
31. In which type of countertrade does the exporter agree to buy goods from a shopping list provided by
the importer?
a.
Barter
c.
Counterpurchase
b.
Switch Trading
d.
Buyback agreement
32. Before the fall of communism in Eastern Europe and before German reunification, Volkswagen sold
10,000 cars to East Germany and agreed to purchase, over a period of two years, goods for the value of
the automobiles, from a list of goods provided by the East German government. What type of
countertrade does this example describe?
a.
Clearing agreement
c.
Offset purchase
b.
Counterpurchase
d.
Buyback agreement
33. McDonnell Douglas sold DC-9s to the former Yugoslavia. To secure the order, McDonnell Douglas
agreed to help sell products sourced in the former Yugoslavia to buyers in the United States to
generate capital to help finance the purchase of the passenger planes. Of which type of countertrade is
this an example?
a.
Counterpurchase
c.
Switch Trading
b.
Barter
d.
Offset purchase
34. ICI sold a methanol plant to the former Soviet Union for $250 million and agreed to purchase 20% of
the plant’s output for ten years for a total of $350 million. Of which type of countertrade is this an
example?
a.
Switch trading
c.
Offset purchase
b.
Counterpurchase
d.
Buyback agreement
35. Which of the following is a justification for setting a higher price in the home market than in the
international market?
a.
There may be few or no challenges from competition in the international market.
b.
The market potential might be limited.
c.
Buyers in the international market could afford the higher price.
d.
The firm may have the goal of increasing international market share through penetration
pricing.
36. Setting prices higher in the home market than in the international market is justified by which of the
following?
a.
A lower labor or raw material cost in the international market
b.
Strong local competition in the international market
c.
A lower buying power of host-country consumers relative to consumers in the company’s
home market
d.
All of the above
37. Which of the following justifies setting prices lower in the home country, compared to company prices
in the international market?
a.
No cost advantages to producing overseas to justify a lower price.
b.
Few or no challenges from competition in the international market.
c.
Limited market potential of the international market.
d.
All of the above justify lower prices in the home country.
38. One example of aggressive export pricing is
a.
Transfer pricing
c.
Cost pricing
b.
Dynamic incremental pricing
d.
Market pricing
39. Which of the following is an advantage of standardized pricing?
a.
It lowers costs.
b.
It is a deterrent to gray market activity.
c.
It deters parallel imports.
d.
All of the above are advantages of standardized pricing
40. Penetration pricing is used by companies that
a.
are trying to gain a high sales volume
b.
are attempting to generate high profit
c.
are attempting to recover the cost of product development quickly
d.
all of the above
COMPLETION
1. Companies can and often do price themselves out of the market in certain countries. To avoid this,
they must shift production to a ____________________, ____________________ country.
2. Diverting products purchased in a low-price market to other markets by means of a distribution system
not authorized by the manufacturer is known as a(n) ____________________ market.
3. Diverting products purchased in a low-price market to other, higher-priced, markets by means of a
distribution system not authorized by the manufacturer results in the creation of
_________________________.
4. A typical example of ____________________ involves a foreign company that enjoys high prices and
high profits at home as a result of trade barriers against imports. The company uses those profits to sell
at lower prices in foreign markets in order to build market share and suppress the profitability of
competitors with open home markets.
5. When the World Trade Organization determines that price discrimination did indeed occur and that a
local industry was injured by the dumping activity, governments are entitled to impose
_________________________ on the merchandise.
6. _________________________ are imposed on subsidized products imported into the country.
7. Multinational companies are affected by local government ____________________ to local
manufacturers, in particular, to producers of agricultural products and to exporting firms.
8. Governments defend the payment of subsidies to developing industries under the
_________________________ argument.
9. _________________________ is a pricing strategy used to repatriate profits.
10. Fluctuating _________________________ provide both challenges and opportunities to firms.
Companies ignoring these fluctuations could find that their profits eroding during the time lapsed
between contract negotiations and the actual product delivery.
11. _________________________ is currency that is accepted for payment by any international seller.
12. _________________________ is currency that is kept at a high artificial exchange rate, is typically
overvalued, and is controlled by the national government.
13. ____________________ involves selling a product to a buyer and agreeing to accept, in return for
payment, products from the buyer’s firm or from the trade agency/institution of the buyer.
14. Countertrade is typically handled by countertrade brokers, known in the trade as
______________________________.
15. ____________________ involves a simple, non-monetized exchange of goods and/or services
between two parties.
16. In a(n) _________________________, a third party, usually a barter agent or some other type of
broker, creates accounts that represent trade credits for the respective parties, and companies trade in
and out as necessary.
17. In a clearing agreement, when an imbalance occurs and one country owes money to the other,
_________________________ are paid in an agreed upon hard currency.
18. _________________________ involves buying a party’s position in a countertrade exchange for hard
currency and selling it to another customer.
19. ____________________ involves payment in products and in cash, usually in a mutually agreed upon
convertible currency.
20. _________________________ involves two exchanges that are paid for in cash. This involves two
parallel contracts.
21. _________________________ involve large hard-currency purchases, such as the purchase of defense
equipment or airplanes. The seller agrees, in return for the sale of its offering, to purchase products
that are valued at a certain percentage of the sale.
22. In a(n) _________________________, the seller builds and provides a turn-key plant. The seller is
paid up-front part of the cost of the plant in an agreed upon convertible currency. The seller also agrees
to purchase specific quantities of the plant’s output over an extended period of time.
23. Setting prices higher in the ____________________ market than in the ____________________
market is justified by a lower labor or raw material cost in the international market.
24. Setting prices higher in the ____________________ market than in the ____________________
market is justified by a strong local competition in the international market.
25. Setting prices higher in the ____________________ market than in the ____________________
market is justified by a lower buying power of host-country consumers relative to consumers in the
company’s home market.
26. Setting prices higher in the ____________________ market than in the ____________________
market is justified by a firm goal to increase market share by using a penetration pricing strategy in the
international market.
27. Setting prices higher in the ____________________ market than in the ____________________
market is justified by no cost advantages to producing overseas, such as economies of scale and labor
to justify a lower price.
28. Setting prices higher in the ____________________ market than in the ____________________
market is justified by few or no challenges from competition in the international market.
29. Setting prices higher in the ____________________ market than in the ____________________
market is justified by a limited market potential in the international market.
30. Setting prices higher in the ____________________ market than in the ____________________
market is justified by buyers in the international market who can afford the higher price.
ESSAY
1. Why might a manufacturer charge different prices in different markets for the same product?
2. Discuss the U.S. government’s position on government-mandated countertrade.
3. Discuss the advantages of countertrade.
4. Discuss the disadvantages of countertrade.
5. Describe the various types of countertrade.
