Decentralization of production is appropriate when:
A. the product’s value-to-weight ratio is high.
B. location externalities are important.
C. the product serves universal needs.
D. volatility in important exchange rates is expected.
Mercosur originated as a(n) _____ between Brazil and Argentina in 1988.
A. common market
B. free trade pact
C. customs union
D. economic union
When the firm simultaneously faces both strong cost pressures and strong pressures for
local responsiveness, the ideal strategy to follow is the _____ strategy.
A. global standardization
B. localization
C. transnational
D. international
Once barriers to trade and investment are removed, companies:
A. can realize cost economies by centralizing production in key locations regardless of
culture differences.
B. can treat a group of integrated countries like the EU as a single market and produce
standardized products for it.
C. no longer have to deal with competitive practices that formerly limited their ability
to realize cost economies.
D. may still find it difficult to produce a standardized product for a single
multiple-country market.
A(n) _____ is one in which prices do not reflect all available information.
A. inefficient market
B. speculative market
C. efficient market
D. externally convertible market
Which of the following observations is true of the euro?
A. It is used by all member states of the European Union.
B. While recommended, it is not required that participating countries to give up their
own currencies.
C. It required participating countries to give up control over monetary policy.
D. By adopting it, the EU created the most widely traded currency in the world.
In a _____ economy, certain sectors of the economy are left to private ownership and
free market mechanisms while other sectors have significant state ownership and
government planning.
A. market
B. private
C. command
D. mixed
The consumer surplus per unit is determined by:
A. the experience curve.
B. economies of scale.
C. market diversification.
D. competitive pressure in the marketplace.
Paul Samuelson’s critique argues that:
A. when a rich country enters into a free trade agreement with a poor country, only the
poor country benefits from the relationship.
B. trade is a positive-sum game in which all countries that participate realize economic
gains.
C. when a rich country enters into a free trade agreement with a poor country, only the
rich country benefits from the relationship.
D. trade is a net-sum game in which all countries that participate realize economic
gains.
_____ refer(s) to systematic reductions in production costs that have been observed to
occur over the life of a product.
A. Experience curve
B. Economies of scale
C. Location economies
D. Production possibility
The _____ allows Americans to sue foreign firms that use property in Cuba confiscated
from them after the 1959 revolution.
A. Helms-Burton Act
B. General Agreement on Tariffs and Trade
C. Smoot-Hawley Act
D. Buy American Act
Which of the following is the most frequently aired objection to free trade in Africa?
A. These economies are too small for free trade to exist.
B. These countries are not ready for a full-fledged political union with a common
currency.
C. They need to be “protected” by tariff barriers from unfair foreign competition.
D. The larger nations like South Africa and Kenya stand much to lose from free trade
and competition.
Which of the following statements is true of the country factors that govern
international business?
A. Relative factor costs should be considered when selecting a country for production.
B. Centralized production is the most suitable method of doing international business.
C. Exchange rates are not a significant factor that determines the selection of a country.
D. Decentralized manufacturing is the most suitable method of doing international
business.
The _____ industry is often thought of as one in which global standardization of the
marketing mix is the norm.
A. financial services
B. IT
C. telecommunication
D. manufacturing
Which of the following is one of the gains derived by adjusting transfer prices?
A. The firm can reduce its tax liabilities by using transfer prices to shift earnings from a
low-tax country to a high-tax one.
B. The firm can use transfer prices to move funds out of a country where a significant
currency appreciation is expected.
C. The firm can use transfer prices to move funds from a parent company to the
subsidiary (or a tax haven) when financial transfers in the form of dividends are
restricted or blocked by host-country government policies.
D. The firm can use transfer prices to reduce the import duties it must pay when an ad
valorem tariff is in force—a tariff assessed as a percentage of value.
The _____ all of the different positions that a firm can adopt with regard to adding
value to the product and low cost assuming that its internal operations are configured
efficiently to support a particular position.
A. economies of scale are
B. diminishing returns are
C. efficiency frontier shows
D. value creation scale shows
Which view of FDI traces its roots to classical economics and the international trade
theories of Adam Smith and David Ricardo?
A. Imperialist
B. Conservative
C. Free market
D. Radical The free market view traces its roots to classical economics and the
international trade theories of Adam Smith and David Ricardo. The intellectual case for
this view has been strengthened by the internalization explanation of FDI.
Many states in Asia, Latin America, and Western Europe have shifted away from a
mixed economy to a market-based economy. Which of the following measures is most
likely to be promoted by such states?
A. State-ownership of enterprises
B. Fixing of prices by the government
C. Deregulation of the economy
D. Lowering competition
If a firm is trying to enter a market where there are already well-established companies,
and where global competitors are also interested in establishing a presence, the firm
should choose a(n) _____.
A. franchise
B. greenfield investment
C. joint venture
D. acquisition
Under a _____ exchange rate regime, a country will attach the value of its currency to
that of a major currency.
A. managed-float
B. pegged
C. free-float
D. currency board
The costs of doing business in a country tend to be greater if:
A. political payoffs are not required to gain market access.
B. supporting infrastructure is sponsored by government.
C. local laws set strict standards with regard to environmental pollution.
D. there is limits or caps on damage awards.
A(n) _____ is one that is difficult for outsiders to access.
A. concentrated retail system
B. exclusive distribution channel
C. private distribution channel
D. fragmented retail system
Patents, inventions, formulas, processes, designs, copyrights, and trademarks are all
forms of _____.
A. licensing agreements
B. franchising agreements
C. intangible property
D. tangible property
The TRIPS regulations established at the 1995 Uruguay Round:
A. established regulations on patents and copyrights.
B. set a new level of agriculture subsidies.
C. organized OECD countries to eliminate tariffs on textiles.
D. established new tariff levels on technology.
Which of the following statements is true about a product divisional structure?
A. In a product divisional structure, the responsibility for the financial control of the
firm is typically decentralized.
B. A product divisional structure tends to be organized on geography.
C. In a product divisional structure, each product division is set up as a self-contained,
largely autonomous entity with its own functions.
D. In a product divisional structure, the responsibility for operating decisions is
typically centralized.
A firm that depends more on mass media advertising to communicate the marketing
message to potential consumers is using a _____.
A. pull strategy
B. push strategy
C. standardized strategy
D. localized strategy
What has been the most significant impact of NAFTA?
A. Its economic effects
B. Its political effects
C. Its psychological effects
D. Its social effects
Throughout the 1990s, the amount of foreign direct investment directed at both
developed and developing nations increased dramatically. This trend reflects:
A. a slowdown in global economic activity.
B. the increasing share of the United States in the total FDI stock.
C. the decline in cross-border flows of foreign direct investment.
D. the increasing internationalization of business corporations.
A facility that positions and allows customization of products for delivery to worldwide
wholesalers or retailers or directly to consumers anywhere in the world.
A. Logistics center
B. Lead factory
C. Global distribution center
D. Source factory
Identify the theory that seeks to explain why firms often prefer foreign direct
investment over licensing as a strategy for entering foreign markets.
A. Internalization theory
B. Product life-cycle theory
C. Perfect markets theory
D. Random walk theory A branch of economic theory known as internalization theory
seeks to explain why firms often prefer foreign direct investment over licensing as a
strategy for entering foreign markets (this approach is also known as the market
imperfections approach).
Which of the following is true of HIPCs?
A. About 100 nations fall in this category.
B. The average debt burden has never been more than 75% of the value of the HIPC’s
economy.
C. Servicing heavy debt leaves HIPCs with little left to invest in public infrastructure.
D. The annual costs of serving debt consumes about 30% of HIPC export earnings.
The risk that arises from volatile changes in exchange rates is known as _____.
A. translational exposure
B. foreign exchange risk
C. economic exposure
D. transactional exposure
_____ is achieved by comparing actual performance against targets and intervening
selectively to take corrective action.
A. Personal control
B. Cultural control
C. Bureaucratic control
D. Output control
