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Chapter 02 - International Trade and Foreign Direct Investment
Answers to End of Chapter Questions
1. How has trade in merchandise and services changed over the past decade? What have been
the major trends? How might this information be of value to a manager?
The volume of international trade in merchandise and services exceeded $4 trillion in 1990. Fourteen
years later, international trade had more than doubled to $11 trillion! Trade in services has also
2. Knowing the nation is a major trade partner of another signifies what to a marketing analyst?
The following is a listing in no particular order of the advantages to focusing on a marketing analyst:
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Chapter 02 - International Trade and Foreign Direct Investment
3. Describe mercantilism and explain why mercantilism has been argued to be a poor approach
to use in order to promote economic development and prosperity.
Mercantilism is an economic philosophy based on the belief that (1) a nation’s wealth depends on
4. a. Explain Adam Smith’s theory of absolute advantage.
b. How does Ricardo’s theory of comparative advantage differ from the theory of absolute
advantage?
a. According to Adam Smith’s theory of absolute advantage, each nation should specialize in
5. “The greater part of international trade consists of an exchange of raw materials from
developing nations for manufactured goods from developed nations.” True or false? Explain.
This statement is false, but with modification. More than half the exports from developing nations are
6. Name some products that you believe have passed through the four stages of the international
product life cycle.
7. Use Porter’s Diamond Model of national advantage to explain why an emerging market such
as Indonesia would be expected to experience great difficulty in achieving global
competitiveness in a new industry sector such as “smart” cell phones or hybrid electric-gasoline
automobile engines.
An emerging market such as Indonesia would be expected to experience great difficulty in achieving
global competitiveness in a new industry sector such as “smart” cell phones or hybrid
electric-gasoline automobile engines because:
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Chapter 02 - International Trade and Foreign Direct Investment
8. What are the different components of foreign investment? Why has the distinction between
them begun to blur in recent years?
Investment into different countries can be divided into two components: portfolio investment and
9. How have the level and direction of FDI changed over the past decade, both overall as well as
in terms of annual outflows? Why would this information be of relevance to managers?
The textbook indicates that it is difficult to make an accurate determination of the present value we
10. According to theories presented in this chapter, why do companies engage in foreign direct
investment?
Each of the trade theories presented in this chapter offer an explanation for why companies engage in
GlobalEDGE Answers
Exercise One
1. A.T. Kearney’s annual Global Services Location Index (GSLI) evaluates the attractiveness of
countries as an offshore destination. Locate the most recent study and prepare a short report
addressing the following questions: How is the Global Services Location Index calculated?
According to the ranking, which ten countries are the best destinations for providing outsourcing
activities? Why do you think these countries are attractive as potential location for offshore
services?
Answer:
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Chapter 02 - International Trade and Foreign Direct Investment
Exercise Two
2. You are working at an automotive company which is currently searching for new opportunities for
investment in emerging countries. Visit the FDI.net web portal and find potential investment
opportunities in the automotive sector. In which countries are the opportunities being offered?
Select one of these opportunities and prepare a brief report summarizing what it entails.
Answer:
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