6 Chapter Quiz

This activity contains 28 questions.

Use the following Study Question to answer Question 1:

STUDY QUESTION 1: Why is the understanding of
international trade theory useful to managers in
international business?

An understanding of trade theory helps managers understand

_____.
customers' attitudes toward foreigners

where products may be produced more efficiently

the relative ease of transferring managers abroad

whether barter is preferable to cash transactions

Use the following Study Question to answer Question 2:

STUDY QUESTION 3: Explain absolute advantage and the
determinants of it.

Which of the following would be an example of a natural

advantage rather than an acquired advantage for South Africa in
world trade?
its multicultural and multi-ethnic society

its termination of racially mandated discrimination

its abundant wildlife

its fairly skilled labor force

Use the following Study Question to answer Question 3:

STUDY QUESTION 5: What assumptions underlie the theories of
specialization in international trade? What are the limitations of
these assumptions?

Which of the following is assumed by the theories of country

specialization?
Output will increase through specialization.

Factors of production will move to the countries offering them higher

returns.
Countries should exchange products with natural advantages for products
with acquired advantages.
Unemployment resulting from free trade will disappear as more people
work in transporting goods longer distances.
Use the following Study Question to answer Question 4:
STUDY QUESTION 7: Explain the logic of the factor proportions
theory and the complexities in applying it.

Assume that country A has a population density of 400 people

per square mile and its neighbor, country B, has a density of 50
people per square mile. Which of the following would likely
happen according to the factor proportions theory?
A will send capital intensive goods to B in exchange for natural resources.

A will send land intensive goods to B in exchange for labor intensive

goods.
A will send goods to B for which it has an acquired advantage in exchange
for goods for which B has a natural advantage.
A will send labor intensive goods to B in exchange for land intensive
goods.

Use the following Study Question to answer Question 5:

STUDY QUESTION 8: Why do most world trades occur
among countries with similar characteristics?

Why do high income countries primarily trade with each other?

High income countries have most of the world's natural resources.

High income countries have most of the world's population.

High income countries produce and consume more.

High income countries subsidize their agricultural production.

Use the following Study Question to answer Question 6:

STUDY QUESTION 9: How and why does production of many
products shift from one country to another as they go through
their life cycles (product life cycle theory of trade and
investment)?

Which of the following best explains why high income countries

have an advantage in the production and sale of products in their
introduction stage?
They can produce on a large scale.

Their capital intensive production methods save costs at this stage.

They have fewer environmental restrictions.

They have a near-monopoly position at this point.

Use the following Study Question to answer Question 7:

STUDY QUESTION 11: What is a strategic trade policy and
 its limitations?

Which of the following is a possible limitation to the success of a

strategic trade policy?
Governments find difficulty in identifying and targeting the right
industries.
In time of national emergency, almost any industry may be considered
strategic.
While such policies are feasible for high income countries, low income
countries lack sufficient entrepreneurs to implement the policies.
Such policies are opposed by workers because they increase income
inequality between managers and workers.

Use the following Study Question to answer Question 8:

STUDY QUESTION 12: What are the four conditions in the
Porter Diamond? What are the uses and limitations of the
Porter Diamond?

A use of the Porter Diamond is to _____.

add diamonds in addition to gold as part of nation's holdings of reserves

helps predict how the location of products' production will move from the
original home country to other countries and then, if successful, back
home again
identify and develop the right conditions to help countries become
competitive for specific products
protect against trademark infringement

Use the following Study Question to answer Question 9:

STUDY QUESTION 13: Why do production factors move from
one country to another?

Although countries lose potentially productive resources when

educated people leave, they gain by _____.
the influx of approximately the same number of people from abroad

having more income per capita for their remaining population

receipt of remittances from the people working abroad

receipt of foreign aid to compensate for the loss

Use the following Study Question to answer Question 10:

STUDY QUESTION 15: Explain the relationship between
international trade and factor mobility from the standpoint
of cost reduction.

From a global standpoint, the lowest production costs occur

when _____.
trade is mobile internationally and factors of production are not

both trade and factor of production are mobile internationally

factors of production are mobile internationally and trade is not

neither factors of production nor trade are mobile internationally

Use the following Study Question to answer Question 11:

STUDY QUESTION 2: What are mercantilism and
neomercantilism and the arguments for against them?

Neomercantilism is a modern belief that countries should amass

holdings of gold as reserves.

True

False

Use the following Study Question to answer Question 12:

STUDY QUESTION 4: Explain comparative advantage and how it
differs from absolute advantage.

Comparative advantage differs from absolute advantage in that it

considers countries' acquired advantages in addition to their
natural advantages as bases of trade.

True

False

Use the following Study Question to answer Question 13:

STUDY QUESTION 5: What assumptions underlie the theories of
specialization in international trade? What are the limitations of
these assumptions?

The theories of specialization in international trade assume that

countries have economic efficiency objectives.

True

False

Use the following Study Question to answer Question 14:

STUDY QUESTION 6: Why are large countries usually less
dependent on international trade than small countries are?

Large countries usually depend more on imports as a percentage

of consumption and exports as a percentage of production than
small countries.

True

False

Use the following Study Question to answer Question 15:

STUDY QUESTION 8: Why does most world trade occur among
countries with similar characteristics?

A reason that high income countries trade so much with each

other is that their companies specialize by apportioning their
reach efforts more to some sectors than to others.

True

False

Use the following Study Question to answer Question 16:

STUDY QUESTION 9: How and why does production of many
products shift from one country to another as they go through
their life cycles (product life cycle theory of trade and
investment)?

According to the product life cycle (PLC) theory of trade, the

output from foreign production in the growth stage is sold
primarily in the countries where the production takes place.

True

False

Use the following Study Question to answer Question 17:

STUDY QUESTION 10: What are the tests and limitations of the
product life cycle (PLC) theory of trade and investment?

Products with extremely short product life cycles are more apt to
adhere to the product life cycle theory of trade and investment
than products with long life cycles.

True

False
Use the following Study Question to answer Question 18:
STUDY QUESTION 11: What is a strategic trade policy and its
limitations?

A strategic trade policy holds that entrepreneurs, rather than

government policy makers, should decide a country's future
industrial emphasis.

True

False

Use the following Study Question to answer Question 19:

STUDY QUESTION 12: What are the four conditions in the Porter
Diamond? What are the uses and limitations of the Porter
Diamond?

The Porter Diamond is a theory holding that domestic conditions

need to be favorable to develop globally competitive companies
therein.

True

False

Use the following Study Question to answer Question 20:

STUDY QUESTION 14: What are the effects of international factor
mobility on origin and destination countries?

The foreign-born percentage of the population is significant

(over 20 percent) in some countries but insignificant (less than 2
percent) in others.

True

False

What do mercantilism and neomercantilism have in

common?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are the major differences between the theories of
absolute advantage and comparative advantage?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What is country-similarity theory?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 Does the international PLC theory still seem valid?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What are the conditions listed as important for competitive

superiority in the Porter diamond?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Based on your experience, do you think the US or your

region has absolute or comparative advantage? Take an
inventory of the items in your house or apartment and
determine their origin. What do you learn from this?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 Some countries have supported import substitution policies,
aiming at a kind of autarky feeling they would stimulate
their economies if they produced everything themselves.
Would your state be able to provide all your needs? Check
how many staples your state brings in for your everyday
needs.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Does your state have a policy to develop foreign exports for

its firms? Check out your local government sites to see what
actions and agencies they provide.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
7 Chapter Quiz

This activity contains 28 questions.

Use the following Study Question to answer Question 1:

STUDY QUESTION 1: What is trade protectionism, and why
is an understanding of it useful for managers?

Why is an understanding of trade protectionism useful for

managers?
It helps for determining whether to collude with competitors.

Governmental measures may limit your ability to sell abroad.

It helps in determining the least cost production location.

Governmental corruption raises the cost of operating.

Use the following Study Question to answer Question 2:

STUDY QUESTION 3: Explain the argument for using
protectionism to reduce unemployment. Why might the
protectionism not fully work as planned?

Assume a country imposes import restrictions to reduce its

unemployment. Which of the following may prevent employment
from increasing?
Imports will simply increase from another country, which is not affected
by the restrictions.
Experience shows that exporters usually lower their prices to maintain
market share.
Other industries may become uncompetitive because of having to use
higher priced domestic inputs.
Workers prefer to use unemployment benefits rather than go back to
work.

Use the following Study Question to answer Question 3:

STUDY QUESTION 5: Why do developing countries sometimes
impose import restrictions to increase their levels of
industrialization? What problems might result from these
restrictions?

An argument for developing countries' use of import restrictions

to promote industrialization is premised on the belief that _____.
the decrease in agricultural employment will have minimal effect on
agricultural production, while increasing output in the manufacturing
sector
high income countries will lower their import barriers more readily for
manufactured than for agricultural products
technological developments, such as in gene splicing, will cause
developing countries to become non-competitive in agricultural production
more industrial jobs will reverse the adverse effects of the brain drain

Use the following Study Question to answer Question 4:

STUDY QUESTION 7: Explain why and how governments
impose trade restrictions to improve their relative trade
positions.

What is the economic rationale for the comparable access

argument in world trade?
Consumers are better off if their countries' export and import the same
category of products, such as both exporting and importing automobiles.
By running a favorable balance of trade, a country hurts employees and
consumers in a country with a trade deficit.
Excess demand in one country raises world prices that adversely affect
consumers in countries where demand is lower.
Domestic producers may be disadvantaged in cost of production if their
access to foreign markets is less than foreign producers' access to their
market.
 Use the following Study Question to answer Question 5:
STUDY QUESTION 8: Why might governments enact export
restrictions? What are the possible negative consequences
of these restrictions?

A reason for export restrictions is to _____.

lower prices in foreign markets

lower prices in domestic markets

promote added foreign production

promote more domestic production

Use the following Study Question to answer Question 6:

STUDY QUESTION 9: Explain the price control objectives
from import restrictions.

From the standpoint of trying to control price, why might a

country impose import restrictions?
to raise prices within "unfriendly" countries

to lower prices for domestic consumers

to foster competition among supplying countries

to prevent dumping that puts domestic producers out of business

Use the following Study Question to answer Question 7:

STUDY QUESTION 11: Define and explain the different types
of tariffs (duties).

Which of the following is an example of an import tariff?

Canada charges a 10 percent tax on shirts made in the United States.

The United States charges a 5 percent tax on Mexican made shirts passing
through to Canada.
Mexico charges a 5 percent tax on shirts leaving Mexico, whether destined
to the United States or to Canada.
The United States foregoes charging its customary 10 percent tax on
foreign made shirts for shirts made in Canada because of the free trade
agreement between the two countries.

Use the following Study Question to answer Question 8:

STUDY QUESTION 12: Define and explain the non-tariff
barriers that directly affect prices to limit trade.

Which of the following makes customs valuation difficult?

 There is disagreement on what is a subsidy.

When there are compound duties, ad valorem duties have to be adjusted

downward.
There may be difficulty in determining under which product classification
the tariff should be assessed.
It is sometimes hard to distinguish between foreign aid and foreign loans.

Use the following Study Question to answer Question 9:

STUDY QUESTION 13: List and explain the nontariff barriers
that limit the quantity of goods traded.

Administrative delays in moving goods internationally are

considered trade barriers because _____.
they may cause goods to be cleared at night when customs passes on
over-time charges to the traders
donors of foreign aid insist on the aid being spent in their own countries

they create uncertainty and raise the cost of carrying inventory

many services are handled as national monopolies

Use the following Study Question to answer Question 10:

STUDY QUESTION 15: When a company faces import competition
that threatens its market position, what alternatives might it
follow?

Assume a company wants to receive protection from import

competition. Which of the following is a means to help it achieve
this protection?
move into more profitable niches

ally with other companies in their industry

buy more components from foreign countries

divert more sales to export markets

Use the following Study Question to answer Question 11:

STUDY QUESTION 2: What are the conflicting results of
trade policies?

Consumers typically withhold the purchase of foreign made

products that threaten the continued employment of domestic
workers.

True

False
Use the following Study Question to answer Question 12:
STUDY QUESTION 4: Explain the rationale for and problems of
making the infant industry argument work as intended.

The infant industry argument for protectionism assumes that

increased worker efficiency will compensate for poor economies
of scale in production.

True

False

Use the following Study Question to answer Question 13:

STUDY QUESTION 5: Why do developing countries sometimes
impose import restrictions to increase their levels of
industrialization? What problems might result from these
restrictions?

Support for using import controls to spur industrialization in

developing countries is partially based on the historical
deterioration of the terms of trade for raw materials and
agricultural products.

True

False

Use the following Study Question to answer Question 14:

STUDY QUESTION 6: Compare import substitution policies with
export-led development policies.

Recently, most developing countries have shifted interest in

favor of import substitution as opposed to export-led
development policies.

True

False

Use the following Study Question to answer Question 15:

STUDY QUESTION 8: Why might governments enact export
restrictions? What are the possible negative consequences of
True
these restrictions?
False
Export restrictions to lower domestic prices may influence
 Use the following Study Question to answer Question 16:
STUDY QUESTION 9: Explain the price control objectives
from import restrictions.

The optimum-tariff theory holds that an import tariff causes

foreign producers to lower their prices.

True

False

Use the following Study Question to answer Question 17:

STUDY QUESTION 10: What are the noneconomic rationales for
governmental intervention in the free movement of trade? What
problems exist in using protectionism to achieve the
noneconomic objectives?

Proponents of trade sanctions argue that they should be imposed

on countries following unacceptable practices even if the
sanctions don't cause those practices to change.

True

False

Use the following Study Question to answer Question 18:

STUDY QUESTION 11: Define and explain the different types
of tariffs (duties).

The term effective tariff refers to a tariff that achieves its

objective.

True

False

Use the following Study Question to answer Question 19:

STUDY QUESTION 12: Define and explain the non-tariff
barriers that directly affect prices to limit trade.
True
There is general agreement on what constitutes a subsidy in
False
international trade.
 Use the following Study Question to answer Question 20:
STUDY QUESTION 14: What are the main arguments for
limiting trade in services?

Differences among countries in licensing standards for

professions inhibit international trade in services.

True

False

According to your text, what are the main economic

rationales for government intervention in trade?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

According to your text, what are the main economic

rationales for government intervention in trade?
To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are the major instruments of trade control used by
governments?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

One of the most used methods of trade control is quantity

controls. What forms can they take?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What advice is given to companies who are facing import

competition?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 Can you find examples of where government intervention
by other countries hindered the import of US goods? Seek
examples on the Internet under the search expressions
'boycott' or 'restrictions on US imports'.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Make a list of imports you think the US would try to restrict

and check it through research.
To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 Protection of infant industry has often been a rationale for
government control. In your region, do you know of any
infant industries that need possible government protection
in order to survive?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

8 Chapter Quiz

This activity contains 28 questions.

Use the following Study Question to answer Question 1:

STUDY QUESTION 1: What are three ways to approach
economic integration? How do they differ?

A good example of regional economic integration is:

the European Union.
 the World Trade Organization.

a bilateral trade agreement involving countries from two different regions.

any trade group that involves no more than two countries from the same
region.

Use the following Study Question to answer Question 2:

STUDY QUESTION 3: Compare and contrast the WTO and its
predecessor, GATT.

A major difference between the WTO and GATT is that:

the WTO has a more effective enforcement mechanism than did GATT.

GATT only involved the industrial countries, whereas the WTO includes
developing countries as well.
the WTO is trying to eliminate non-tariff barriers, whereas GATT
encouraged their use.
GATT involves trade in goods, whereas the WTO involves trade in services.

Use the following Study Question to answer Question 3:

STUDY QUESTION 4: Why is geographic proximity an
important reason for economic integration?

The U.S., Canada, and Mexico formed a regional trade group,

because:
the long distances between the countries made it more likely they would
trade with each other.
neighboring countries are more willing to coordinate their economic
policies.
their tastes and preferences are more similar to each other than they are
to any other countries in the world.
they tried to form a regional group with the European Union but were not
allowed to join due to differences in legal systems.

Use the following Study Question to answer Question 4:

STUDY QUESTION 5: What are the types of economic integration
and the differences among these types?

A regional economic group that has the same external tariff

levied on goods that are imported from non-member countries is
an example of:
a free trade agreement.

a common area.

a foreign trade zone.

a customs union.
 Use the following Study Question to answer Question 5:
STUDY QUESTION 6: Explain the static effects of regional
economic integration. Under what conditions may they
develop?

An example of a static effect of regional economic integration is

where:
an overall growth in the market results from expanding production and
economies of scale.
resources are shifted from inefficient to efficient companies as trade
barriers fall.
resources are shifted from efficient to inefficient companies due to rising
tariffs.
market size falls due to rising competition.

Use the following Study Question to answer Question 6:

STUDY QUESTION 7: What is the difference between trade
creation and trade diversion resulting from regional economic
integration?

Assume that a U.S. company used to import cheap products from

Thailand. However, the reduction in tariffs between the U.S. and
Mexico due to the passage of NAFTA now makes it cheaper to
buy the same goods from Mexican suppliers. This is an example
of:
trade creation.

a customs union.

trade diversion.

economies of scale.

Use the following Study Question to answer Question 7:

STUDY QUESTION 9: What is the euro and the rationale for
it?

The euro is _________ .

the common currency of the European Union

always stronger than the U.S. dollar since it represents more countries

is now the most widely traded currency in the world

a major barrier to trade inside of Europe since its value differs from
country to country
 Use the following Study Question to answer Question 8:
STUDY QUESTION 12: What was the rationale for NAFTA?

The North American Free Trade Agreement:

resulted in raising internal tariffs while lowering external tariffs.

is not a customs union at this point.

has a common currency modeled after the U.S. dollar.

is a good example of trade creation but not trade diversion.

Use the following Study Question to answer Question 9:

STUDY QUESTION 14: How has NAFTA impacted trade and
employment?

As a result of the NAFTA agreement, __________

trade and investment among the three member countries has dropped
due to political differences.
the European Union has become a major partner of NAFTA, extending the
benefit of NAFTA to the other side of the Atlantic.
trade and investment among the three member countries has increased
dramatically.
illegal immigration between Mexico and the U.S. has almost disappeared.

Use the following Study Question to answer Question 10:

STUDY QUESTION 16: What are two basic types of
commodity agreements? How do they differ?

A producer's alliance (commodity agreement):

is best illustrated by OPEC.

involves producing countries but not exporting countries.

involves exporting countries but not importing countries.

is not permitted by the U.N. to use quotas or buffer stock systems to

control inventory.

Use the following Study Question to answer Question 11:

STUDY QUESTION 1: What are three ways to approach
economic integration? How do they differ?

The European Union is an example of bilateral integration.

True

False
 Use the following Study Question to answer Question 12:
STUDY QUESTION 2: Why are regional trade groups
important for MNEs' strategies?

Due to tariff reduction policies, regional trading groups can

influence where companies trade and invest.

True

False

Use the following Study Question to answer Question 13:

STUDY QUESTION 3: Compare and contrast the WTO and its
predecessor, GATT.

Normal trade relations is a WTO mechanism that permits

countries to reduce tariffs in normal situations, but generally
does not extend tariff-cutting provisions to all member countries.

True

False

Use the following Study Question to answer Question 14:

STUDY QUESTION 4: Why is geographic proximity an important
reason for economic integration?

Geographic proximity is not an important issue in establishing

regional trading groups since air travel is so much faster than it
used to be.

True

False

Use the following Study Question to answer Question 15:

STUDY QUESTION 6: Explain the static effects of regional
economic integration. Under what conditions may they develop?

The increase in market size that results from regional integration

is an example of a dynamic effect of integration.

True

False
Use the following Study Question to answer Question 16:
STUDY QUESTION 7: What is the difference between trade
creation and trade diversion resulting from regional economic
integration?

Trade creation occurs when countries reduce tariffs and

production shifts from protected to more efficient industries,
thus resulting in an increase in trade.

True

False

Use the following Study Question to answer Question 17:

STUDY QUESTION 8: What are the functions of the European
Commission, European Council, European Parliament, and
European Court of Justice?

The European Commission is the EU's major decision-making

body and is composed of the different ministers of the member
countries.

True

False

Use the following Study Question to answer Question 18:

STUDY QUESTION 12: What was the rationale for NAFTA?

NAFTA is an example of a customs union.

True

False

Use the following Study Question to answer Question 19:

STUDY QUESTION 13: What are the rules of origin and local
content provisions of NAFTA?

Rules of origin in NAFTA require that goods have at least 20

regional content in order to be eligible for the tariff-reduction
provisions of NAFTA.

True

False
 Use the following Study Question to answer Question 20:
STUDY QUESTION 14: How has NAFTA impacted trade and
employment?

Trade and investment in NAFTA have increased dramatically

since the agreement was signed.

True

False

What have been the objectives of the GAAT and WTO since
WWII?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What have been the major differences between the GATT

and WTO?
To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are the major characteristics of the regional economic
integration that has taken place?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

According to your text, what are the implications of the EU

for corporate strategy?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What are the implications of NAFTA for corporate strategy?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 You are studying international business and are
increasingly aware of the regional trade integration
organizations. How many of your classmates are? Take a
poll and see how many of them are aware of one for each
area of the world. Then see if they have an idea of what
countries are members.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Farm subsidies have been a thorny subject of discussion for the

GAAT and WTO for decades. See if your region has a position on
these by researching on the Internet. Is your region or state a
major agricultural supplier? What are its major farm products?
Does it have a lobbying organization? What are the opinions they
have expressed on subsidies either granted to local producers or
to producers in other parts of the world?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 You probably have classmates from different areas of the
world. Interview them on the subject of subsidies and tariff
barriers to get an 'outsider's' opinion.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
9 Chapter Quiz

This activity contains 28 questions.

Use the following Study Question to answer Question 1:

STUDY QUESTION 1: What are foreign exchange and the
exchange rate?

If you are traveling abroad and want to exchange one currency

into another, what do you call the price of the currency?
The exchange rate.

The currency tariff.

The arbitrage rate.

The free market rate.

Use the following Study Question to answer Question 2:

STUDY QUESTION 2: Explain the differences among spot
transactions, forward transactions, and futures contracts.
the spot market

theexpect
If you forwardto
market
receive payment from a foreign buyer in a
foreign currency
the future spot in 90 days, which foreign exchange market do
market
you enter into now to make sure you can convert the future
the spot
foreign forwardamounts
currency market into your currency at a fixed exchange
rate?
Use the following Study Question to answer Question 3:
STUDY QUESTION 3: For what reasons are U.S. dollars so widely
traded?

The major currency in the world that is considered an

intervention currency employed by monetary authorities in
market operations to influence their own exchange rates is the
________________.
Special Drawing Right

Chinese yuan

market basket consisting of the euro and the British pound

U.S. dollar

Use the following Study Question to answer Question 4:

STUDY QUESTION 4: What are the four biggest markets
(locations) for foreign exchange trades?

The biggest market in foreign exchange is found in which of the

following cities.
Shanghai, China

Frankfurt, Germany

London, England

New York City, USA

Use the following Study Question to answer Question 5:

STUDY QUESTION 5: Define a foreign exchange bid, offer,
and spread.

In foreign exchange transactions, the bid rate is:

the rate at which the trader buys foreign exchange.

the rate at which the buyer buys foreign exchange.

the difference between the rate at which the foreign exchange trader buys
and sells foreign currency.
typically higher for exotic currencies.

Use the following Study Question to answer Question 6:

STUDY QUESTION 6: What is meant by a discount or premium
between the spot and forward exchange rates?
The British pound/U.S. dollar exchange rate is $1.7205 in the
spot market and $1.7223 six months forward. In this case,
British pounds are trading ________
at a discount in the forward market.

at a premium in the forward market.

at a discount in the spot market.

at a negative spread.

Use the following Study Question to answer Question 7:

STUDY QUESTION 7: What is a foreign exchange option?

Assume that you expect to receive a dividend in foreign currency

in 30 days. In order to protect yourself against a possible foreign
exchange loss, you enter into a contract with a foreign exchange
trader to sell foreign exchange for your currency, and you retain
the right but not the obligation to trade the currency. This type
of contract is known as a(n) _________
option.

futures contract.

forward contract.

spread contract.

Use the following Study Question to answer Question 8:

STUDY QUESTION 8: What is the difference between hard
and soft currencies?

A currency that is not always freely convertible into other

currencies is known as a ____________ .
hard currency

forward currency

soft currency

Asian currency

Use the following Study Question to answer Question 9:

STUDY QUESTION 9: What is a multiple exchange rate
system?

The government typically determines different exchange rates to

attach to specific transactions in which exchange rate system?
 A free-floating system.

A multiple exchange rate system.

A spot/forward system.

A hard but not soft currency system.

Use the following Study Question to answer Question 10:

STUDY QUESTION 12: What institutions do companies use
for exchange currencies?

Most foreign exchange trades take place in which market?

Asia

the OTC market

the futures market

the options market

Use the following Study Question to answer Question 11:

STUDY QUESTION 1: What are foreign exchange and the
exchange rate?

The exchange rate is the number of units of one currency to buy

a unit of another currency.

True

False

Use the following Study Question to answer Question 12:

STUDY QUESTION 2: Explain the differences between spot
transactions, forward transactions, and futures contracts.

A futures contract is between a client and its bank for future

delivery of currency.

True

False

Use the following Study Question to answer Question 13:

STUDY QUESTION 3: For what reasons are U.S. dollars so
widely traded?
Since the euro has combined all of the currencies in Europe
together into one currency, it is now the most widely traded
currency in the world.

True

False

Use the following Study Question to answer Question 14:

STUDY QUESTION 4: What are the four biggest markets for
foreign exchange trades?

Since the U.S. has the largest economy in the world and its
currency is the most widely traded currency in the world, New
York is the largest market for foreign exchange.

True

False

Use the following Study Question to answer Question 15:

STUDY QUESTION 5: Define a foreign exchange bid, offer,
and spread.

The difference between the bid and offer rate in foreign

exchange is known as the spread.

True

False

Use the following Study Question to answer Question 16:

STUDY QUESTION 6: What is meant by a discount or premium
between the spot and forward exchange rates?

If a foreign currency is expected to strengthen in the future

against another currency, it is selling at a discount in the forward
market.

True

False

Use the following Study Question to answer Question 17:

STUDY QUESTION 7: What is a foreign exchange option?
A foreign exchange option is the right but not the obligation to
trade currency in the future.

True

False

Use the following Study Question to answer Question 18:

STUDY QUESTION 8: What is the difference between hard
and soft currencies?

A hard currency is typically freely convertible.

True

False

Use the following Study Question to answer Question 19:

STUDY QUESTION 9: What is meant by a multiple exchange
rate system?

In a multiple exchange rate system, market forces assign

different exchange rates to different types of transactions.

True

False

Use the following Study Question to answer Question 20:

STUDY QUESTION 12: What institutions do companies use
for exchanging currencies?

Commercial banks are the only financial institutions that deal in

foreign exchange.

True

False

What are the two major segments of the foreign exchange

market and what are their differences?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are the major foreign-exchange instruments?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What is the difference between a forward contract and a

future?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are the major ways firms use foreign exchange?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What are the different kinds of bonds used on the

international bond market?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Have you every bought foreign currency for a trip? Was

there a bid and offer price used in your transaction? Was
the quote made in American terms?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 Have you ever engaged in a forward contract yourself? Try
to imagine something you did that resembles a forward
contract.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
10 Chapter Quiz

This activity contains 28 questions.

Use the following Study Question to answer Question 1:

STUDY QUESTION 1: What is the International Monetary
Fund (IMF)? What are its objectives?

The major role of the International Monetary Fund is to

____________ .
help reduce tariffs worldwide

provide funding for infrastructure development projects

ensure that all exchange rates are rising in value

promote exchange rate stability

Use the following Study Question to answer Question 2:

STUDY QUESTION 3: List and define the categories of
exchange rate regimes.

A pegged exchange rate is one that:

is locked onto the value of another currency.

changes in value due to market forces.

the IMF manages for a country.

is not permitted in world trade.

Use the following Study Question to answer Question 3:

STUDY QUESTION 4: What is a black market?

A foreign exchange market where people are willing to pay more

for hard currency than at the official exchange rate is known as
__________
a semi-official market.

a black market.

a managed float market.

a pegged market.

Use the following Study Question to answer Question 4:

STUDY QUESTION 5: What is the role of central banks? How
do they carry out this role?
If the European Central Bank decides to sell euros for U.S.
dollars, it is trying to __________
raise the value of the euro.

weaken the value of the dollar.

change the euro to a freely floating currency.

weaken the value of the euro.

Use the following Study Question to answer Question 5:

STUDY QUESTION 7: How does a floating exchange rate
system work?

Currencies that respond to supply and demand conditions free

from government intervention are known as __________ .
freely floating currencies

managed exchange rate systems

pegged exchange rate systems

weak currencies

Use the following Study Question to answer Question 6:

STUDY QUESTION 8: How does a government maintain a
currency value in a managed fixed rate system?

In what type of foreign exchange system does the government

determine the price of the currency?
a freely floating system

a managed fixed rate system

a Central Bank system

a purchasing power parity system

Use the following Study Question to answer Question 7:

STUDY QUESTION 9: Explain the adjustment system that
enables a pegged currency system to work.
devaluation

In a revaluation
pegged exchange rate system, lowering the value of a
currency is known
purchasing power as __________ .
parity

free floating
Use the following Study Question to answer Question 8:
STUDY QUESTION 10: Explain how inflation affects currency
values according to the purchasing power parity (PPP) theory.

According to purchasing power parity theory, if British inflation

were 5 percent and U.S. inflation were 3 percent, the dollar
would be expected to _______ against the British pound.
rise

fall

stabilize

reverse

Use the following Study Question to answer Question 9:

STUDY QUESTION 13: What is the difference between
fundamental forecasting and technical forecasting of
exchange rates?

Which type of forecasting uses past trends in exchange rates to

predict future exchange rates?
Fundamental forecasting

Technical forecasting

Issues-based forecasting

Qualitative forecasting

Use the following Study Question to answer Question 10:

STUDY QUESTION 16: Why do we need to bother with
predicting exchange rate changes?

How is the marketing function affected by exchange rate

changes?
Changes in exchange rates must get passed on to the consumer.

Exchange rate movements usually result in foreign exchange gains that

allow exporters to drop prices.
If the currency of an exporter drops in value, it allows the exporter lower
export prices or keeps the price the same and increases profit margins.
Exchange rate changes are always negative to exporters when the
currency falls in value and positive when the currency rises in value.
 Use the following Study Question to answer Question 11:
STUDY QUESTION 1: What is the International Monetary
Fund (IMF)? What are its objectives?

The major objective of the International Monetary Fund is to

reduce tariffs so that countries trade more.

True

False

Use the following Study Question to answer Question 12:

STUDY QUESTION 3: List and define the categories of
exchange rate regimes.

A freely floating currency is allowed to change in value according

to market forces.

True

False

Use the following Study Question to answer Question 13:

STUDY QUESTION 4: What is a black market?

A black market in foreign currency arises because a currency is

stronger than it should be.

True

False

Use the following Study Question to answer Question 14:

STUDY QUESTION 5: What is the role of central banks? How do
they carry out this role?

Although the Federal Reserve Bank in the U.S. is responsible for

overseeing policies concerning the U.S. dollar, it is not allowed to
intervene in markets.

True

False

Use the following Study Question to answer Question 15:

 STUDY QUESTION 6: In what forms do central banks hold
their assets?

Central banks are allowed to hold currencies and SDRs as

reserve assets.

True

False

Use the following Study Question to answer Question 16:

STUDY QUESTION 7: How does a floating exchange rate
system work?

Since the U.S. dollar is pegged to the euro, it does not have a
floating exchange rate regime.

True

False

Use the following Study Question to answer Question 17:

STUDY QUESTION 8: How does a government maintain a
currency value in a managed fixed rate system?

In a managed fixed exchange rate system, the government

closely monitors currency values but lets market forces
determine the value of the currency.

True

False

Use the following Study Question to answer Question 18:

STUDY QUESTION 10: Explain how inflation affects currency
values according to the purchasing power parity (PPP) theory.

According to purchasing power parity theory, the relative

difference in inflation should cause a change in exchange rates.

True

False

Use the following Study Question to answer Question 19:

STUDY QUESTION 11: What is the Big Mac index, and what
 are its limitations?

According to the Big Mac index, actual exchange rates should

mirror the price difference of a Big Mac between two different
countries.

True

False

Use the following Study Question to answer Question 20:

STUDY QUESTION 12: What is the relationship between the
Fisher Effect and the International Fisher Effect in terms of
currency values?

According to the International Fisher Effect, changes in exchange

rates should affect changes in interest rates.

True

False

What is meant by dollarization?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What are the roles played by the IMF?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are SDRs?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What is the major purpose of the Euro?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 How do managers forecast exchange-rate movements?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What is the current value of the SDR? How do you find it?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

How often do you pay attention to exchange rates? Is it

often covered on the news? Why?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 If you have worked for or know people who work for a
business with international involvement, ask them if
exchange rates are important to their activity and how.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

11 Chapter Quiz
This activity contains 28 questions.

Use the following Study Question to answer Question 1:

STUDY QUESTION 5: How does a firm create value in terms
of differentiation?

A strategy that focuses on increasing the actual or perceived

attractiveness of a product is referred to as a: ______________ .
differentiation strategy

optimization strategy

low cost leadership strategy

efficiency strategy

Use the following Study Question to answer Question 2:

STUDY QUESTION 6: What is the value chain?

Value chain activities can be categorized as:

primary activities and support activities.

primary activities and secondary activities.

input activities and throughput activities.

profitable activities and unprofitable activities.

Use the following Study Question to answer Question 3:

STUDY QUESTION 6: What is the value chain?

In the context of value chain analysis, the support activities:

provide inputs that allow the primary activities to take place.

include the organizational structure, coordination systems, and culture of

the firm.
include the design, creation, and delivery of the product.

involve R&D, human resources, information systems, and the firm

infrastructure.

Use the following Study Question to answer Question 4:

STUDY QUESTION 7: What does the idea of core
competencies refer to? Why should managers pay attention
to it?

The term __________ refers to the skills within the firm that
competitors cannot easily match or imitate.
 indigenous properties

discriminate abilities

special attributes

core competencies

Use the following Study Question to answer Question 5:

STUDY QUESTION 8: What conditions influence how MNEs
configure and coordinate their value chains?

Research of cost behavior in many industries indicates that a

company can often cut its costs by 20 to 30 percent each time its
cumulative output doubles. This is a phenomenon known as
_____.
value creation

the experience curve

competitive advantage

economies of scope

Use the following Study Question to answer Question 6:

STUDY QUESTION 8: What conditions influence how MNEs
configure and coordinate their value chains?

In theory, a firm that aims to achieve location economies does so

by:
dispersing each of its value creation activities to its optimal location.

basing all its value creation activities at the single best location.

concentrating primary activities in one country and support activities in

another.
consolidating activities given the nature of market demand.

Use the following Study Question to answer Question 7:

STUDY QUESTION 13: What is a multidomestic strategy? What
are its defining characteristics? Why would managers choose this
global
type?
low-cost leadership
A primary reason for adopting a _____ strategy is that in some
multidomestic
cases, cultural, legal-political, and economic conditions may
scientific
dictate different practices from one country to another.
Use the following Study Question to answer Question 8:
STUDY QUESTION 13: What is a multidomestic strategy? What
are its defining characteristics? Why would managers choose this
type?

Firms pursuing a _____ strategy orient themselves toward

achieving maximum local responsiveness.
transnational

multidomestic

global

international

Use the following Study Question to answer Question 9:

STUDY QUESTION 15: What is a transnational strategy?
What are its defining characteristics? Why would managers
choose this type?

Transnational companies ________________ .

require effective communication and coordination networks among their
different units worldwide
mostly realize pressures for local responsiveness

centralize production facilities in one location worldwide

must effectively concentrate core competencies in select subsidiaries

Use the following Study Question to answer Question 10:

STUDY QUESTION 15: What is a transnational strategy? What are
its defining characteristics? Why would managers choose this
type?

When new knowledge and capabilities are developed in both the

domestic and foreign locations, both independently and jointly,
and then purposefully transferred throughout the worldwide
organization, the company is following a so-called _____.
multidomestic strategy

transnational strategy

global strategy

matrix strategy
 Use the following Study Question to answer Question 11:
STUDY QUESTION 3: What is Industry Structure? How can
managers interpret it?

Increasing globalization of an industry tends to increase rivalry

among industry members.

True

False

Use the following Study Question to answer Question 12:

STUDY Question 4: How does a firm create value in terms of
low-cost leadership?

A low-cost leadership strategy is a mixture of multidomestic and

global strategies whereby the company attempts to capture the
advantages of both.

True

False

Use the following Study Question to answer Question 13:

STUDY QUESTION 5: How does a firm create value in terms
of differentiation?

The essence of a differentiation strategy is to find unique ways

to appeal to a wide range of buyers.

True

False

Use the following Study Question to answer Question 14:

STUDY QUESTION 6: What is the value chain?

Support activities in the value chain have to do with the design,

creation, and delivery of the product, its marketing, and its
support and after-sale service.

True

False
Use the following Study Question to answer Question 15:
STUDY QUESTION 8: What conditions influence how MNEs
configure and coordinate their value chains?

The economies that arise from performing a value creation

activity in the optimal location for that particular activity are
called geographic economies.

True

False

Use the following Study Question to answer Question 16:

STUDY QUESTION 12: What is an international strategy? What
are its defining characteristics? Why would managers choose this
type?

Companies that choose an international strategy believe they

have core competence that competitors in foreign markets lack.
They also may choose this strategy if the firm faces relatively
weak pressures for local responsiveness and cost reductions.

True

False

Use the following Study Question to answer Question 17:

STUDY QUESTION 13: What is a multidomestic strategy? What
are its defining characteristics? Why would managers choose this
type?

In a multidomestic company, managers in the company's home

country essentially develop competencies and make decisions to
diffuse them globally.

True

False

Use the following Study Question to answer Question 18:

STUDY QUESTION 14: What is a global strategy? What are its
defining characteristics? Why would managers choose this type?
True
A global strategy is one in which the company allows each of its
Falsecountry operations to act fairly independent.
foreign
Use the following Study Question to answer Question 19:
STUDY QUESTION 14: What is a global strategy? What are its
defining characteristics? Why would managers choose this type?

Employing a global strategy involves competing in essentially the

same basic manner in all countries where the firm does business.

True

False

Use the following Study Question to answer Question 20:

STUDY QUESTION 15: What is a transnational strategy? What are
its defining characteristics? Why would managers choose this
type?

The transnational strategy is ideal for companies that gain a

great deal from global integration and need a great deal of
adaptation to local markets.

True

False

What is meant by industry structure and what are its

contributing factors?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

According the Michael Porter (the originator of the 5 forces

model) what are the five forces that define the nature of
 competition?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What are the components making up the firm's value chain?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What are some of the major challenges MNEs face in

managing their international operations?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What is meant by global integration versus local
responsiveness in international strategy?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Have you had a corporate strategy course before this course

in international business? Do you understand in detail what
factors come into play in Porter's Five Forces model? Write
To create paragraphs in your essay response, type <p> at the beginning of the
themand
paragraph, down
</p> on a sheet
at the end. of paper and then check other
sources to see if you understand them well.
 Do you or have you worked for a company that has major
changes in its value chain that you observed or were
involved in?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Make a list with two columns. In column one, write the

products you often buy that seem to need local
responsiveness, and in column two, the products that seem
to need more global integration responsiveness. Does your
list remind you of the examples in the grid in your book?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
12 Chapter Quiz
This activity contains 28 questions.

Use the following Study Question to answer Question 1:

STUDY QUESTION 1: Why do international managers need to
understand how to evaluate countries and select among them for
operations? What are the major considerations in developing an
overall location strategy?

Why is it useful for managers to understand how to evaluate

countries for operations?
Companies must be choosy where they operate because they lack
resources to operate everywhere.
Some countries prohibit wholly owned operations.

The accuracy of information is better for some countries than for others.

Such evaluation is useful for deciding in what part of the value chain to
operate.
 Use the following Study Question to answer Question 2:
STUDY QUESTION 3: What are the major
indicators/variables that are important in comparing
countries for market potential?

When comparing countries for market potential, one can

generally say that _____.
per capita income is the best indicator to use

population size is the best indicator to use

labor costs are important indicators of market size

companies must consider variables other than income and population

when estimating potential demand

Use the following Study Question to answer Question 3:

STUDY QUESTION 5: When using scanning techniques, what
variables are important in indicating where to go to secure
resources?

Comparison of labor costs is especially important when deciding

where ______.
to market a product

there is apt to be high corruption

to locate production

to locate companies' headquarters

Use the following Study Question to answer Question 4:

STUDY QUESTION 7: What is meant by the liability of
foreignness, and how does it influence companies'
international location decisions?

What is meant by the liability of foreignness?

a country's external debt

the lower early survival rate of foreign companies in comparison with local
companies
the preference of consumers to buy locally made products

governmental requirements on FDI that are different from those placed on

local companies
 Use the following Study Question to answer Question 5:
STUDY QUESTION 8: Compare the advantages of locating
foreign operations to avoid where competitors have gone
versus locating where competitors are.

What is meant by first mover advantage?

the higher early failure of foreign than of local companies

gaining advantages over competitors by capturing the best partners,

locations, and suppliers
the move into crowded markets to prevent advantages of competitors

getting a free-ride by following successful competitors in to market

Use the following Study Question to answer Question 6:

STUDY QUESTION 9: How might political risk occur? How
can companies respond to it?

Government takeovers of companies have generally _____.

occurred more frequently when countries have broken apart

resulted in total loss for the companies taken over

have affected local companies more than foreign investors

have usually been preceded by formal declarations of intent and legal

processes to determine compensation

Use the following Study Question to answer Question 7:

STUDY QUESTION 11: Compare the major types of published
data/information managers can use to compare countries. What
are the problems in relying on these data?

Which of the following is a reason for comparability differences

in governmentally provided data from different countries?
difference in base year for data collection

difficulty of translating questions for respondents

cost differences for goods produced in the home

countries differences in accepted corruption

Use the following Study Question to answer Question 8:

STUDY QUESTION 12: Explain how grids and matrices can
be used as tools to compare countries.

A matrix to compare countries _____.

assumes that data are collected from the same sources
 gives a graphical comparison, such as on risk and opportunity

is used more for re-investment than for new investment decisions

assumes that each variable entered has the same weight

Use the following Study Question to answer Question 9:

STUDY QUESTION 13: How should reinvestment and
harvesting be treated in companies' location decisions?

When companies divest foreign facilities, they generally prefer to

do so by _____.
trading that operation for other companies' operations in other countries

shutting down the operation

selling the operation

transferring fixed assets to another country

Use the following Study Question to answer Question 10:

STUDY QUESTION 15: Why do most companies examine
expansion proposals one at a time rather than comparing various
expansion proposals?

When companies receive proposals from other companies to

participate in projects, they generally _____.
make a decision on a go-no-go basis

must harvest another operation to enter this agreement

respond positively only if they are pursuing diversification strategies

consider this as an agglomeration tactic

Use the following Study Question to answer Question 11:

STUDY QUESTION 2: When deciding where to locate production
and sales efforts, how and why might companies use scanning
techniques? How do these techniques differ from the making of
final country selections?

Scanning allows companies to examine large groups of countries

broadly in order to weed out the less potentially lucrative ones.

True

False
Use the following Study Question to answer Question 12:
STUDY QUESTION 4: Explain why/how the ease and
compatibility of operations is important in choosing where to
operate.

Most managers prefer to go where they perceive it's easier to

operate because these locations offer better returns.

True

False

Use the following Study Question to answer Question 13:

STUDY QUESTION 5: When using scanning techniques, what
variables are important in indicating where to go to secure
resources?

By moving into countries because they offer labor cost-

advantages, companies generally gain long-lived advantages.

True

False

Use the following Study Question to answer Question 14:

STUDY QUESTION 6: Why is the existence of red tape and
corruption important in choosing where to operate?

The existence of wide-spread corruption adds to companies'

costs of doing business.

True

False

Use the following Study Question to answer Question 15:

STUDY QUESTION 8: Compare the advantages of locating foreign
operations to avoid where competitors have gone versus locating
where competitors are.

Companies may sometimes gain advantages by locating near a

cluster of competitors because these locations may attract more
buyers.

True

False
Use the following Study Question to answer Question 16:
STUDY QUESTION 10: What risks other than political risks should
companies consider when making international location
decisions?

The risks to companies from natural disasters are spread rather

evenly around the globe.

True

False

Use the following Study Question to answer Question 17:

STUDY QUESTION 11: Compare the major types of published
data/information managers can use to compare countries. What
are the problems in relying on these data?

Individualized reports are generally the most costly for

companies seeking information about their possible foreign
operations.

True

False

Use the following Study Question to answer Question 18:

STUDY QUESTION 12: Explain how grids and matrices can be
used as tools to compare countries.

When companies make their final decisions on where to operate,

they generally do so by comparing where countries are located
on the matrices they prepare.

True

False

Use the following Study Question to answer Question 19:

STUDY QUESTION 14: What is meant by diversification and
concentration strategies for international location decisions?
Under what circumstances would one strategy be preferable to
True
the other?
False
In a concentration strategy, companies generally put most of
their efforts into a single region of the world.
Use the following Study Question to answer Question 20:
STUDY QUESTION 20: How might demographic and technical
factors influence changes in the future prime locations for
production and sales?

Demographers predict that the percentage of the world's

population living in currently high-income countries will fall
through the year 2050.

True

False

Why is the choice of the country in which the firm will

operate so important for the firm?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What are the main opportunities the firm should look for in
a target country?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are the risks the firm should assess in the target
market?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

How is a grid used to compare countries' attractiveness for

investment?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are the main criteria for firms' allocation resources
among locations?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Your book mentions a variety of external sources of

information that may be used to put together an
assessment of opportunities and risks in a target country.
Consult the list and see which of those sources you may
have used in doing research on countries beyond an
encyclopedia. What did you find?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Your textbook mentions that firms often need to harvest or

at least exit from some country operations. Do you know of
any examples of firms that have closed down some part of
their business in a foreign country? Look into firms' exiting
countries. What are usually the reasons?
To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What countries do you consider particularly risky for doing

business? Write down a list of 10 and check on the Internet
to see if the specialists agree or if there are countries that
never even occurred to you.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
13 Chapter Quiz

This activity contains 28 questions.

Use the following Study Question to answer Question 1:

STUDY QUESTION 1: How prevalent is exporting today?

Exports and imports play _____ in the U.S. economy than they
did 20 years ago.
a much greater role

a much lesser role

the same role

Use the following Study Question to answer Question 2:

STUDY QUESTION 2: What are the strategic advantages of
exports?

The advantages of using an export strategy to serve customers

in foreign market include: ________________ .
minimizing risk and capital requirements

maximizing exposure to political risks

providing more control than licensing and franchising

is more cost effective than a foreign direct investment strategy

Use the following Study Question to answer Question 3:

STUDY QUESTION 2: What are the strategic advantages of
exports?

A disadvantage of exporting is that it ____________ .

is quite risky

will always lead to the lowest possible production costs

is the most expensive method of expanding globally

is inconsistent with a global strategy

Use the following Study Question to answer Question 4:

STUDY QUESTION 2: What are the strategic advantages of
exports?

The advantages of using an export strategy to build a customer

base in foreign markets include: ____________________ .
an effective means to avoid tariffs

minimizing risk and capital requirements

being more costly than licensing and franchising

providing the means to easily accommodate local buyer tastes

Use the following Study Question to answer Question 5:

STUDY QUESTION 2: What are the strategic advantages of
exports?

Exporting is _______________ .
a common entry strategy for international global expansion

an inevitable activity for all companies

operationally complex activity that often poses insurmountable challenges

expensive to manage

Use the following Study Question to answer Question 6:

STUDY QUESTION 5: What are the pitfalls of exporting?

Common pitfalls to exporting include: _________________ .

competent market analysis

thorough understanding of competitive conditions in foreign markets

the tendency to over-customize product foreign customers' needs

access to a cost effective distribution program

Use the following Study Question to answer Question 7:

STUDY QUESTION 10: What are the types of third-party
intermediaries that assist exporters?

One way for companies new to export to begin identifying the

opportunities and challenges of international trade is to hire an:
______________ .
export study company

informational intermediary

export management company

export forwarder
 Use the following Study Question to answer Question 8:
STUDY QUESTION 10: What are the types of third-party
intermediaries that assist exporters?

In the context of exporting, the acronym EMC refers to

______________ .
export medical clearance

European Monetary Commission

export trading company

experienced multinational corporation

Use the following Study Question to answer Question 9:

STUDY QUESTION 15: What sources of assistance are available
to the exporter who is using direct selling strategy?

In the United States, the _____ is the most comprehensive

source of public assistance and information about export advice.
Congressional Trade Liaison

Department of State

Central Trade Authority

Department of Commerce

Use the following Study Question to answer Question 10:

STUDY QUESTION 13: What is countertrade and what is its
implication to trade?

_____ is the direct exchange of goods and/or services between

two parties without a cash transaction.
Counterpurchase

Offset

Barter

Counterexchange

Use the following Study Question to answer Question 11:

STUDY QUESTION 1: How prevalent in exporting today?

In the United States, more than 90% of firms that export are
small businesses.

True

False

Use the following Study Question to answer Question 12:

STUDY QUESTION 1: How prevalent is exporting today?

The volume of export activity in the world, both in manufacturing

and service sectors, is decreasing as international trade has
become more difficult.

True

False

Use the following Study Question to answer Question 13:

STUDY QUESTION 4: What the features of the stages of export
development??

"Born global" firms are those that take their time entering
international markets, typically building their domestic business
as the primary goal of the firm .

True

False

Use the following Study Question to answer Question 14:

STUDY QUESTION 8: What is the role of Customs Agencies?

The most comprehensive source of publicly available export

related information for American companies is provided by
custom agencies.

True

False

Use the following Study Question to answer Question 15:

STUDY QUESTION 10: What are the types of third-party
intermediaries that assist exporters?

A key advantage of relying on EMCs is that the company can

forsake having to develop its own exporting capabilities in-
house.

True

False

Use the following Study Question to answer Question 16:

STUDY QUESTION 10: What are the types of third-party
intermediaries that assist exporters?

Export management companies are export specialists who act as

the international finance department for their client firms.

True

False

Use the following Study Question to answer Question 17:

STUDY QUESTION 10: What are the types of third-party
intermediaries that assist exporters?

A common assignment for an EMC is to set up and begin export

operations for a firm with the understanding that the firm will
take over operations after they are well established.

True

False

Use the following Study Question to answer Question 18:

STUDY QUESTION 13: What is countertrade and what are its
implication to trade?

Countertrade is an efficient means of structuring an international

sale when conventional means of payment are inexpensive or
prevalent.

True

False

Use the following Study Question to answer Question 19:

STUDY QUESTION 14: What is barter, buyback, and offset trade?
Barter occurs when a firm builds a plant in a country - or
supplies technology, equipment, training, or other services to the
country - and agrees to take a certain percentage of the plant's
output as partial payment for the contract.

True

False

Use the following Study Question to answer Question 20:

STUDY QUESTION 14: What is barter, buyback, and offset trade?

A common problem for firms engaged in barter is the risk of

having to accept goods they do not want, cannot use, or have
difficulty reselling at a reasonable price.

True

False

According to your textbook, what is the difference between

an investment bank like Goldman Sachs arranging financing
for a foreign firm operating in China and the opening up of
the branch of a hotel in a foreign country?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

What are the advantages of exporting over FDI?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are some of the strategic advantages of importing?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

In exporting, what is the difference between direct selling

and indirect selling?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 What are the kinds of countertrade?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

Can you think of the single biggest export transaction that

can be done through the one-time sale of one good? Write
down a couple of ideas and check them.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.

In your daily life, do you think you are more affected by

imports or exports?

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.
 Do you see a major difference between direct and indirect
selling within the local market of your area or the US and
direct and indirect selling as described in your textbook
chapter on exporting? Make a short list of firms that sell
directly and indirectly.

To create paragraphs in your essay response, type <p> at the beginning of the
paragraph, and </p> at the end.