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Chapter 5 Understanding International Business MULTIPLE CHOICE QUESTIONS. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is correct with respect to the opening case entitled “Exporting a Strategic Model is No Easy Task"? A) Tim Hortons has used a high-cost, high-volume strategy B) Tim Hortons has almost as many stores in Canada as McDonald's C) Tim Hortons has abandoned its strategy of increasing its penetration of the U.S. market D) Tim Hortons emphasis on value and freshness has differentiated the company from its U.S. competitors E) Tim Hortons is pursuing several strategies in its U.S. push, including acquiring prime locations, co-branding, and going upscale Answer: E 2) Imports are A) services that are created in Canada and sold abroad. B) products that are made or grown abroad and sold in Canada; services cannot be imported. C) goods and services that are made or grown in Canada and sold abroad. D) products that are made or grown in Canada and sold abroad; services cannot be imported. E) goods and services that are made or grown abroad and sold in Canada. Answer: E 3) Exports are A) services that are created in Canada and sold abroad. B) goods and services that are made or grown abroad and sold in Canada. C) products that are made or grown in Canada and sold abroad; services cannot be exported. D) goods and services that are made or grown in Canada and sold abroad. E) products that are made or grown abroad and sold in Canada; services cannot be exported. Answer: D 4) The world economy is fast becoming a single interdependent system. This process is called A) multinational exchange. B) globalization. C) international exchange. D) balance of trade. E) privatization. Answer: B 5) Old Mack, a farmer, has grown a surplus of wheat. He would like to ship the extra to Europe where demand for wheat is strong. He is interested in A) exporting. B) subsidies. C) foreign exchange. D) importing. E) a trade deficit. Answer: A 6) Susie lives in Vancouver and has noticed that there seems to be a rising interest in goods from the Chinese culture. To take advantage of this she should explore A) subsidies. B) exporting. C) a trade deficit. D) foreign exchange. E) importing. Answer: E 7) Your television set, your shoes, even the roast lamb on your dinner table is likely to be the result of A) importing. B) subsidies. C) foreign exchange. D) a trade deficit. E) exporting. Answer: A 8) Farmer Sal grows strawberries. The berries are shipped to a local manufacturing plant where they are made into jam, labeled "Country Recipe Strawberry Jam," and boxed for shipment overseas. This product of Ontario is also referred to as a(n) A) export. B) import. C) trade product. D) absolute product. E) competitive advantage. Answer: A 9) Which of the following is an example of importing a service? A) A Canadian purchases a ticket to see a performance by a Spanish singer B) A Toronto taxi driver takes an American from Pearson airport to a downtown Toronto hotel C) A Canadian engineer designs a bridge to be built in Australia D) An accountant does financial statements for a Mexican company E) A Canadian lawyer goes to California to work on a litigation case Answer: A 10) The annual volume of world trade is about A) $100 billion. B) $3 trillion. C) $875 billion. D) $5 trillion. E) $8 trillion. Answer: E 11) The following are all forces that have combined to spark and sustain globalization except A) communication technology. B) dollarization of the currency across all countries around the world. C) governments and businesses have simply become more aware of the benefits of globalization to their countries and shareholders. D) competitive pressures. E) new technologies make international travel, and commerce increasingly easier, faster, and cheaper than ever before. Answer: B 12) The three major world marketplaces are A) Europe, Asia-Pacific, United States. B) South America, North America, Asia-Pacific. C) Japan, United States, Europe. D) North America, Europe, Asia-Pacific. E) North America, Europe, Japan. Answer: D 13) According to the World Bank, high income countries include all of the following except A) Japan. B) U.S. C) Canada. D) South Korea. E) South Africa. Answer: E 14) Which of the following is correct with respect to the BRIC countries? A) The most important BRIC country is Brazil B) Russia is strong in commodities, while India has emphasized services such as call centres C) India is having the most problems among the BRIC countries D) Most of the positive development stories are coming out of the BRIC countries, with little positive news coming from other developing countries E) Brazil is the least corrupt of the BRIC countries Answer: E 15) According to the World Bank, ________ is considered an upper middle-income country. A) Singapore B) Hong Kong C) South Korea D) Argentina E) United Arab Emirates Answer: D 16) Upper middle-income countries are defined as A) those with per capita income of less than US$11,905 but more than US$3,856. B) those with per capita income between US$5210 and US$8210. C) those with per capita income of less than US$21 345 but more than US$765. D) those with per capita income between US$3595 to US$11115. E) those with per capita income of less than US$9386 but more than US$205. Answer: A 17) Characteristics of developing countries include all of the following except A) starvation. B) unstable governments. C) bad weather. D) low literacy rates. E) weak infrastructures. Answer: C 18) The major reason(s) why Mexico has recently become a major manufacturing centre is A) cheap labour and low transportation costs. B) elimination of quotas and tariffs and low tax rates. C) low tax rates and cheap labour. D) cheap labour and elimination of quotas and tariffs. E) low transportation costs and low tax rates. Answer: A 19) The country that has economically dominated Western Europe is A) Germany. B) Russia. C) Finland. D) Poland. E) Spain. Answer: A 20) E-commerce and technology have become increasingly important in Europe. For example, ____________ is a major centre for biotech startups. A) London, England B) Barcelona, Spain C) Ireland D) Frankfurt, Germany E) Strasbourg, France Answer: E 21) Which areas represent the three major market places for international business? A) North America, South America and Asia-Pacific B) North America, Europe and Asia-Pacific C) South America, Africa and Asia-Pacific D) South America, Europe and Africa E) Asia-Pacific, Europe and Africa Answer: B 22) In Asia, the emergence of technology firms has been hampered by all of the following except A) a currency crisis. B) a higher percentage of lower-income consumers. C) weakness of technology firms in North America and Western Europe. D) a poorly developed electronic infrastructure. E) slower adoption of computers and information technology. Answer: C 23) The absolute advantage form of competitive advantage means A) that a country does not belong to any free trade agreements. B) that a country can produce everything better or more cheaply than any other country. C) that a country can produce some products better or more cheaply than it can others. D) that a country is the sole supplier of a product or service. E) that a country can produce something better or more cheaply than any other country. Answer: E 24) Which of the following is correct with respect to absolute and comparative advantage? A) Brazilian coffee beans are a good example of comparative advantage B) Absolute advantage exists when a country can produce something more cheaply and/or of higher quality than the next three most efficient countries C) A country has a comparative advantage when it can produce a product more efficiently or better than most (but not all) other countries D) All countries have a comparative advantage in some products E) All of these Answer: D 25) Saudi oil and Canadian timber are good examples of A) relative advantage. B) comparative advantage. C) import advantage. D) export advantage. E) absolute advantage. Answer: E 26) Because of the high quality supply of coffee in Brazil, it enjoys a(n) A) relative advantage. B) import advantage. C) absolute advantage. D) comparative advantage. E) export advantage. Answer: C 27) Due to its fertile land, Canada has a(n) ___________ in farming. A) export advantage B) import advantage C) comparative advantage D) relative advantage E) absolute advantage Answer: C 28) The comparative advantage form of competitive advantage means A) that a country does not belong to any free trade agreements. B) that a country is the sole supplier of a product or service. C) that a country can produce everything better or more cheaply than any other country. D) that a country can produce some products better or more cheaply than it can other products. E) that a country can produce something better or more cheaply than any other country. Answer: D 29) South Korea has a(n) __________ in electronics manufacturing because of efficient operations and cheap labour. A) comparative advantage B) import advantage C) absolute advantage D) relative advantage E) export advantage Answer: A 30) The theory of national competitive advantage derives from all of the following conditions except A) demand conditions. B) supply conditions. C) strategies, structures, and rivalries. D) related and supporting industries. E) factor conditions. Answer: B 31) Which of the following exists when a country can produce something more cheaply and/or of higher quality than any other country? A) Balance of payments B) Absolute advantage C) Comparative advantage D) Oligopoly E) Monopoly Answer: B 32) South African diamonds are often cited as an example of A) monopoly power. B) absolute advantage. C) oligopoly advantage. D) comparative advantage. E) competitive advantage. Answer: B 33) An absolute advantage exists when A) a country has a superior political system. B) a country can produce a product more cheaply and/or of higher quality than any other country. C) a country has more natural resources than all other countries. D) a country has lower labor costs than all other countries. E) a country can make almost all products more efficiently than other countries. Answer: B 34) Canada has a(n) __________ in farming due to its fertile land, while South Korea has a(n) __________ in electronics manufacturing. A) absolute advantage; absolute advantage B) absolute advantage; comparative advantage C) comparative advantage: absolute advantage D) comparative advantage; comparative advantage E) none of these Answer: D 35) The difference between absolute and comparative advantages is that absolute advantage is relative to __________, while comparative advantage is relative to __________. A) other nations; activity inside the country B) similar industries; dissimilar industries C) similar products; dissimilar products D) activity inside the country; other nations E) dissimilar products; similar products Answer: A 36) A country has a(n) __________ in goods it can produce more efficiently than other goods. A) monopolistic advantage B) balance of payment deficit C) comparative advantage D) absolute advantage E) none of the above Answer: C 37) Which of the following is not an attribute of national competitive advantage? A) Strategies, structures, and rivalries B) Weather conditions C) Related and supporting industries D) Demand conditions E) Factor conditions Answer: B 38) In the 2009 global competitiveness ranking produced by the World Economic Forum, which country ranked first? A) Canada B) U.S. C) Germany D) Switzerland E) Singapore Answer: D 39) According to the World Economic Forum’s global competitiveness ranking, the top three countries in 2009 were A) China, India, and Ireland. B) U.S., Switzerland, and Singapore. C) the U.S., Canada, and Australia. D) Ireland, Iceland, and Sweden. E) China, Singapore, and Japan. Answer: B 40) Which of the following is not included in the balance of payments? A) Money paid for imports B) Money paid by domestic corporations for taxes C) Money spent by tourists D) Money spent on foreign aid E) Money paid for exports Answer: B 41) The rate at which the currency of one nation can be exchanged for that of another is called a(n) A) exchange rate. B) trade deficit. C) floating interest rate. D) trade surplus. E) balance of payments. Answer: A 42) With a(n) __________ exchange rate, the value of a country's currency remains constant relative to that of another country. A) demand B) adjusted C) floating D) indexed E) fixed Answer: E 43) When the value of one country's currency relative to that of another varies with market conditions, it has a(n) A) international exchange rate. B) pegged exchange rate. C) floating exchange rate. D) various exchange rate. E) fixed exchange rate. Answer: C 44) The __________ is a common currency for EU members. A) oreo B) pound C) euro D) franc E) peso Answer: C 45) As the value of a country's currency rises A) domestic companies will have a harder time selling their products in foreign markets. B) foreign companies will find it harder to sell their products in local markets. C) imports and exports will remain relatively constant. D) domestic companies will shift from the production of consumer goods to the production of industrial goods. E) all of these will happen. Answer: A 46) As the value of a country's currency falls, its balance of trade should A) decline. B) remain the same. C) improve. D) either increase or decrease. E) none of these. Answer: C 47) A nation's balance of trade is A) the relative difference between money flowing into and out of a country. B) the difference in value between a country's total exports and its total imports. C) the relative difference in value between a country's total exports and its total imports. D) the difference between money flowing into and out of a country. E) the difference in exchange rates between two countries. Answer: B 48) If a country's exports exceed its imports it has a(n) A) favourable balance of payments. B) favourable balance of trade. C) unfavourable balance of trade. D) unfavourable balance of payments. E) it is not possible to tell with the information given. Answer: B 49) Which of the following best explains why a nation exports specific products and services? A) Whether the nation has international companies B) Whether a nation has a trade surplus C) Whether a nation has an absolute advantage D) Whether a nation has a balance of trade E) The level of the country’s GNP Answer: C 50) The balance of merchandise trade that Canada has experienced has been A) changing between favourable and unfavourable with about a seven year cycle. B) unfavourable since Confederation. C) favourable for the last thirty years. D) unfavourable for the last thirty years. E) favourable since Confederation. Answer: C 51) If Japan's total exports are $12 billion and total imports are $4 billion, then this is called A) a trade deficit. B) a positive balance of trade. C) an absolute advantage. D) a negative balance of payments. E) negative capital mobility. Answer: B 52) For several years Japan has had a(n) __________ with Canada. A) trade surplus B) relative advantage C) trade deficit D) negative balance of trade E) absolute advantage Answer: A 53) The Congo imported $150 billion worth of goods and services while exporting $175 billion to other countries. It has a A) negative balance of payments. B) comparative advantage. C) positive balance of payments. D) trade surplus. E) trade deficit. Answer: D 54) The balance of payments refers to A) the relative difference between money flowing into and out of a country. B) the difference in value between a country's total exports and its total imports. C) the relative difference in value between a country's total exports and its total imports. D) the difference between money flowing into and out of a country as a result of trade and other transactions. E) the difference in exchange rates between two countries. Answer: D 55) If there is a favourable balance of payments, it means that A) a country exports manufactured goods and imports raw materials. B) a country imports more than it exports for each country with which it trades. C) a country exports more than it imports for each country with which it trades. D) the country has more money flowing into it than out as a result of trade and other transactions. E) a country exports raw materials and imports manufactured goods. Answer: D 56) If the Canadian dollar becomes weak compared to the Japanese yen, which of the following is likely to occur? A) Demand for goods would be unaffected by currency changes B) Japanese products would become cheaper in Canada C) It would take fewer dollars to buy the same number of yen D) Canadian products would become less expensive in Japan E) Japanese demand for goods from Canada would fall Answer: D 57) The balance of payments that Canada has experienced has been A) unfavourable for many years. B) favourable since Confederation. C) changing between favourable and unfavourable with about a seven year cycle. D) favourable for the last thirty years. E) unfavourable since Confederation. Answer: A 58) Canada's multi-year unfavourable balance of payments has been caused by all of the following except A) foreigners making great earnings from their investments in Canada. B) few foreign investments in Canada. C) Canadians leaving Canada to work in the United States. D) tourists traveling out of Canada for vacations. E) grand investments made by Canadian firms abroad. Answer: C 59) Which of the following is likely to happen if the demand for Canadian goods increases? A) The value of the dollar will decrease B) The demand for the dollar will decrease C) The demand for goods will have little or no effect on the dollar D) The demand for the dollar will increase E) It is not possible to say Answer: D 60) If it takes five French francs to trade for one Canadian dollar the __________ is 5 to 1. A) balance of payments B) trade surplus C) capital mobility D) exchange rate E) conversion rate Answer: D 61) When the value of the Canadian dollar drops A) both our imports and our exports become more expensive. B) our imports become cheaper and our exports become more expensive. C) our imports become more expensive and our exports become cheaper. D) both our imports and our exports become cheaper. E) there is no change in the price of our imports and our exports. Answer: C 62) When the value of the Canadian dollar rises A) both our imports and our exports become more expensive. B) there is no change in the price of our imports and our exports. C) our imports become more expensive and our exports become cheaper. D) our imports become cheaper and our exports become more expensive. E) both our imports and our exports become cheaper. Answer: D 63) What is an expected result when a nation devalues its currency? A) Export sales of its products decline B) The number of independent agents will decline C) Export sales of its products increase D) No result is more likely than any other E) Export sales of its products are unchanged Answer: C 64) If the Canadian dollar becomes stronger in relation to the Japanese yen A) the prices of all Canadian-made products would rise in Japan and the prices of all Japanese-made products would fall in Canada. B) there would be no effect on the prices of Canadian made products sold in Japan. C) the prices of all Canadian-made products would fall in Japan and the prices of all Japanese-made products would rise in Canada. D) the prices of all Canadian-made products would fall in Japan and the prices of all Japanese-made products would fall in Canada. E) the prices of all Canadian-made products would rise in Japan and the prices of all Japanese-made products would rise in Canada. Answer: A 65) What term identifies the difference between money flowing into the country and money flowing out of the country as a result of trade and other transactions? A) Balance of trade B) Balance of payments C) Exchange rate D) International competitiveness E) Comparative advantage Answer: B 66) Which of the following is correct with regard to the balance of trade and the balance of payments? A) If a country has a favourable balance of trade, it will also have a favourable balance of payments B) The balance of payments is computed by dividing the value of a country’s currency by the number of currency transactions that took place in the previous year C) A country that imports more than it exports has a favourable balance of trade D) Countries used to strive to have a favourable balance of trade, but governments no longer worry about that issue because of globalization E) Canada has had a favourable balance of trade for many years Answer: E 67) Canada's trade balance is generally positive because A) we have a positive balance of trade with China. B) we have a positive balance of trade with the United States. C) European countries prefer Canadian goods to American goods. D) we have a positive trade balance with Japan and England. E) all of these. Answer: B 68) Which of the following best explains why a nation like Canada or Japan would export a particular product or service? A) That nation has multinational companies B) That nation has an absolute advantage C) That nation has a positive balance of trade D) That nation has a negative balance of trade E) All of these Answer: B 69) Which of the following items is least likely to impact a nation's balance of payments? A) Gains or losses in exchanges of international currencies B) An increase in the GDP C) Money spent by tourists D) Trade deficits or surpluses E) Foreign aid programs Answer: B 70) Canada typically has a(n) __________ balance of trade and a(n) __________ balance of payments. A) favourable; unfavourable B) unfavourable; favourable C) favourable; favourable D) unfavourable; unfavourable E) very unfavourable; very favourable Answer: A 71) Companies with international operations are concerned about exchange rate fluctuations because A) they may change international demand. B) they may change domestic demand. C) profit margins of international sales may be changed. D) the cost of overseas operations may be changed. E) all of these. Answer: E 72) If the Canadian dollar rises our balance of trade will most likely __________ resulting in a __________ of jobs in the export industry. A) rise; increase B) decrease; decrease C) decrease; increase D) rise; decrease E) none of these Answer: B 73) When the value of the Canadian dollar drops A) our imports become more expensive and our exports become cheaper. B) both our imports and our exports become more expensive. C) both our imports and our exports become cheaper. D) our imports become cheaper and our exports become more expensive. E) there is no change in the price of our imports and our exports. Answer: A 74) With regard to exchange rates, it is correct to say that A) they affect trade balances. B) they typically vary substantially on a daily basis. C) they do not vary with market conditions. D) changes affect only narrow product lines, not all products. E) as the value of a country’s currency falls, foreign companies have less incentive to ship products into that country. Answer: A 75) Which of the following is correct with regard to the boxed insert entitled "The Crisis in Europe: Let the Name Calling Begin"? A) The central governments of the so-called PIIGS have pegged their currencies at too high a rate B) The central governments of the so-called PIIGS have been spending far more money than they have been taking in C) The Euro zone limit on deficit spending is 6 percent of GDP D) The PIIGS had GDP-to-debt ratios that were too low E) The government of Greece defaulted on its debt payments Answer: B 76) All of the following are questions that a company should ask before taking a product or service to international markets except A) Is there international demand for the firm's product? B) Can the product be marketed to get sales in a foreign market? C) Does the company have or can it get the necessary skills and knowledge needed to do business abroad? D) Is the business climate suited to imports? E) Can the product be modified to fit a foreign market? Answer: B 77) Beta Corp. is trying to decide whether to market its products internationally. Its first decision is to A) determine what the costs would be. B) check the business climate to see if the foreign country would be positive. C) check the competition to see what its situation would be. D) determine whether there is international demand for its products. E) check the exchange rates to see if they are favourable. Answer: D 78) The second decision whether or not to market a product internationally is to A) determine if the product needs to be modified to fit the foreign market. B) assess the business climate for reaction to foreign products. C) locate a local business to form a joint venture. D) conduct market research to determine potential sales. E) determine what competition would be encountered. Answer: A 79) What key question must have a positive (yes) answer before a company begins international operations? A) Is there a favourable balance of trade? B) Is there international demand for the firm's products abroad? C) Is local culture compatible? D) What is the currency exchange rate? E) Is there a favourable balance of payments? Answer: B 80) How will a business firm know if there is a demand for its product in another nation? A) The company is willing to discuss royalty fees with other international firms B) There is a positive balance of payments C) A firm cannot know if such a demand exists D) The product is very successful in the company's home nation E) The successful prior entry of a competitor firm with a similar product in the international market Answer: E 81) Algoma Treasures, a gift-wrap manufacturer, is considering expanding its business into the international market. What key question must have a positive answer before a company begins international operations? A) Is there a demand for its products abroad? B) Is there a favourable balance of trade? C) What is the currency exchange rate? D) Is there a favourable balance of payments? E) Is local culture compatible? Answer: A 82) Merritt Corp. is interested in doing business internationally. They have already determined that there is international demand for their product. What should they do next? A) Determine if the company has the skills necessary to do business abroad B) Contact a local business to form a joint venture C) Assess the business climate for reaction to foreign products D) Determine if the product needs to be modified to fit the foreign market E) Conduct market research to determine potential sales Answer: D 83) Biltmore Corp. is involved in a planning process for doing business internationally. They have already determined that their product can be modified to fit foreign markets. What should they do next? A) Determine if the company has the skills necessary to do business abroad B) Determine if there is international demand for the product C) Assess the business climate for receptivity to imports D) Determine if the product needs to be modified to fit the foreign market E) Conduct market research to determine potential sales Answer: C 84) Which company may not find it profitable to go international? A) A mining company B) A company that buys and sells fresh produce and fish C) A manufacturing firm specializing in bicycles D) A financial investment firm E) A newsprint company Answer: B 85) What key question must have a positive (yes) answer before a company begins international operations? A) Is local culture compatible? B) Is there a demand for its products abroad? C) What is the currency exchange rate? D) Is there a favourable balance of trade? E) Is there a favourable balance of payments? Answer: B 86) How will a business firm know if there is a demand for its product in another nation? A) A competitor firm is successful with a similar product in the international market B) The product is very successful in the company's home nation C) There is a positive balance of payments D) The company is willing to discuss royalty fees with other international firms E) There is no way to know whether such demand exists Answer: A 87) What is the implication for a manufacturer of electrically powered equipment contemplating international operation upon learning of the wide variety of electric outlets around the world? A) Modify the product to meet the standards of different countries B) Deal with independent agents C) Delay international operations until the currency exchange rate is favourable D) Drop the idea of international operation E) None of these Answer: A 88) Which of the following is not an example of adapting to customer needs? A) McDonald's selling wine in France B) McDonald's selling Big Mac's in India C) Ford products having steering wheels mounted on the right in England D) Movies dubbed in another language E) All of these are examples of adapting to customer needs Answer: B 89) Clement is the owner of Dills Distillery, which makes and bottles fruit wine. In his planning to export the wine, Clement should consider all of the following except A) the target country's balance of trade. B) demand for the wine. C) legal aspects of the target country. D) cultural aspects of the target country. E) economic road blocks. Answer: A 90) Clement has found that there is definitely overseas demand for his fruit wine. Now he must consider A) when he can travel overseas to assess his competition in person. B) the balance of payments in the overseas market. C) how other Canadian firms have done in the overseas market. D) how to adapt the product to meet the special demands of foreigners. E) the amount of royalty fees. Answer: D 91) Crossing you legs during a business meeting in __________ is considered inappropriate. A) Saudi Arabia. B) Brazil. C) France. D) Taiwan. E) Portugal. Answer: A 92) In France, McDonald's restaurants sell wine. This is a classic example of A) adapting to customer needs. B) importing. C) foreign exchange. D) misreading demand for the product. E) balance of payments. Answer: A 93) __________ is an example of an export of a service. A) An advertising agency in Montreal making a TV commercial for a company in France B) Obtaining information from a foreign database C) Vacations taken by Canadians in a foreign country D) Purchasing a camera made in Japan E) A Canadian tourist having a camera repaired in Egypt Answer: A 94) Which of the following is correct with respect to the boxed insert entitled "Epic Entrepreneurs: Have Camera, Will Travel"? A) Only women are hired by EPIC Newsgroup B) EPIC Newsgroup places advertisements in various media, but it does not actually produce the advertisements C) The founders of the company have discovered that it can be difficult for women to play a role in the business environment of some countries D) EPIC Newsgroup was initially very successful, but now it has run into significant financial problems E) All of these are correct Answer: C 95) A firm that conducts a significant portion of its business abroad, that has some facilities overseas, and that imports a significant portion of goods from other countries is best described as A) an importer. B) an international firm. C) mini national. D) an exporter. E) a multinational firm. Answer: B 96) Herald Inc., a French newsprint manufacturer, is geared towards international markets but does not have specific domestic and international divisions. This firm is a(n) A) multinational firm. B) exporter. C) independent agent. D) purely domestic firm. E) customs broker. Answer: A 97) Which type of firm is one in which management doesn't think of itself as having domestic and international operations but rather as a firm that designs, makes, and markets products in many nations? A) An exporter B) An importer C) An international firm D) A multinational firm E) Mini national Answer: D 98) In which international structure would royalties likely be paid to the exporter? A) by a branch office. B) under a licensing arrangement. C) by a subsidiary manufacturing plant. D) in a joint venture. E) in a strategic alliance. Answer: B 99) All of the following characteristics describe an independent agent except A) often sells the exporter's products. B) often makes sure that customers are happy. C) often represents only one firm. D) often collects payments. E) is a foreign individual or organization. Answer: C 100) Levi Strauss has an organization in a foreign country who has agreed to sell their products, to collect payments from the buyers, and to make sure that the buyers are satisfied. The organization is not part of Levi Strauss and may represent several non-competing firms at the same time. The organizational structure that Levi Strauss has selected is called A) strategic alliance. B) independent agent. C) branch office. D) licensing agreement. E) direct investment. Answer: B 101) Computers-B-Us sent some of its managers abroad to gain more control over the operations and provide a more visible public presence. This type of organizational structure is known as A) independent agent. B) branch office. C) direct investment. D) strategic alliance. E) licensing arrangement. Answer: B 102) When a firm gives a company in a foreign country exclusive rights to make or market its product in return for ongoing fees, the firm is using a(n) A) direct investment. B) independent agent. C) strategic alliance. D) branch office. E) licensing arrangement. Answer: E 103) Can-Eng Manufacturing, Canada's largest supplier of industrial furnaces, exports its furnaces to companies in Japan, Brazil, Germany, Korea, Taiwan and Mexico. Can-Eng has an agreement with foreign companies in these countries called a(n) A) international mandate. B) licensing arrangement. C) independent agency. D) export agreement. E) strategic alliance. Answer: B 104) Greencorp Ltd. sold the rights for production of 4 Star Soil to Soil X of Italy who now produces the special mix of fertilized soil and sells it in Italy. This arrangement is called a(n) A) independent agent. B) licensing arrangement. C) strategic alliance. D) branch office. E) equality relationship. Answer: B 105) Mega Computers has decided to expand operations overseas. In order to give foreign customers a sense of security Mega has chosen to send several of its own managers and technicians to the country as part of the start-up operations. In addition, this will give Mega more control over making sure that top quality service is given to the new customers. Mega has chosen the organizational strategy known as A) independent agent. B) strategic alliance. C) direct investment. D) branch office. E) licensing arrangement. Answer: D 106) Licensing arrangements are arrangements A) by a creator of a musical or artistic work to allow another person to use, produce, distribute, or market it for a fee or royalty. B) by a supplier to allow another company the right to install or modify products produced by the supplier for a fee or royalty. C) by a general contractor to allow international subcontractors to build a building for a fee or royalty. D) by an owner of a process or product to allow another business to produce, distribute, or market it for a fee or royalty. E) by an owner of a patent to allow another business to produce, distribute, or market the product covered by the patent for a fee or royalty. Answer: D 107) Bob's Barbecue has expanded its operations to include several foreign countries. Bob has given individuals or organizations in those countries exclusive rights to market Bob's products. He has shared his secret recipe and trade secrets on how to produce the products. In return for this Bob will receive a percentage of the revenues generated in each of the countries. Bob's arrangements are best described as a(n) A) licensing arrangement. B) independent agent. C) strategic alliance. D) direct investment. E) branch office. Answer: A 108) Laura's Lights, Inc. has decided to expand business into Vietnam. Laura is looking for help with funding the operation and to share in the risk. She knows little about the customs and how to get things done in Vietnam. The best international structure for her is probably A) branch office. B) direct investment. C) strategic alliance. D) licensing arrangement. E) independent agent. Answer: C 109) Which of the following type of firm conducts a significant portion of its business abroad? A) An importer B) An international firm C) An exporter D) A domestic firm E) The U.S. government Answer: B 110) Wal-Mart is an example of a(n) A) exporter. B) international firm. C) government agency. D) multinational firm. E) strategic alliance. Answer: B 111) Which of the following types of firms have planning and decision-making functions that are geared to international markets? A) Exporting firms B) International firms C) Multinational firms D) Domestic firms E) None of these Answer: C 112) Which of the following is not an international organizational structure? A) Branch offices B) Independent agents C) Licensing arrangements D) Strategic alliance E) Matrix organization Answer: E 113) A foreign individual or organization that agrees to represent an exporter's interest in foreign markets is called a(n) A) headquarters arrangement. B) licensing arrangement. C) independent agent. D) strategic alliance. E) branch office. Answer: C 114) Which of the following international organizational strategies often represent several firms at once and usually do not specialize in a particular product or market? A) Independent agent B) Royalty arrangement C) Licensing arrangement D) branch office E) Strategic alliance Answer: A 115) Firms give individuals or companies in a foreign country exclusive rights to manufacture or market their products through which of the following international organizational strategies? A) Branch offices B) Direct investment C) Strategic alliances D) Independent agents E) Licensing arrangements Answer: E 116) Which of the following types of payments are usually received by an exporter as an ongoing payment calculated as a percentage of the license holder's sales? A) Quantity discounts B) Royalties C) Agent fees D) Direct investments E) Flat fees Answer: B 117) A company sending some of its own managers overseas to conduct business is practicing the international organizational strategy of A) joint venture arrangements. B) strategic alliances. C) direct investment. D) branch offices. E) matching. Answer: D 118) Using a(n) __________ strategy, the company finds a partner in the country in which it would like to conduct business. A) independent agency B) direct investment C) strategic alliance D) replication E) branch office Answer: C 119) Lingo Media Inc. has used __________ to expand operations into India and China. A) strategic alliances B) branch offices C) direct investment D) cartels E) importers Answer: A 120) Which of the following international organizational strategies means buying or establishing tangible assets in another country? A) Independent agency B) Opening branch offices C) Providing licensing arrangements D) Forming strategic alliances E) Foreign direct investment Answer: E 121) Some governments require foreign companies to have a local partner. This has significantly increased the use of __________ as an international organization structure. A) direct investments B) independent agents C) branch offices D) strategic alliances E) licensing arrangements Answer: D 122) Lack of knowledge of foreign customs has lead most Canadian companies doing business in Japan to select this form of international organization. What is it? A) Strategic alliances B) Licensing arrangements C) Independent agents D) Direct investments E) Branch offices Answer: A 123) In this international structure the firm locates a partner who shares in the risk and in the profits. This structure is called A) independent agents. B) licensing arrangements. C) direct investments. D) branch offices. E) strategic alliances. Answer: E 124) Toyota's opening of a major manufacturing plant in Georgetown, Kentucky, Exxon's expansion of an oil refinery in Thailand, and Texas Instruments' building of a semiconductor plant in Italy are good examples of A) foreign direct investments. B) independent agents. C) strategic alliances. D) licensing arrangements. E) branch offices. Answer: A 125) The level of international involvement that requires the least involvement is A) international firm. B) exporting and importing. C) multinational firm. D) branch offices. E) joint ventures. Answer: B 126) A firm that buys products made in another country for distribution and sale in its own country is A) a multinational firm. B) a joint venture. C) an exporter. D) an international firm. E) an importer. Answer: E 127) A firm that produces goods in one country and distributes and sells them in other countries is A) a multinational firm. B) an exporter. C) an international firm. D) a joint venture. E) an importer. Answer: B 128) General Motor's marketing of the Opel Corsa in the Czech Republic and the Joy in Mexico (the same car) is an example of A) over-expansion without support for repairing the product. B) adapting to customer needs. C) misreading demand for the product. D) overpricing caused by exchange rate changes. E) a poor business environment for foreign goods. Answer: B 129) When a firm gives a company in a foreign country exclusive rights to make or market its product in return for ongoing fees, the firm is using the __________ international structure. A) independent agents B) branch offices C) licensing arrangements D) strategic alliances E) direct investments Answer: C 130) Lingo Media is the largest supplier of English-language textbooks in China’s primary school system. Lingo is A) an importer. B) an exporter. C) a multinational firm. D) an international firm. E) none of these. Answer: B 131) Michael is going to sell his baby products abroad, and he is interested in having someone in the foreign country sell the product for him. Michael is most interested in working with a(n) A) franchisee. B) multinational firm. C) branch office. D) international firm. E) independent agent. Answer: E 132) Which of the following are geared to international markets and do not think of themselves as having specific domestic and international divisions? A) Independent agents B) Customs brokers C) Multinational firms D) Domestic firms E) Exporters Answer: C 133) Which type of firm is more likely to have its board of directors composed of people from many different nations? A) Joint venture B) Multinational C) Exporter D) Importer E) Purely domestic Answer: B 134) Which term describes an arrangement that gives individuals or companies in a foreign nation exclusive rights to manufacture or market their products in that market? A) Licensing arrangement B) Exporters C) Branch offices D) Independent agents E) There is no specific term for this arrangement Answer: A 135) In which international organizational structure would royalties likely be paid to the exporter? A) Strategic alliance B) Joint venture C) Licensing arrangement D) A green field manufacturing plant E) Branch office Answer: C 136) If Montrose Corp. purchases tangible assets in Germany, which international organizational structure is it using? A) Independent agent B) Licensing agreement C) Foreign direct investment D) Branch office E) Strategic alliance Answer: C 137) In which international organizational structure would a firm simply send some of its own managers to the foreign market? A) Strategic alliance B) Licensing arrangement C) Branch office D) Joint venture E) Independent agent Answer: C 138) In this type of international structure, the firm locates a partner who shares in the risk and in the profits. A) Branch office B) Strategic alliance C) Foreign direct investment D) Licensing agreement E) Independent agent Answer: B 139) With regard to strategic alliances, which of the following is true? A) They are declining in importance after an initially promising start B) The satisfaction of the most influential party must be assured for it to work C) A clear vision of the future of the venture must be held by at least one of the parties for it to be a success D) Partner compatibility is guaranteed by financial agreements at the outset E) They are also called a joint ventures Answer: E 140) When two or more enterprises cooperate in R & D, marketing, or manufacturing of a product, it is called A) a strategic alliance. B) world product mandating. C) an international corporation. D) a multinational corporation. E) none of these. Answer: A 141) When Manulife Financial entered the Chinese market it made an agreement with Sinochem, a state-owned trading company. This is an example of A) a strategic alliance. B) world product mandating. C) a licensing arrangement. D) a branch office. E) an independent agent. Answer: A 142) HydroCan and Ozo of Asia work together to research and develop water filtration. They have been manufacturing two water filters in the Asia plant. With regard to this strategic alliance, which of the following is true? A) A clear vision of the future of the venture must be held by at least one of HydroCan or Ozo for it to be a success B) Partner compatibility is guaranteed by financial agreements at the outset C) The satisfaction of Ozo must be assured for it to work, since it is the most influential party D) Each party agrees to cooperate for mutual benefit E) All of these are true Answer: D 143) Some governments require foreign companies to have a local partner. This has significantly increased the use of __________ as an international organization structure. A) licensing arrangements B) strategic alliances C) independent agents D) foreign direct investment E) branch offices Answer: B 144) The only three countries in the world that are net sellers of their companies are A) Canada, Spain, and Italy. B) France, China, and Finland. C) Germany, Vietnam, and Australia. D) Sweden, Denmark, and Finland. E) Canada, the U.S., and Great Britain. Answer: E 145) Investment Canada's mandate is A) to focus on the promotion of Canadian goods to other countries. B) to focus on attracting foreign investment to Canada. C) to track investment money to oversea banks. D) to focus on aiding Canadian businesses in collecting money from their customers in foreign countries. E) to promote the investment of Canadian dollars into foreign business operations. Answer: B 146) Which of the following social or cultural differences would a Canadian exporter of refrigerators to Europe have to deal with? A) Consumers shop on a daily basis B) The average age of the population is younger C) The average age of the population is older D) Adjusted menus, ingredients, and hours of operation E) Foreign consumers are shorter and slimmer than Canadian consumers Answer: A 147) Among the social and cultural differences that the textbook mentions are the following except A) in Portugal it is rude to discuss business during dinner. B) the "thumbs up" sign is an obscene gesture in New Zealand. C) many Europeans regularly shop every day for food. D) Japanese and French people are shorter and slimmer than Canadians. E) in Taiwan it is a sign of appreciation for a meal to tap one's fingers on the table. Answer: B 148) Which of the following is correct with regard to social and cultural differences? A) Canadians make fewer trips to supermarkets than Europeans do B) Most differences between cultures are pretty obvious C) Clothing manufacturers do not have to worry too much about cultural differences because fashion trends have rapidly become world-wide D) Countries with growing populations tend to have a disproportionate number of older people E) All of these are correct Answer: A 149) Restrictions on international trade include all of the following except A) quotas. B) quantitative tariffs. C) protectionist tariffs. D) embargoes. E) revenue tariffs. Answer: B 150) When Bob began exporting his famous barbecue beef he found that one country would let him bring only 1 000 pounds of beef into the country each year. Bob had just discovered a(n) A) embargo. B) local content law. C) quota. D) tariff. E) subsidy. Answer: C 151) Laura's Lights began shipping products to its new partner in a foreign nation only to find out that before the products would be let into the country a tax of $1.00 per unit had to be paid. This tax is known as a(n) A) subsidy. B) local content law. C) quota. D) embargo. E) tariff. Answer: E 152) Canada prohibits the importing of ivory from any foreign nation. This is a(n) A) local content law. B) subsidy. C) tariff. D) quota. E) embargo. Answer: E 153) In marketing its new product in a foreign nation Mega Computer was surprised to see the very low prices on its local competitor's models. Subsequent investigation revealed that the domestic businesses had received money from the government. Mega now knows what a(n) __________ is. A) subsidy B) tariff C) embargo D) local content law E) quota Answer: A 154) Arguments for and against protectionism include all of the following except A) tariffs and quotas protect domestic firms and jobs. B) tariffs and quotas reduce competition and drive up prices. C) tariffs and quotas adversely affect the exchange rate. D) that while some jobs and industries would be protected with tariffs and quotas, all countries would be better off without them as jobs in other industries would expand. E) tariffs and quotas are in response to actions of other governments. Answer: C 155) Local content laws state that A) products sold in a country should be at least partially made in that country. B) an imported product must meet local standards before it can be brought in. C) an imported product must include some raw materials from the domestic country. D) an imported product must fit with the local culture before it can be brought in. E) an imported product must fit with local bylaws before it can be brought in. Answer: A 156) If the Mexican government puts a limit on the ounces of tequila being imported into Mexico, what has occurred? A) The government has installed a protection plan for its own tequila producers and is encouraging imports B) The government has installed both a protection plan for its own tequila producers and a quota C) The government has installed a quota and an embargo D) The government is encouraging imports and installed an embargo E) The government installed an embargo and a protection plan Answer: B 157) The diamond cartel A) is associated with OPEC. B) is legal in Canada. C) is the most famous cartel in the world. D) keeps the prices charged to consumers artificially high. E) has not been very successful over the past ten years. Answer: D 158) Dumping involves selling products at A) less than fair value. B) less than what domestic producers charge. C) less than what is reasonable. D) lower price than competitors. E) less in one country than another. Answer: A 159) Sometimes foreign companies have many problems in complying with stringent and often changing regulations and bureaucratic obstacles known as A) business practice laws. B) cartels. C) dumping. D) local content laws. E) local practices. Answer: A 160) Tariffs that are imposed strictly to raise money for the government are referred to as __________ tariffs. A) quota B) revenue C) protectionist D) union E) subsidy Answer: B 161) Which of the following is a government payment to help a domestic business compete with foreign firms? A) Protectionist tariff B) Subsidy C) Quota D) Embargo E) Revenue tariff Answer: B 162) The practice of protecting domestic business at the expense of free market competition is called A) putting an embargo on exports. B) imposing quotas. C) local content laws. D) adding tariffs. E) protectionism. Answer: E 163) In some South American countries, it may be legal to bribe businesses and government officials, but this practice is illegal in Canada. This barrier to international trade is known as A) imposing tariffs. B) quotas. C) local content laws. D) business practice laws. E) cartelling. Answer: D 164) Associations of producers that control supply and prices are called A) cartels. B) foreign direct investments. C) business offices. D) quotas. E) independent agents. Answer: A 165) Selling a product abroad for less than the cost of production is referred to as A) direct foreign investment. B) setting up a business office. C) dumping. D) imposing tariffs. E) setting up quotas. Answer: C 166) Which of the following is true about dumping? A) Canadian firms sell their goods in the U.S. for less than cost B) It means selling a product abroad for less than the comparable price at home C) Results in benefits for industries in countries where products are dumped D) It is legal in Canada E) The Canada Revenue Agency determined that cars produced by Toyota and Honda in Japan were being "dumped" in Canada Answer: B 167) When the Canadian government imposed a 34.6 percent tariff on barbecues made in China because complaints were received that Chinese companies were unfairly subsidizing the production of barbecues, this was an example of A) a revenue tariff. B) a protectionist tariff. C) a quota. D) an embargo. E) none of these. Answer: B 168) Which of the following is not true about protectionism? A) It reduces competition B) It may cause friction between nations C) It increases prices to consumers D) Tariffs and quotas protect domestic firms and jobs E) It is a revenue source for the provincial governments in Canada Answer: E 169) When the Certified General Accountants challenged the rule that in Quebec only Chartered Accountants can have auditing rights, this was an example of a dispute about A) protectionist tariffs. B) revenue tariffs. C) the Agreement on Internal Trade. D) money laundering. E) federal-provincial revenue sharing. Answer: C 170) Why do foreign companies sometimes have problems complying with stringent and often changing regulations and bureaucratic obstacles? A) Because local government is out of control and trying to make a money grab B) Because the laws are stupid C) Because the government is trying to achieve cartel status for its domestic products D) Because of business practice laws E) Because the managers in the foreign firm are ill-informed Answer: D 171) When Wal-Mart was forced to stop refunding price differences on items sold for less by other stores because the practice is illegal in Germany, Wal-Mart discovered the effect of A) revenue tariffs. B) embargoes. C) business practice laws. D) protectionist tariffs. E) world product mandating. Answer: C 172) The 2009 Transparency International “Corruption Perceptions Index” showed that the least corrupt countries are _________, and the most corrupt countries are A) Denmark, New Zealand, and Sweden; Chad, Somalia, and Singapore B) Iceland, Denmark, and New Zealand; Haiti, Myanmar, and Somalia C) Canada, the U.S., and New Zealand; Myanmar, Chad, and Russia D) Denmark, New Zealand, and Singapore; Myanmar, Afghanistan, and Somalia E) Ireland, the U.S., and Canada; Zambia and Libya Answer: D 173) ”Dumping” involves A) less than the price charged by domestic producers. B) selling a product at a lower price than 50 percent of competitors. C) selling a product for less in one country than in another. D) selling a product abroad for less than the comparable price charged in the home country. E) none of these. Answer: D 174) __________ is a trade agreement signed shortly after World War II. A) The World Bank B) NAFTA C) ASEAN D) GATT E) The European Union Answer: D 175) The successor to GATT is A) the European Union. B) the WTO. C) the ASEAN Free Trade Area. D) NAFTA. E) the WHO. Answer: B 176) The purpose of GATT was to A) improve trade balances in developing countries. B) reduce or eliminate trade barriers such as quotas and tariffs. C) stop the practice of “dumping.” D) encourage governments to increase the protection for their domestic industries. E) all of these. Answer: B 177) The General Agreement on Tariffs and Trade is one in which its signatories agreed to A) reduce tariffs. B) reduce embargoes. C) reduce subsidies. D) reduce nontariff barriers. E) reduce foreign exchange. Answer: A 178) Which of the following is not one of the goals of the WTO? A) To promote trade by encouraging members to adopt fair trade practices B) To promote multilateral negotiations regarding trade C) To reduce the amount of corruption in countries that score poorly on the Corruption Perceptions Index of Transparency International D) To establish fair procedures for resolving disputes among members E) To reduce trade barriers Answer: C 179) On several occasions when the World Trade Organization has held talks on trade liberalization, protestors have disrupted the meetings. Protestors have included all of the following except A) social activists. B) fishermen. C) farmers. D) labour unions. E) environmentalists. Answer: B 180) What does Canada's free trade agreement with the United States and Mexico do? A) It will eventually eliminate all tariffs on manufactured goods B) It eliminates all tariffs on manufactured goods immediately and will allow Canadian travelers to bring more goods back to Canada duty free C) It will eventually eliminate all tariffs on manufactured goods and allow Canadian travelers to bring more goods back to Canada duty free D) It will allow Canadian travelers to bring more goods back to Canada duty free E) It eliminates all tariffs on manufactured goods immediately Answer: A 181) During the last few years, the benefits of NAFTA have been slowly eroded by A) the ups and downs of the Canadian dollar. B) the reluctance of U.S. producers to sell goods to Canadian companies. C) delays at border crossings between the U.S. and Canada. D) higher inflation rates in the U.S. than in Canada. E) objections from Mexico about unfair deals between the U.S. and Canada that shut Mexico out of export possibilities. Answer: C 182) Canadians who were opposed to free trade feared all of the following except A) Canadian cultural sovereignty would be lost. B) the U.S. might take our natural resources. C) Canada would lose the right to control its own environmental standards. D) jobs would be lost to other countries. E) Canada would have to peg the Canadian dollar to the U.S. dollar Answer: E 183) Supporters of free trade in Canada argued all of the following except A) Canadian imports would increase because of free trade. B) there is nothing in the free trade agreements that threatens Canada's control over its energy resources. C) access to U.S. markets is guaranteed by free trade and is therefore crucial to protecting Canadian employment. D) the environment is not covered in free trade agreements. E) the free trade agreements are about trade and tariffs, not cultural sovereignty. Answer: A 184) The results for Canada from the North American Free Trade Agreement include all of the following except A) Canada has become an exporting powerhouse. B) direct foreign investment increased. C) Canada now exports 40 percent of its GDP. D) U.S. imports from (and exports) to Mexico increased. E) Canada is the least trade-intensive country in the G7 group. Answer: E 185) __________ is a trade agreement that removes tariffs and other trade barriers among the United States, Canada, and Mexico. A) NAFTA B) ASEAN C) The World Bank D) The European Union E) GATT Answer: A 186) What organization was founded in Pacific Asia for economic, political, social, and cultural cooperation? A) CENTO B) ASEAN C) Warsaw Pact D) NATO E) SEATO Answer: B 187) The largest free marketplace in the world is A) NAFTA. B) the European Union. C) ASEAN. D) Mercosur. E) the Gulf Cooperation Council. Answer: B 188) The aim of NAFTA is A) to have free trade world wide. B) to promote increased trade with the ASEAN free trade area. C) to decrease the balance of payments problem in every nation. D) to have free trade between Canada, the US and Western Europe. E) none of these. Answer: E 189) What does Canada's free trade agreement with the United States do? A) It will eventually eliminate all tariffs on manufactured goods B) It will allow Canadians to work anywhere in the United States C) It eliminates all tariffs on manufactured goods immediately D) It will allow Canadian travellers to bring more goods back to Canada duty free E) None of these Answer: A TRUE/FALSE QUESTIONS. Write 'T' if the statement is true and 'F' if the statement is false. 190) The volume of world trade is about $440 billion. Answer: False 191) Israel is a high-income country in terms of per capita income. Answer: True 192) According to the World Bank, low-income countries are those with per capita income of less than US$2 905. Answer: False 193) According to the World Bank, Canada, South Korea and Kuwait are all considered high-income countries. Answer: True 194) The East African nation of Somalia, plagued by drought, civil war, and starvation, plays virtually no role in the world economy. Answer: True 195) The contemporary world economy revolves around the major marketplaces of North America, Europe and Asia-Pacific. Answer: True 196) Mexico dominates the North American business region. Answer: False 197) A major centre for biotech start-ups is Strasbourg, France. Answer: True 198) Government instability has hampered economic development in Eastern Europe, especially Russia, Albania and Romania. Answer: True 199) Asia-Pacific includes Japan, China, Thailand, Taiwan and Australia. Answer: True 200) Asia-Pacific is not an important source of competition for North American firms. Answer: False 201) When we talk about international trade, we are referring to trade in manufactured goods only. Answer: False 202) With globalization, there will be less distinction between domestic and foreign firms. Answer: True 203) All countries have a comparative advantage in some products. Answer: True 204) Examples of true absolute advantage are rare. Answer: True 205) If Trinidad could produce mangos cheaper and better tasting than any other country due to its climate, then it would have an absolute advantage over any other country. Answer: True 206) Countries tend to export products that they can produce better or less expensively than other countries and import products they cannot produce as effectively. Answer: True 207) An absolute advantage exists when a country can produce something more cheaply and/or of higher quality than any other country. Answer: True 208) A country has an absolute advantage in goods that it can produce more efficiently or better than other countries. Answer: False 209) When a country imports more than it exports it has a favourable balance of trade. Answer: False 210) Government support of domestic businesses is the most important factor in generating national competitive advantage. Answer: False 211) National competitive advantage derives from four conditions: factor conditions, supply conditions, strategies/structures/rivalries, and related and supporting conditions. Answer: False 212) In 2009, Canada ranked in the top 10 in terms of international competitiveness, as reported by the World Economic Forum. Answer: True 213) If Canada exported $8 billion and imported $12 billion then its balance of trade would be a surplus of $4 billion dollars. Answer: False 214) A country's balance of trade is calculated by subtracting the total value of all exports from the total value of all imports. Answer: True 215) When a country imports more than it exports it has a favourable balance of trade. Answer: False 216) The major determinant of a country's balance of payments is its balance of trade. Answer: True 217) The balance of trade and balance of payments concepts are almost identical except that the latter takes into account foreign spending by the military. Answer: False 218) Exchange rates started out years ago as floating, but are now mostly fixed. Answer: False 219) Increased demand for a nation's products will tend to make its currency stronger while driving down the price of foreign goods. Answer: True 220) The rate of exchange of a nation's currency has little effect upon the competitive advantages or disadvantages of its companies. Answer: False 221) When a country's exchange rate falls, that country's exports become less expensive to other countries. Answer: True 222) Canada exports more to the United States than it imports from the United States. Answer: True 223) When a country's exports exceed its imports, it suffers a trade deficit. Answer: False 224) When a country's exchange rate falls, that country's exports become less expensive to other countries. Answer: True 225) Canada's overall trade balance has generally been favourable, but only because we export so much more to the U.S. than we import from the U.S. Answer: True 226) For any given country, the balance of trade and the balance of payments must both be both positive or both be negative. Answer: False 227) Fluctuations in exchange rates have no impact on the balance of trade. Answer: False 228) The first decision in determining whether a company should go international or not, is to determine if there is an international demand for its products. Answer: True 229) Marketing a specific product to two or more countries is relatively easy since the same marketing strategy will usually work for both countries. Answer: False 230) An importer is a firm that makes products in one country and then distributes and sells them in other countries. Answer: False 231) Exporting is limited mostly to multinational firms. Answer: True 232) If a Canadian architect designs a house in Brazil, this is an example of an import of a service. Answer: False 233) A licensing arrangement exists where the owner of a product or process allows another business to produce, distribute, or market it for a fee or royalty. Answer: True 234) Generally speaking, licensing agreements are a better strategy than opening branch offices in foreign countries. Answer: True 235) A licensing arrangement exists where the owner of a product or process allows another organization to produce, distribute, or market it for a fee. Answer: True 236) While international firms conduct a significant portion of their business abroad, their primary focus remains on the domestic market. Answer: True 237) In multinational firms, planning and decision making are geared to international markets. Answer: True 238) World product mandating is part of the branch office strategy. Answer: True 239) The best way to achieve foreign direct investment is to use independent agents. Answer: False 240) The Foreign Investment Review Agency (FIRA) was designed to ensure that foreign direct investment benefited Canadians. Answer: True 241) An embargo is really a quota of zero. Answer: True 242) Quotas and tariffs can be used to control the export of goods and services as well as the import of goods and services. Answer: False 243) When Canada placed a tariff on barbecues made in China because of complaints that the Chinese government was subsidizing their manufacture, this was an example of a protectionist tariff. Answer: True 244) It is against international law for a multinational company to be limited by local customers and laws. Answer: False 245) The WTO has ruled that subsidies like those paid by the U.S. government to its cotton farmers are unreasonable. Answer: True 246) Local content laws require that products sold in a particular country must be completely made in that country. Answer: False 247) Local content laws cannot exist within a single country. Answer: False 248) The aim of NAFTA is to create a free trade area for Canada, U.S. and Western Europe. Answer: False 249) The North American Free Trade Agreement has led to increases in business growth in Canada. Answer: True 250) According to the North American Free Trade Agreement, Canada, the U.S. and Mexico will gradually eliminate tariffs and other major trade barriers by 2012. Answer: False 251) Free trade agreements are not restricted to the Americas. Answer: True 252) Because it improves the economies to such a great extent, governments encourage unrestricted trade with foreign countries. Answer: False 253) Canada is the most trade-intensive country in the G7 group, and one job in 3 is now devoted to producing goods and services for export. Answer: True 254) On January 1, 1995, a free trade agreement known as Mercosur went into effect between Argentina, Brazil, Uruguay and Paraguay. Answer: True SHORT ANSWER QUESTIONS. Write the word or phrase that best completes each statement or answers the question. 255) What is globalization?. Answer: Globalization refers to the process by which the world economy is becoming a single interdependent system. 256) What are the three major marketplaces in the contemporary world economy? Answer: North America, Western Europe, and Pacific Asia. 257) What is the difference between absolute and comparative advantage? Answer: An absolute advantage exists when a country can produce something more cheaply and/or of higher quality than any other country. By contrast, a comparative advantage exists in goods that a country can produce more efficiently or effectively than other goods. 258) In assessing a country's national competitive advantage, what is meant by factor conditions? Answer: Factors conditions, also known as factors of production, include labor, capital, entrepreneurs, physical resources, and information resources. 259) Give an example of an absolute advantage. Answer: (Answers will vary.) Saudi oil, Brazilian coffee beans, and Canadian timber are examples given in the text. Brazil has an absolute advantage in coffee production due to its favorable climate and soil conditions, allowing it to produce coffee more efficiently than other countries. 260) What is a trade deficit? Answer: A trade deficit is a situation in which a country's imports exceed its exports, creating a negative balance of trade. 261) What is a trade surplus? Answer: A trade surplus is a situation in which a country's exports exceed its imports, creating a positive balance of trade. 262) Explain what the term exchange rate means. Answer: An "exchange rate" is the rate at which one nation's currency can be exchanged for that of another. 263) Why should companies conducting international operations be concerned about exchange rate fluctuations? Answer: Changes in exchange rates affect overseas demand for their products and can be a major factor in international competition. Exchange rate fluctuations can also affect the companies' profitability. 264) What is the difference between the balance of trade and the balance of payments? Answer: The balance of trade is the difference between the economic value of exports and the economic value of imports. The balance of payments refers to the flow of money into and out of a country, mostly attributed to the country's balance of trade. 265) One of the most significant developments in foreign exchange has been the introduction of the euro. Explain why. Answer: Officially introduced in 2002, it is used by most of the members of the European Union and is destined to become as important as the dollar and yen in international commerce. It has replaced other currencies such as the German Deutsche mark and the French franc. 266) What is an exporter? Answer: An exporter is a business that makes products in one country for sale in another. 267) What is an independent agent? Answer: An independent agent is a foreign individual or organization that agrees to represent an exporter's interests. 268) Why have the number of strategic alliances among major companies increased significantly over the last decade? Answer: Many companies have realized that sharing resources with other companies can enhance competitiveness and profitability. 269) What are some advantages for businesses that engage in strategic alliances? Answer: Such businesses benefit from the knowledge and expertise of foreign partners. In addition, these businesses can share the resources of their partners. 270) What is foreign direct investment? Answer: Foreign direct investment is an arrangement in which a firm buys or establishes tangible assets in another country. 271) How does a quota influence international trade? Answer: A quota restricts the number of products of a certain type that can be imported into a country. 272) What is a tariff? Answer: A tariff is a tax on imported products. 273) What is protectionism?. Answer: Protectionism is the practice of protecting domestic business against foreign competition. 274) What is a cartel? Answer: A cartel is an association of producers whose purpose is to control supply and prices. 275) What is product dumping? Answer: ∙Selling a product abroad for less than the comparable price charged at home. 276) What countries are covered under NAFTA? Answer: United States, Canada, and Mexico. 277) What are the three goals of the World Trade Organization (WTO) ? Answer: The three goals are 1) to encourage members to adopt fair trade practices; 2) to reduce trade barriers; and 3) to establish fair procedures for resolving disputes among members. ESSAY QUESTIONS. Write your answer in the space provided or on a separate sheet of paper. 278) The World Bank, an agency of the United Nations, uses per capita income as a measure to divide countries into one of four groups. Distinguish among the four groups and identify the countries in each group. Answer: • High-income countries are those with per capita income greater than US$11 906. These include Canada, the United States, most countries in Europe, Australia, New Zealand, Japan, South Korea, Kuwait, the United Arab Emirates, Israel, Singapore, and Taiwan. • Upper Middle-income countries are those with per capita income of less than US$11 905 but more than US$3856. Some of the countries in this group are the Czech Republic, Greece, Hungary, Poland, most countries comprising the former Soviet Bloc, Turkey, Mexico, Argentina, and Uruguay. • Low Middle-income countries are those with per capita income between U.S. $976 and U.S. $3855. Among countries in this group are Columbia, Guatemala, Samoa and Thailand. Some of these, such as China and India, have huge populations and are seen as potentially attractive markets for international business. • Low-income countries (developing countries) are those with per capita income of less than US$976. Due to low literacy rates, weak infrastructures, unstable governments, and related problems, other countries in this group are less attractive to international business These countries are less attractive to international business an example Somalia is plagues by drought, civil war and starvation.. 279) Describe the forces that have combined to spark and sustain globalization. Answer: Several forces have combined to spark and sustain globalization. First, governments and businesses are more aware of the benefits of globalization to businesses and shareholders. Second, new technologies have made international travel, communication, and commerce much faster and cheaper. Third, competitive pressures often play a role in the decision to go global. Finally, various legal agreements (GATT, NAFTA) have also sparked international trade. 280) Why does the contemporary world economy revolve around three major marketplaces: North America, Europe, and Asia-Pacific? Answer: These three geographic regions are home to most of the world's largest economies, biggest multinational corporations, most influential financial markets and highest-income consumers. 281) What are the two forms of competitive advantage? Provide two examples of each. Answer: • absolute advantage - nation's ability to produce something more cheaply or better than any other country • examples Saudi oil, Brazilian coffee beans, Canadian timber • comparative advantage - nation's ability to produce some products more cheaply or better than it can others • examples - farming in Canada, electronics manufacturing in Korea 282) Discuss the theory of national competitive advantage. Answer: • National competitive advantage- country will be inclined to engage in international trade when factor conditions, demand conditions, related and supporting industries, and strategies/structures/rivalries are favourable. • National competitive advantage derives from four conditions: • factor conditions are the factors of production that were identified in Chapter 1. ∙demand conditions reflect a large domestic consumer base that promotes strongdemand for innovative products. • related and supporting industries include strong local or regional suppliers and/or industrial customers. • strategies, structures, and rivalries refer to firms and industries that stress cost reduction, product quality, higher productivity, and innovative new products. • when all of these conditions exist, a country will be inclined to engage in international business. 283) Discuss the impact of trade deficits and trade surpluses on the balance of payments. Answer: • trade deficits create negative balances of trade which lead to negative balances of payments • trade surpluses create positive balances of trade which lead to positive balances of payments 284) Describe the relationship of exports and imports in a country's balance of trade and its balance of payments. Answer: Exports are products created domestically and then transported and sold abroad, whereas imports are products created abroad and then transported and sold domestically. A nation's balance of trade is determined through the relationship of its exports to its imports. A positive balance of trade, also known as a trade surplus, occurs when a country exports more than it imports. A negative balance of trade, or a trade deficit, occurs when a country imports more than it exports. A country's balance of payments results from the inflow and outflow of money into and out of the country as a result of the country's trade balance. 285) What are the four steps that firms should go through when deciding on whether or not to go international? Answer: • Is there international demand for the firm's product? • Can the product be modified to fit a foreign market? • Is the foreign business climate suited to imports? • Does the firm have or can it get the necessary skills and knowledge to do business abroad? 286) What are the various levels of involvement in international business? Answer: • exporting goods and services • importing goods and services • organize as an international firm • operate as a multinational firm 287) Different levels of involvement in international business require different kinds of organizational structure. Identify and explain the spectrum of international organizational strategies. Answer: • Independent agent- foreign individual, or organization, who agrees to represent an exporter's interests in foreign markets • Licensing arrangement -an arrangement by an owner of a process or product to allow another business to produce, distribute, or market it for a fee or royalty • Branch office-a location that an exporting firm establishes in a foreign country in order to sell its products more effectively • Strategic alliance-an enterprise in which two or more persons or companies temporarily join forces to undertake a particular project • Foreign direct investment-buying or establishing tangible assets in another country 288) Why would two companies, both earning large profits and expanding into Japan, form a strategic alliance? Answer: • share the costs and risks of new ventures • gaining access to new markets or customers • limits financial aid needed for the venture 289) Might getting involved in a strategic alliance be considered more risky, more involved, and more complex than operating under a licensing arrangement? Explain. Answer: With a licensing arrangement, a firm gives foreign entities exclusive rights to manufacture or market their products in that market. With such arrangements, the licensing firm is not often present to monitor that production and quality control standards are consistently being met. Such arrangements, which include franchising, might benefit the licensing firm in that the local people likely know the local market best; therefore, a licensing arrangement would allow the licensing firm to tap into a foreign market via the use of employees who share cultural similarities with that particular market. In a strategic alliance, a firm comes together in a form of a partnership with a firm in a country in which it wants to do business. Both sides agree to invest resources and capital into a new business or toward a common purpose. This type of partnership represents a type of "marriage" between two firms; both sides are present while major decisions are being made and while both sides work toward their common purpose. 290) What are the advantages of forming a strategic alliance? Answer: • gaining access to new markets or customers • sharing costs and risks • obtaining financing to supplement a firm's debt capacity 291) How does exporting benefit the Canadian economy? Answer: • increased sales volume • increased profits * increased salaries • increased consumption * more jobs • increased global market awareness 292) What are the advantages and disadvantages associated with a multinational corporation? Answer: • advantages: encouraged economic growth in many areas, fresh technological expertise, managerial abilities • disadvantages: nonallegiance to the host country, transferring profits from the host country, failing to promote R&D, not hiring local workers 293) "All this talk about a global economy is relevant only for big firms. My company is too small for that type of thinking." Agree or disagree with this statement, and support your position. Answer: varies but should include a discussion of technology, opportunities, ease of entry into international markets I disagree with the statement. Even small companies are affected by the global economy through factors like supply chains, customer base, and competition. Understanding global trends can help small firms adapt, find new markets, and leverage opportunities that arise from global interconnectedness, ensuring long-term sustainability and growth. 294) Explain why foreign direct investment is often the riskiest, most complex, and most involved of the various types of international involvement. Answer: With exporting, a company is merely producing in this country and shipping abroad. With licensing, a company is giving another company in another country the right to produce its product; after the foreign company begins producing, the Canadian company is not involved in the actual production processes. With a strategic alliance, companies are working together toward a common purpose, perhaps working to create a new product or improve a type of technology. Foreign direct investment, however, presents different types of challenges to companies. Technologies or access to technologies vary from country to country. Exchange rate fluctuations and economic differences between countries can alter trade patterns. Sociocultural differences in people, including religion, tastes, preferences, buying patterns, perceptions of time, perceptions of space, and cultural communication styles, can present roadblocks for businesses engaging in foreign direct investment. Finally, political and legal differences between countries can alter the methods with which business is conducted as well as impact what are acceptable and unacceptable practices. 295) Identify and describe the three potential barriers to international trade. Answer: • social and cultural differences • economic differences • legal and political • quotas, tariffs, and subsidies • local-content laws • business-practice laws 296) What is protectionism? List and describe four protectionist measures. Answer: Protectionism is the practice of protecting domestic businesses at the expense of free market competition. Protectionist measures include quotas, embargoes, tariffs, subsidies, local content laws, and business practice laws. Quotas are restrictions on the number of a certain type of product that can be imported into a country. An embargo is a government order banning exportation and/or importation of a particular product or all products from a particular country. Tariffs are taxes on imported products. Subsidies are government payments to help domestic businesses compete with foreign firms. Local content laws require that products sold in a particular country be at least partly made there. Finally, business practice laws govern business practices in a given country. 297) Identify the different means a government may take to discourage trade. Explain each. Answer: • quota-restriction on number of products that can be imported • embargo-forbids exportation/importation of a particular product • tariff-tax on imported products 298) What are local-content laws? What do they imply for a country wanting to do business? Answer: • laws requiring that products sold in a particular country be at least partly made in that country • act just like trade barriers • usually implies that firms seeking to do business in a country must either invest directly in that country or have joint-ventures with another business from that country • creates a sharing of profits 299) Why might social and cultural differences cause conflict to firms exporting their products? Answer: • different beliefs (religious and social) • language barriers • physical needs • lifestyle needs • people get used to their own culture and may not accept change 300) Identify and describe the potential barriers to international trade. Answer: The barriers are (1) social and cultural differences (varying demographics, values, attitudes, and behaviour patterns across cultures which impact the kinds of products that will be purchased) ; (2) economic differences (extent of government involvement in business regulation, different economic systems) ; (3) legal and political differences (varying rules on quotas, tariffs, embargoes, subsidies, business practices, and local content laws, as well as different views of protectionism). 301) Other than the Canada-U.S. Free Trade Agreement and NAFTA, identify some of the other free trade agreements in the Americas. Answer: • Mercosur-Argentina, Brazil, Uruguay, and Paraguay-by 2005, tariffs will be eliminated on 80 percent of the goods traded between those four countries • The Andean Pact-Bolivia, Ecuador, Colombia, Peru, and Venezuela • The Central American Common Market-Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua • The G-3 Group Colombia, Mexico, and Venezuela • The Caribbean Common Market-many of the island nations of the Caribbean 302) Identify some of the free trade agreements located outside of the Americas and the countries involved in them. Answer: • ASEAN Free Trade Area-Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam • Asia-Pacific Economic Cooperation-many nations of the Pacific Rim, as well as the U.S., Canada, and Mexico • Economic Community of Central African States-many nations in equatorial Africa • Gulf Cooperation Council—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates Test Bank for Business Essentials Ronald J. Ebert, Ricky W. Griffin, Frederick A. Starke, George Dracopoulos 9780132479769, 9780134384733

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