TEST BANK for Introduction to Global Business Introduction to Global Business: Understanding the Int

Introduction to Global Business: Understanding the International Environment and Global Business Functions 1st Edition

TEST BANK

Chapter 1: The Rise of Globalization TRUE/FALSE 1. With business becoming increasingly global, its success, fortunately, depends only on the domestic environment.

ANS: F PTS: 1 REF: p. 4 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

2. Even though business is global, the credit crisis of 2008, started by an American investment bank, was limited to the American economy with fortunately no impact on the global economy.

ANS: F PTS: 1 REF: p. 3 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

3. Key aspects of globalization include the elimination of barriers to trade and information technology.

ANS: T PTS: 1 REF: p. 5 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

4. So far globalization has made it possible for goods, services, and capital, to cross national borders but not technology and culture.

ANS: F PTS: 1 REF: p. 5 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

5. The “soft” qualities essential to globalization include openness, protectionism, accountability, connectivity, democracy, and centralization.

ANS: F PTS: 1 REF: p. 6 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

6. A sustainable decoupling process would eventually lead to a multi-polar world—a world economy in which the engines of growth could comprise the United States, the European Union, China, India, Brazil, Russia, and South Africa rather than the United States alone.

ANS: T PTS: 1 REF: p. 9 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

7. The openness and proliferation of globalization and free trade rules can best be attributed to the interwar period between World War I and II.

ANS: F PTS: 1 REF: p. 10 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

8. As part of the World Bank’s Strategic Framework, there are five focus areas that accommodate and facilitate the globalization process including its analytical and advisory role supporting national policies to strengthen free market institutions and infrastructure that has provided the potential for creating large gains from trade.

ANS: T PTS: 1 REF: p. 12 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

9. For World Trade Organization, increasing trade barriers has been one of the most simplistic ways to encourage trade and globalization.

ANS: F PTS: 1 REF: p. 13 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

10. The foundations of the globalized business world are political—and so are the biggest threats to the system.

ANS: T PTS: 1 REF: p. 15 OBJ: LO: 01-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

11. Countries that have successfully adapted to globalization realize that they cannot succeed without high-quality government management at home.

ANS: T PTS: 1 REF: p. 18 OBJ: LO: 01-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

12. In communist and state-controlled economies like those in Central Asia property rights either do not exist or are not well defined which discourages domestic and foreign investors from making long-term commitments in these countries.

ANS: T PTS: 1 REF: p. 18 OBJ: LO: 01-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

13. More globalized economies like New Zealand and Singapore rank at the top in index for absence of corruption by Transparency International.

ANS: T PTS: 1 REF: p. 19 OBJ: LO: 01-04 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

14. Because broadband prices have been falling, governments in emerging economies such as India and South Africa are facilitating the spread of broadband to rural towns and villages to provide instant access to market information and government programs to remote villagers which will enable policymakers to maximize the economic potential of remote communities and make globalization sustainable.

ANS: T PTS: 1 REF: p. 20 OBJ: LO: 01-05 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

15. Critics argue that open trade and foreign direct investment always take jobs from workers in developing economies and transfer them to workers in advanced industrial countries which leave the workers in the developing country, out of work.

ANS: F PTS: 1 REF: p. 23 OBJ: LO: 01-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

16. A survey by the World Bank indicates that of the companies surveyed; unfortunately, only 30 percent have board-approved policies on environmental management indicating that corporate social responsibility practices have become an insignificant factor in determining where multinational corporations conduct business.

ANS: F PTS: 1 REF: p. 24 OBJ: LO: 01-06 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

MULTIPLE CHOICE 1. Of the following, which is NOT true regarding the credit crisis? a. It affected farmers in Burkina Faso. b. It affected miners and steel workers in Ukraine. c. It affected assemble-line workers in Singapore. d. It affected white-collar workers at information technology firms in Ireland. e. It had an impact only on its country of origin- the United States.

ANS: E PTS: 1 REF: p. 3 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

2. Brazilian Juice, a manufacturer of healthy fruit juices in Brazil, sells juice in six different countries including United States. Brazilian juice is engaging in a. economic development in United States. b. exercising nontariff barriers in Brazil. c. unfair trade practices. d. globalization. e. the World Trade Bank Group.

ANS: D PTS: 1 REF: p. 5 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Application

3. Which of the following is NOT a key aspect of globalization?

a. b. c. d. e.

The elimination of barriers to trade Investment Financial independence Culture Information technology

ANS: C PTS: 1 REF: p. 5 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

4. Countries that have been moving toward more open trade and free market policies are known as _____. a. African countries b. open-door economies c. industralized countries d. globalized economies e. emerging market economies ANS: E PTS: 1 REF: p. 6 OBJ: LO: 01-01 STA: DISC: Environmental Knowledge

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

5. India and Brazil have been moving towards more open trade and free market policies. These countries can be described as a. emerging market economies. b. open-door economies. c. industrialized countries. d. common market economies. e. the World Bank countries.

ANS: A PTS: 1 REF: p. 11 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

6. A sustainable decoupling process would eventually lead to _____. a. a multi-polar world b. globalization c. outsourcing d. importing e. exporting ANS: A PTS: 1 REF: p. 9 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

7. A world economy in which the engines of growth could comprise the United States, the European Union, China, India, Brazil, Russia, and South Africa rather than the United States alone can be described as a(an) __________. a. interdependent world b. industrialized world c. globalized economy d. multi-polar world e. diverse world ANS: D

PTS:

1

DIF:

Difficulty: Easy

REF: p. 10 OBJ: LO: 01-01 STA: DISC: Environmental Influence

NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

8. According to the authors, which of the following is NOT true regarding globalization lessons for developing countries? a. Import oriented nations must switch to concentrate on domestication. b. Export oriented nations must diversify their market to include major emerging markets. c. Countries emphasizing exports should base their strategy on their true competitive advantage. d. For countries with large populations, the size of the domestic market remains most important. e. Overindulgence can lead to disaster.

ANS: A PTS: 1 REF: p. 10 OBJ: LO: 01-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

9. Which of the following is NOT a main purpose of the IMF? a. Provide a forum for cooperation on international monetary problems b. Facilitate the sustainable growth of international trade c. Promote exchange rate stability d. Lend countries foreign exchange when needed e. Provide long-term low-interest social sector and infrastructure loans ANS: E PTS: 1 REF: p. 11 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

10. What was the initial primary role of the World Bank? a. To aide in the reconstruction of Europe after World War II b. To help eradictate communicable diseases c. To try to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression. d. To deal primarily with tariff negotiations e. To provide loans and take equity position in private companies ANS: A PTS: 1 REF: p. 11 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

11. The International Bank for Reconstruction and Development performs which of the following functions? a. Provides long-term low-interest social sector and infrastructure loans to the poorest members utilizing foreign aid funds provided by rich nation members b. Provide loans and take equity position in private companies of developing countries and works toward developing capital markets in theose economies c. Supports reconstruction and restructuring of member countries utilizing funds raised in international capital markets d. Provides political risk coverage for private investments made in developing countries e. Works on issues related to foreign investment disputes ANS: C

PTS:

1

DIF:

Difficulty: Moderate

REF: p. 12 OBJ: LO: 01-02 STA: DISC: Environmental Influence

NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

12. The Multilateral Investment Guarantee Agency performs which of the following functions? a. Provides long-term low-interest social sector and infrastructure loans to the poorest members utilizing foreign aid funds provided by rich nation members b. Provide loans and take equity position in private companies of developing countries and works toward developing capital markets in those economies c. Supports reconstruction and restructuring of member countries utilizing funds raised in international capital markets d. Provides political risk coverage for private investments made in developing countries e. Works on issues related to foreign investment disputes ANS: D PTS: 1 REF: p. 12 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

13. The International Center for the Settlement of Investment Disputes performs which of the following functions? a. Provides long-term low-interest social sector and infrastructure loans to the poorest members utilizing foreign aid funds provided by rich nation members b. Provide loans and take equity position in private companies of developing countries and works toward developing capital markets in those economies c. Supports reconstruction and restructuring of member countries utilizing funds raised in international capital markets d. Provides political risk coverage for private investments made in developing countries e. Works on issues related to foreign investment disputes ANS: E PTS: 1 REF: p. 12 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

14. Trade expansion has been a leading factor in global integration, especially since the early _____. a. 1650s b. 1760s c. 1890s d. 1970s e. 2000s ANS: D PTS: 1 REF: p. 12 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

15. GATT refers to which of the following? a. General Agreement of Tariffs and Trade b. Great American Trade Tax c. Gift of American Treaty Tips d. General Articles on Tariffs and Trade e. Great Articles on Tariffs and Trade ANS: A

PTS:

1

DIF:

Difficulty: Easy

REF: p. 12 OBJ: LO: 01-02 STA: DISC: Environmental Influence

NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

16. Which of the following is NOT an objective of the WTO? a. Reviewing national trade policies b. Acting as a form for trade negotiations c. Helping eradictate communicable diseases d. Settling trade disputes e. Administering trade agreements ANS: C PTS: 1 REF: p. 13 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

17. Trade without discrimination, freer trade, predictability, promotion of fair competition, and _____ are the five principles of the multilateral trading system. a. integrated capital markets b. encouragement of economic reform in developing countries c. liberalization of the trading system d. nontariff trade e. international ANS: B PTS: 1 REF: p. 14 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

18. The concept of curtailing agricultural subsidies in developed economies was incorporated into the ninth round to trade negotiations called the _____. a. “Dallas Round” b. “Toronoto Round” c. “Sparta Round” d. “Kabul Round” e. “Doha Round” ANS: E PTS: 1 REF: p. 14 OBJ: LO: 01-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

19. The rules, enforcement mechanisms, and organizations that support market transactions are referred to as _____. a. industries b. companies c. businesses d. corporations e. institutions ANS: E PTS: 1 REF: p. 15 OBJ: LO: 01-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

20. In Brazil, if there are government organizations that create strong incentives for private investment and operate under a system of checks and balances that function best in a democratic system of government, they could be classified as which of these?

a. b. c. d. e.

Transparent organizations Antitrust corporations Adaptive institutions Emerging markets Capital markets

ANS: C PTS: 1 REF: p. 15 OBJ: LO: 01-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

21. In ABC country, a system of responsibility in which an authority, such as the government, is not answerable for its actions, it would be described as having the lack of _____. a. banking system b. integrity c. accountability d. transaction-based exporting e. trustworthiness ANS: C PTS: 1 REF: p. 15 OBJ: LO: 01-03 STA: DISC: Legal Responsibilities

DIF: Difficulty: Challenging NAT: BUSPROG: Evaluation KEY: Bloom's: Evaluation

22. The most recent device(s) that enables greatest ease in portability and accessibility of information is (are) the _____. a. magazines b. newspapers c. Internet d. smart phones e. computer ANS: D PTS: 1 REF: p. 16 OBJ: LO: 01-03 STA: DISC: Information Technology

DIF: Difficulty: Easy NAT: BUSPROG: Technology KEY: Bloom's: Knowledge

23. In India, several politicians are working very hard toward a system of full disclosure and openness that aims to avoid any semblance of corruption and cronyism. These efforts can be described as creating a system focused on _____. a. politics b. integrity c. accountability d. transparency e. democracy ANS: D PTS: 1 REF: p. 15 OBJ: LO: 01-03 STA: DISC: Legal Responsibilities

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

24. Which of the following is NOT true regarding property rights? a. Protection of property rights has always been fundamental to market economies. b. Studies have shown that countries that have successfully adapted to globalization guarantee property rights. c. Less globalized countries offer less property rigiht protection. d. In economies in Central Asia and parts of Africa and the Middle East, property

rights are well defined. e. Countries without property rights will most likely fall behind nations that guarantee property rights.

ANS: D PTS: 1 REF: p. 18 OBJ: LO: 01-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

25. Illicit dealings undermine economic performance by doing all of the following EXCEPT: a. decreasing costs. b. raising competition. c. thwarting competition. d. reducing transparency. e. raising insecurity.

ANS: A PTS: 1 REF: p. 19 OBJ: LO: 01-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Comprehension

26. ABC Technology touts in their advertisements that their technology can transfer huge amount of data and other information in a second via the Internet. This describes ABC’s _____ in technology. a. brandwith b. digital server c. digital divide d. gigabytes e. Y2K ANS: A PTS: 1 REF: p. 19 OBJ: LO: 01-05 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Technology KEY: Bloom's: Application

27. Which of the following is NOT true regarding the global use of information technology? a. Our globe relies on the Internet for business and social activity. b. Broadband prices have been falling. c. The IT revolution has been relatively slow. d. Internet-related technologies help reduce corporate and societal hierarchies. e. Internet and wireless technologies could make many authoritarian governments uneasy.

ANS: C PTS: 1 REF: p. 19 OBJ: LO: 01-05 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Technology KEY: Bloom's: Evaluation

28. The _____ describes the perceived economic gap between countries or people with easy access to digital and information technology and those with very limited or no access. a. bandwith b. digital era c. digital divide d. gigabyte number e. Y2K gap ANS: C PTS: 1 REF: p. 21 OBJ: LO: 01-05 STA: DISC: Information Technology

DIF: Difficulty: Easy NAT: BUSPROG: Technology KEY: Bloom's: Knowledge

29. Of the following, which is NOT true regarding the Internet and cell phone era? a. Fortunately, the next billion users will be the same as the first billion b. The majority of users will be from developing countries c. Text messaging will likely predominate emerging economies; mobile phone usage d. Countries are skipping the use of land-line technology and jumping to wireless systems e. Developing countries may “leapfrog” an entire generation of technology ANS: A PTS: 1 REF: p. 22 OBJ: LO: 01-05 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Technology KEY: Bloom's: Evaluation

30. All of the following are arguments against globalization EXCEPT: a. it may lead to an increase in the apperance of old industries. b. it may lead to a loss of control over economic policies and developments. c. it may lead to an erosion of communities. d. it can be a force of exploitation and injustice. e. it can cause job losses and stagnant wages.

ANS: A PTS: 1 REF: p. 23 OBJ: LO: 01-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

31. The only way workers in industrialized countries can compete with their counterparts in the developing world will be through: a. increased use of the cost leadership strategy. b. increased diversity within the organization. c. increased empowerment of employees. d. increased productivity by using technologically-intensive manufacturing technologies. e. increased flat organization structure.

ANS: D PTS: 1 REF: p. 23 OBJ: LO: 01-06 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Technology KEY: Bloom's: Analysis

32. McDonalds’ consumer products are made primarily of renewable materials; some of the material comes from recycled fiber. The restaurants also utilize LED light fixtures. McDonald’s is engaging in _____. a. future sourcing b. global warming c. next-generation consumer hook d. digital divide e. sustainable development ANS: E PTS: 1 REF: p. 24 OBJ: LO: 01-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Application

33. Which of the following is NOT true regarding results from a survey by the World Bank on corporate social responsibility (CSR)? a. CSR practices are now a significant factor in determining where multinational companies conduct business.

b. 90% of the companies surveyed have board-approved policies on environmental management. c. 90% of multinationals will make their decisions based on CSR issues with regard to foreign direct investment. d. CSR issues consistently implemented for the long term lead to sustainable business and development. e. CSR includes issues such as labor rights, corruption, human rights, community health, and land rights.

ANS: C PTS: 1 REF: p. 24 OBJ: LO: 01-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Challenging NAT: BUSPROG: Ethics KEY: Bloom's: Evaluation

34. Successive waves of globalization include characteristics such as the expansion of trade, the diffusion of technology, extensive migration, and _____. a. improvements in country infrastructure b. increased employee morale c. improved healthcare d. financial independence e. cross-fertilization of diverse cultures ANS: E PTS: 1 REF: p. 25 OBJ: LO: 01-07 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

35. Which of the following is NOT true regarding globalization? a. It guarantees that quality of life for all people will increase. b. It creates winners and losers. c. It has the potential to increase the quality of life for people. d. Some multinational companies will utilize globalization may try to pay substandard wages to the workers they employ in developing countries. e. Export barriers may need to be imposed by the WTO to help regulate the actions of multinational companies.

ANS: A PTS: 1 REF: p. 25 OBJ: LO: 01-07 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

36. All of the following countries can be considered globalization “winners” EXCEPT: a. China b. Central Asia c. India d. Brazil e. South Africa ANS: B PTS: 1 REF: p. 25 OBJ: LO: 01-07 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

37. Which of the following is NOT true regarding globalization’s “winners” and “losers?” a. Brazil has been flourishing due to gloablization. b. According to the World Bank, more than 400 million Chinese citizens have climbed out of poverty since the implementation of economic reform that started in

their country. c. Those that suffer most from the effects of globalization are those countries that have not been able to seize the opportunities to participate in this process. d. Unfortunately, globalization only creates winners in industralized countries such as the United States. e. Efforts to hold back globalizaiton or technological progress are bound to fail.

ANS: D PTS: 1 REF: p. 25 OBJ: LO: 01-07 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

COMPLETION 1. The socio-economic reform process of eliminating trade, investment, cultural, information technology, and political barriers across countries, which in turn could lead to increased economic growth and geo-political integration and interdependence among nations of the world refers to ________.

ANS: globalization PTS: 1 DIF: Difficulty: Moderate REF: p. 5 OBJ: LO: 01-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 2. Countries that are implementing more open trade and free market policies are called ______.

ANS: emerging market economies PTS: 1 DIF: Difficulty: Easy REF: p. 6 OBJ: LO: 01-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 3. _______ refers to a fundamental global shift in which industrialized country-dependent developing economies begin to grow based on their own underlying economic strengths rather than the ups and downs of the world’s richest countries.

ANS: Decoupling PTS: 1 DIF: Difficulty: Moderate REF: p. 8 OBJ: LO: 01-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 4. A world economy in which the engines of growth could comprise several major industrialized and emerging market economies such as the United States, the European Union, China, India, Brazil, Russia, and South Africa rather than the United States alone is called ______.

ANS: multi-polar world PTS: 1 DIF: Difficulty: Moderate REF: p. 9 OBJ: LO: 01-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

5. The international financial environment in which exchange rates and international payments for goods and services are conducted refers to _________.

ANS: international monetary system PTS: 1 DIF: Difficulty: Moderate REF: p. 11 OBJ: LO: 01-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 6. ________ are economic policy changes that promote private sector development, competitive markets, market-pricing, freer trade, and deregulation.

ANS: Economic reforms PTS: 1 DIF: Difficulty: Easy REF: p. 11 OBJ: LO: 01-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 7. A stock exchange where long-term financial instruments such as stocks and bonds can be bought and sold refers to _______.

ANS: capital markets PTS: 1 DIF: Difficulty: Easy REF: p. 12 OBJ: LO: 01-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 8. _______ refers to lowering and/or removing trade barriers such as tariffs, quotas, and subsidies.

ANS: Liberalization of the trading system PTS: 1 DIF: Difficulty: Easy REF: p. 13 OBJ: LO: 01-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Knowledge KEY: Bloom's: Knowledge 9. The rules, enforcement mechanisms, and organizations that support market transactions are called ______.

ANS: institutions PTS: 1 DIF: Difficulty: Easy REF: p. 15 OBJ: LO: 01-03 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 10. ______ are government organizations that create strong incentives for private investment and operate under a system of checks and balances.

ANS: Adaptive institutions PTS: 1 DIF: Difficulty: Moderate REF: p. 15 OBJ: LO: 01-03 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

11. A system of responsibility in which an authority, such as the government, is answerable for its actions refers to ________.

ANS: accountability PTS: 1 DIF: Difficulty: Moderate REF: p. 15 OBJ: LO: 01-03 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 12. ______ is a system of full disclosure and openness that aims to avoid any semblance of corruption and cronyism.

ANS: Transparency PTS: 1 DIF: Difficulty: Easy REF: p. 15 OBJ: LO: 01-03 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 13. National laws aimed at maintaining competition in all sectors of the economy and preventing monopolistic behavior of firms are called _______.

ANS: antitrust laws PTS: 1 DIF: Difficulty: Easy REF: p. 18 OBJ: LO: 01-04 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 14. The period of transformation that adjusts lifestyles to make the Internet and wireless technologies a part of everyday life refers to the ______.

ANS: digital era PTS: 1 DIF: Difficulty: Easy REF: p. 19 OBJ: LO: 01-05 NAT: BUSPROG: Communication STA: DISC: Information Technology KEY: Bloom's: Knowledge 15. _______ refers to the amount of data and other information that can be transferred in a second via the Internet.

ANS: Bandwith PTS: 1 DIF: Difficulty: Easy REF: p. 19 OBJ: LO: 01-05 NAT: BUSPROG: Communication STA: DISC: Information Technology KEY: Bloom's: Knowledge 16. The perceived economic gap between countries or people with easy access to digital and information technology (and its benefits) and those with very limited access, or none at all refers to the ________.

ANS: digital divide PTS:

1

DIF:

Difficulty: Moderate

REF: p. 21

OBJ: LO: 01-05 NAT: BUSPROG: Communication STA: DISC: Information Technology KEY: Bloom's: Knowledge 17. Economic development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs, whether environmentally, socially or economically is called ______.

ANS: Sustainable development PTS: 1 DIF: Difficulty: Moderate REF: p. 24 OBJ: LO: 01-06 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge ESSAY 1. Differentiate between the International Monetary Fund and the World Bank as institutions facilitating globalization.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 10-12 OBJ: LO: 01-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis 2. The World Trade Organization has no role in facilitating globalization. Do you agree? Defend your position.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 12-13 OBJ: LO: 01-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 3. Identify and explain the characteristics of strong institutional structure necessary to adapt to globalization.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 14-16 OBJ: LO: 01-03 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Synthesis 4. Identify and describe any two key policy measures that make globalization sustainable.

ANS: Student answers will vary.

PTS:

1

DIF:

Difficulty: Moderate

REF: p. 24-25

OBJ: LO: 01-04 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 5. Given the rapid advancements in technology in developed countries and fast pace of globalization, it is not possible to bridge the global digital divide. Do you agree with this statement? Why or why not?

Explain.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 21-22 OBJ: LO: 01-05 NAT: BUSPROG: Technology STA: DISC: Information Technology KEY: Bloom's: Evaluation 6. Present the arguments against globalization. Do you agree or disagree with them? Support your position using examples.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 22-26 OBJ: LO: 01-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation CASE Scenario – T & M Computers Thomas Benson and Matthew Roderick started a small computer business ten years ago in Rapid City, South Dakota. Armed only with determination and innovative designs, Thomas and Matthew were driven to achieve success for their company, T & M Computers. Their hard work has indeed, paid off.

Since the inception of the company, the two owners have watched their business grow and demand for their products increase.

Four years ago due to this high product demand, they went international with their business operations.

Thomas and Matthew now have international business operations in Singapore, France, Turkey, and Great Britain. Further operational expansion is anticipated within the next year and the company plans to begin operations in Spain, Greece, and Italy.

The owner’s hard work and dynamic ideas have proven quite profitable for the company. Thomas and Matthew are pleased with how their operation has grown into becoming a major international business worthy of competing with Intel and Microsoft. T & M Computers may well be the next giant recognized in the field of computer software.

1. T & M Computers are conducting international business operations in world areas, which have recently undergone financial turmoil. Of the following, which organization is most likely to provide assistance in providing global financial stability? a.

International Monetary Fund b.

The United Nations c.

The World Bank d.

The Global Center for Financial Restructuring

e.

The World Trade Organization

ANS: a PTS: 1 DIF: Difficulty: Challenging REF: p. 10-11 OBJ: LO: 01-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. Which one of the following would T & M Computers least expect to be a negative influence from the sovereign governments within the nations where their business operations are located? a.

Military hostilities b.

Protectionist policies c.

Promotion of economic growth and job creation d.

Stiff environmental standards e.

Stringent immigration policies ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 11 OBJ: LO: 01-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. T & M Computers plans to begin operations in areas that recently needed financial assistance and undergone certain levels of reconstruction and reorganizing to their economies. Which organization listed below is most likely to have played an integral part in this? a.

The World Trade Organization b.

The World Bank Group c.

The International Development Association d.

The International Finance Corporation e.

The sovereign government of Greece ANS: b PTS: 1 DIF: Difficulty: Challenging REF: p. 11 OBJ: LO: 01-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation Scenario – The Everline Corporation The Everline Corporation is a multinational business that provides state-of-the-art digital communication capabilities to its global customers. Originally operating as a U.S. domestic business based in Duluth, Minnesota, Everline quickly seized on the opportunity provided by international expansion. Within two years, the corporation had expanded into fourteen foreign nations found throughout the Middle East, Europe, Asia, and South America.

Everline understands the vital importance of offering effective and affordable communication products to its customers. It realizes the value consumers place on being able to communicate with businesses without delays or hassles. The corporation recognizes its customers need to quickly and efficiently communicate with others in the global marketplace of today.

Fueled by its staff of innovative and highly skilled communication engineers, the future for Everline looks more and more promising. Communication needs around the globe continue to grow and this business stands ready to fill the demand. With net profits expected to reach one billion dollars in the next year, this company is decidedly reaping the rewards of its hard work.

4. The Everline Corporation is currently conducting its international communication business during a period of time that is experiencing rapid changes and challenges. Individuals and organizations are adjusting their lifestyles and methods of operations to fully utilize the modern communication technologies available in the marketplace. The time period Everline is currently operating under is best classed as which one of the following terms? a.

Digital proliferation b.

Modern communication era c.

Digital divide d.

Communication decade e.

Digital era ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 19 OBJ: LO: 01-05 NAT: BUSPROG: Technology STA: DISC: Information Technology KEY: Bloom's: Analysis 5. There is a perceived economic gap among the various foreign customers of the Everline Corporation.

This is thought to be mainly the result of the level of access or lack thereof to modern digital information technologies experienced within these individual countries. Considering this perceived economic gap, Everline’s operations may be experiencing influence identified as which of the following? a.

Digital stagnation b.

Digital era c.

Digital divide d.

Bandwidth technology era e.

Web revolution ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 21 OBJ: LO: 01-05 NAT: BUSPROG: Technology STA: DISC: Information Technology KEY: Bloom's: Evaluation 6. The Everline Corporation’s future business plans include expanding into foreign markets where the use of mobile Web browsing is growing rapidly. Which one of the following countries would this organization be least likely to look toward to include in their future expansion plans? a.

India b.

South Africa c.

Indonesia d.

Canada

e.

Russia

ANS: d PTS: 1 DIF: Difficulty: Moderate REF: p. 20 OBJ: LO: 01-05 NAT: BUSPROG: Technology STA: DISC: Information Technology KEY: Bloom's: Evaluation 7. The mangers of the Everline Corporation attribute their company’s continued profitability to the idea that globalization and information technology are closely related to one another. They acknowledge that the information technology revolution has occurred almost instantaneously. Which one of the following would not be considered a benefit derived from this so-called revolution? a.

Societal hierarchies have grown in number to better accommodate information technology changes. b.

A more free flow of capital across national boundaries has occurred. c.

Operating costs have decreased for many businesses. d.

The production of goods and services has become globalized. e.

The costs of communication are reduced.

ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 20 OBJ: LO: 01-05 NAT: BUSPROG: Technology STA: DISC: Information Technology KEY: Bloom's: Evaluation Scenario – The Renna Company Established in 1956, the Renna Company has always maintained its operations within the boundaries of the United States. Originally based in Lexington, Kentucky, this company has now expanded operations into thirteen other U.S. states. While it’s inexpensive and efficient cooling and heating products are in high demand even in foreign markets, this company contends it has no desire for international expansion.

Conducting operations strictly within the U.S. borders does not appear to have limited this company overly much. It realized net profits of two billion dollars last year and provided gainful employment for over four thousand workers. The leaders of the Renna Company realize greater profits could be attained through international expansion. However, they stand in agreement when they state, “It is not always the money that best defines the worth of an organization.”

The company desire to stay true to its mission statement, which claims, “It will serve the marketplace of the United States with its superior products and provide job opportunities with a fair wage for its employees.” The Renna Company is very proud of its products and enjoys the fact they are produced and sold in the United States of America. This company truly reflects the success possible when holding to the fact that “Made in America” is still a winner.

8. Which one of the following statements is least likely to be a rationale explaining why the Renna Company staunchly desires to avoid global expansion? a.

Globalization can create a wearing away of old industries. b.

Globalization brings into play the concept of sustainable development. c.

Globalization can contribute to an increase in environmental degradation. d.

Global expansion often leads to greater integration and interdependence among

e.

economies and societies, which can bring about injustices.

Economic change comes with a high price tag including job losses and wages that become stagnant.

ANS: b PTS: 1 DIF: Difficulty: Moderate REF: p. 24 OBJ: LO: 01-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 9. All of the following are examples of counterarguments the Renna Company should consider before continuing with their stand of keeping their operations strictly within the borders of the United States except which one? a.

Global expansion affords a strong potential for costs of both product production and product purchase to decrease. b.

Life expectancy may increase for members of the population within the nations involved in globalization due to the increased quality of life. c.

Globalization contributes to faster economic growth for the nations involved. d.

The quality of life is most likely to improve for the citizens of the nations that are involved with globalization and trade. e.

The wage levels of each nation may become stagnant and some workers may become displaced, having been replaced by less expensive foreign labor.

ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 25 OBJ: LO: 01-07 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 10. The Renna Company has a clear understanding of the benefits of economic development. Economic development which meets the needs of the present generation without compromising the ability of future generations to meet their own needs, whether environmentally, socially or economically is best identified as which one of the following? a.

Sustainable development b.

Reform process c.

Trade liberalization d.

Corporate social responsibility e.

Environmental degradation ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 24 OBJ: LO: 01-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 11. The top management members of the Renna Company have outlined the pros and cons associated with global expansion of their operations. Which one of the following items would not be considered a benefit their company could gain should they ever decide to venture into the international marketplace?

a. b. c. d. e.

Improved quality of life for members of the societies involved Greater access to technologically intensive manufacturing techniques Loss of domestic jobs and a decrease to the prevailing wage scale Lower cost of imported goods Poverty reduction

ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 25 OBJ: LO: 01-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis

Chapter 2: The Evolution of International Business TRUE/FALSE 1. The growth trends in China and India today illustrate the impact that international business has on blue-collar and white-collar workers in wealthy countries as relatively low-skill factory jobs as well as high-skill service profession jobs migrate overseas.

ANS: T PTS: 1 REF: p. 36 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

2. One way international trade benefits consumers is by providing lower living standards.

ANS: F PTS: 1 REF: p. 36 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

3. It is estimated that for every billion dollars worth of exports from the United States, 100,000 domestic jobs are created.

ANS: F PTS: 1 REF: p. 37 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

4. Foreign direct investment (FDI) in a country brings funds and business culture from abroad, creates new well-paying jobs, introduces innovative technologies, and enhances the skills of domestic workers.

ANS: T PTS: 1 REF: p. 38 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

5. Emerging countries like Brazil, Russia, India, and China (BRIC) that have large populations, an expanding middle class, and a combination of relatively low wage-rates and rapidly growing economies tend to attract sizable less amounts of foreign investment.

ANS: F PTS: 1 REF: p. 38 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

6. Dubai, a regional center for global companies, continues to attract sizable amounts of foreign investment given its strategic location, world-class infrastructure, and productive workforce.

ANS: T PTS: 1 REF: p. 38 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

7. Mercantilists believed that for a nation to become wealthy, that nation must export as much as possible and, in turn, import as little as possible.

ANS: T PTS: 1 REF: p. 40 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

8. Factor price equalization theory, states that when factors are allowed to move freely among trading nations, efficiency increases, which leads to equality of factor prices among these countries.

ANS: T PTS: 1 REF: p. 43 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

9. Porter exemplifies China as a powerhouse for consumer electronics because of the quality and quantity of its engineers, and the ability and willingness of Chinese consumers to try out new electronic products that are perfected and later exported.

ANS: F PTS: 1 REF: p. 44 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

10. Porter stresses the importance of domestic demand for goods and services when determining a nation’s competitive advantage. When domestic demand remains high, the number of suppliers will also be high.

ANS: T PTS: 1 REF: p. 44 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

11. Competitive industrial structures are unlikely to create innovative or dynamic firms willing to compete abroad. However, a monopolistic industry will foster innovative, cost efficient, aggressive firms that can adjust to changing economic conditions at home and will be well prepared to compete abroad.

ANS: F PTS: 1 REF: p. 45 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

12. An ad valorem tariff describes a tax on imports levied as a constant percentage of the monetary value of one unit of the imported good.

ANS: T PTS: 1 REF: p. 47 OBJ: LO: 02-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. An export taxes refers to a negative tariff or tax aimed at boosting exports by lowering export prices. On the other hand, export subsidy is meant to discourage exports and to keep production at home.

ANS: F PTS: 1 REF: p. 47 OBJ: LO: 02-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

14. Managed trade aims to replace global market or economic forces with government actions to determine trade outcomes.

ANS: T PTS: 1 REF: p. 49 OBJ: LO: 02-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

15. Developed countries often resort to managed trade for reasons of unethical labor practices and violation of basic human rights.

ANS: T PTS: 1 REF: p. 51 OBJ: LO: 02-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

MULTIPLE CHOICE 1. The world’s two largest economies in terms of national income in the early-19th century were _____. a. China and India b. the United States and Canada c. Japan and China d. India and Japan e. the United States and Mexico ANS: A PTS: 1 REF: p. 35 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. Analysts believe that by 2020 _____will become the world’s largest economy, followed by _____ and _____. a. India; the United States and China b. China; the United States and India c. Japan; China and Mexico d. India; Japan and Canada e. the United States; Mexico and Canada ANS: B PTS: 1 REF: p. 35 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

3. In the 3,000 B.C., Sumerian farmers realized that the grain surplus they produced could be used as barter for things they did not have. Therefore, the Sumerians obtained copper from Sinai Desert traders who were located several hundred miles to the west in order to make weapons and repel nomadic raiders. The Sumerians engaged in _____ a. international business b. in-border business c. environmental business d. national business e. domestic business ANS: A PTS: 1 REF: p. 36 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

4. The two-way flow of exports and imports of goods and services is known as _____. a. a partnership b. a sole proprietorship c. angel investing d. a joint venture e. trade ANS: E PTS: 1 REF: p. 36 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

5. Of the following statements about trade, which is NOT true? a. Trade generates jobs in both export and import sectors of an economy. b. The gains from open trade are always greater than the losses. c. Open trade and investment does create winners and losers. d. Trade does not influence culture. e. Trade is the two-way flow of exports and imports of goods and services.

ANS: D PTS: 1 REF: p. 37 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

6. It is estimated that for every billion dollars worth of exports from the United States _____ domestic jobs are created. a. 5,000 b. 20,000 c. 100,000 d. 500,000 e. 1,000,000 ANS: B PTS: 1 REF: p. 37 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

7. Which of the following was NOT one of the top exporting nations in 2010? a. The United States b. South Korea

c. Italy d. Australia e. Belgium ANS: D PTS: 1 REF: p. 38 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

8. The corporate practice of acquiring or producing quality goods or services at a lower cost abroad thereby eliminating domestic production is called _____. a. outsourcing b. exporting c. importing d. foreign investment e. trading ANS: A PTS: 1 REF: p. 38 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

9. Of the following statements about foreign direct investment, which is NOT true? a. FDI in a country brings funds and business culture from abroad. b. Governments all over the world try to create a business-friendly environment to attract such investments. c. FDI creates new well-paying jobs. d. Foreign investors have little faith in high-income economies such as Canada. e. Foreign investment flows are generally based on long-term global or country outlook.

ANS: D PTS: 1 REF: p. 38 OBJ: LO: 02-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

10. Endowments used to produce goods and services are called _____. a. factor equalizations b. imports c. outputs d. factors of production e. mercantilism ANS: D PTS: 1 REF: p. 40 OBJ: LO: 02-02 STA: DISC: Creation of Value

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

11. The oldest form of trade theory is called _____. a. mercantilism b. factor equalization c. Machiavellianism d. absolute advantage e. comparative advantage

ANS: A PTS: 1 REF: p. 40 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

12. When was mercantilism practiced? a. 1300-1400 b. 1500-1750 c. 1820-1875 d. 1900-1975 e. 1990-2010 ANS: B PTS: 1 REF: p. 40 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. Of the following statements about mercantilism, which is NOT true? a. It was practiced as Europe emerged from the feudal systems of the Middle Ages and moved toward nationalism b. Mercantilists believed that for a nation to become wealthy, that nation must export as much as possible and, in turn, import as little as possible. c. During the time it was practiced, wealth was largely determined by the amount of land one had access to. d. Mercantilists did not want, or care, to see the big picture. e. Mercantilists encouraged their people to produce large families.

ANS: C PTS: 1 REF: p. 40 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

14. During the mid-18th century, British economist ________, who came to be known as the father of free market and open trade systems, recognized the absurdity of Mercantilism. a. Bertil Ohlin b. Eli Heckscher c. Adam Smith d. Henry Ford e. John Locke ANS: C PTS: 1 REF: p. 41 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

15. Assume that because of soil and climatic conditions, Columbia is more efficient in the production of coffee than India. At the same time India is more efficient in the production of wheat than Columbia. Each of these countries can be said to have a(n) _____. a. absolute advantage b. comparative advantage c. factor endowment destruction in land d. bartering disadvantage e. mercantile disadvantage ANS: A

PTS:

1

DIF:

Difficulty: Challenging

REF: p. 41 OBJ: LO: 02-02 STA: DISC: Environmental Influence

NAT: BUSPROG: Diversity KEY: Bloom's: Application

16. The ability of one country to produce a good or service more efficiently than another is called a(n) _____. a. absolute advantage b. comparative advantage c. barter trade d. inorganic advantage e. equalization efficiency ANS: A PTS: 1 REF: p. 42 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

17. The ability of one country that has an absolute advantage in the production of two or more goods (or services) to produce one of them relatively more efficiently than the other is called a(n) _____. a. absolute advantage b. comparative advantage c. factor price d. competitive advantage e. equalization ANS: B PTS: 1 REF: p. 42 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

18. The _____ theory attributes the comparative advantage of a nation to its factor endowments. a. absolute advantage b. comparative advantage c. factor price d. Heckscher-Ohlin e. mercantilism ANS: D PTS: 1 REF: p. 42 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

19. The key assumptions for the H-O theory to work are: 1) perfect competition in the marketplace; and (2) _____. a. perfect immobility of factors of production among countries b. superior allocation of production of goods and services c. very small labor force d. the existence of a trade surplus e. the acceleration of a trade deficit ANS: A PTS: 1 REF: p. 43 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

20. The _____ states that when factors are allowed to move freely among trading nations, efficiency increases, which leads to price of factors becoming equal among countries. a. factor-price equalization theory b. diamond theory c. trade policy theory d. managed trade theory e. trade deficit theory ANS: A PTS: 1 REF: p. 43 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

21. When Poland entered the European Union –where there is free movement of labor across member countries –some of the abundant Polish plumbers migrated to the United Kingdom to fill the shortage there. The net result was that wages for plumbers in the U.K. stabilized or softened and wage rates for plumbers in Poland increased. As the U.K. consumer of plumbing services benefited from this development, one could argue that the real income of the British consumer was, therefore, enhanced. This is an example of the _____. a. factor-price equalization theory b. diamond theory c. trade policy theory d. managed trade theory e. trade deficit theory ANS: A PTS: 1 REF: p. 43 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

22. Who authored The Competitive Advantage of Nations? a. Bertil Ohlin b. Eli Heckscher c. Michael Porter d. Henry Ford e. John Locke ANS: C PTS: 1 REF: p. 43 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

23. How does Porter’s model of national competitive advantage differ from the Heckscher-Ohlin theory? a. It looks more closely at the quality of factor endowments. b. It examines only a country’s imports. c. It examines only a country’s exports. d. It does not encourage trade. e. It does not explain why there are “winners” and “losers” in international trade.

ANS: A PTS: 1 REF: p. 44 OBJ: LO: 02-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

24. Historically, the main instrument of trade policy has been _____. a. export subsidy b. export taxes c. corporate duties d. import tariff e. special tariff ANS: D PTS: 1 REF: p. 47 OBJ: LO: 02-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

25. Until January 1, 2012, the price for ethanol consumers in the United States was higher than world free-market price by $0.54 per gallon because of the $0.54 per gallon tariff imposed by the U.S. government on ethanol imports. This is an example of a(n) _____ tariff. a. custom b. ad valorem c. specific d. preferential e. generalized ANS: C PTS: 1 REF: p. 47 OBJ: LO: 02-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

26. Taxes on imports that are collected by a designated government agency responsible for regulating imports are called _____. a. custom duties b. ad valorem tariffs c. specific tariffs d. preferential tariffs e. generalized tariffs ANS: A PTS: 1 REF: p. 47 OBJ: LO: 02-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

27. An agreement where a large number of developed counties permit duty-free imports of a selected list of products that originate from specific countries is known as _____. a. a custom duty b. an ad valorem agreement c. an export agreement d. the generalized system of preferences e. an import agreement ANS: D PTS: 1 REF: p. 47 OBJ: LO: 02-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

28. An agreement among WTO countries in which any tariff concession granted by one member to any other country will automatically be extended to all other countries of WTO is called the _____ principle.

a. b. c. d. e.

absolute advantage comparative advantage most favored nation voluntary export shared wealth

ANS: C PTS: 1 REF: p. 48 OBJ: LO: 02-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

29. The U.S. government may require that apparel imported into the United States should use U.S. cotton, or use a certain amount of American labor. This is an example of a(n) _____. a. quantitative restrictions b. qualitative restrictions c. domestic content import d. voluntary export restriction e. domestic content provision ANS: E PTS: 1 REF: p. 49 OBJ: LO: 02-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

30. _____ refers to agreements, sometimes temporary, between countries (or a group of countries) that aim at achieving certain trade outcomes. a. Quantitative agreements b. Qualitative agreements c. Managed trade agreements d. Voluntary export agreements e. Domestic content provision agreements ANS: C PTS: 1 REF: p. 49 OBJ: LO: 02-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

31. Of the following, which is NOT in the socio-economic category of managed trade? a. Ethics and safety b. The infant industry argument c. Countertrade d. National security e. Export cartels ANS: D PTS: 1 REF: p. 50 OBJ: LO: 02-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

32. During the Soviet days, the government of India imported Soviet fighter jets and other defense hardware in exchange for Indian-made consumer goods such as soaps, detergents, and copy machines. This is an example of _____. a. countertrade b. illegal trade c. an export cartel

d. an embargo e. managed trade ANS: A PTS: 1 REF: p. 50 OBJ: LO: 02-04 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

33. A group of countries that could effectively control export volume to keep their export prices, revenues, and economic growth stable or high is known as a(n) _____. a. alliance b. joint venture c. export cartel d. embargo e. managed trade agreement ANS: C PTS: 1 REF: p. 50 OBJ: LO: 02-04 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

34. Of the following, which is NOT in the geo-political category of managed trade? a. Ethics and safety b. National security c. Strategic industries d. Embargoes e. Protection of critical industries ANS: A PTS: 1 REF: p. 52 OBJ: LO: 02-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

35. The United States has maintained a trade embargo for almost 50 years with _____ in an attempt to put pressure on the country to move toward democracy. a. the Ukraine b. the Netherlands c. Turkey d. Italy e. Cuba ANS: E PTS: 1 REF: p. 52 OBJ: LO: 02-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

COMPLETION 1. All commercial transactions, both private and public between nations of the world refers to _________.

ANS: international business PTS:

1

DIF:

Difficulty: Easy

REF: p. 36

OBJ: LO: 02-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 2. The two-way flow of exports and imports of goods is called ______.

ANS: trade PTS: 1 DIF: Difficulty: Easy REF: p. 36 OBJ: LO: 02-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 3. _______ refers to inflows of capital from abroad for investing in domestic plant and equipment for the production of goods and/or services as well as for buying domestic companies.

ANS: Foreign direct investment PTS: 1 DIF: Difficulty: Moderate REF: p. 37 OBJ: LO: 02-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 4. _______ refers to the corporate practice of acquiring or producing quality goods or services abroad at a lower cost thereby eliminating domestic production.

ANS: Outsourcing PTS: 1 DIF: Difficulty: Moderate REF: p. 38 OBJ: LO: 02-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 5. _______ refers to a theory of international trade that supports the premise that a nation could only gain from trade if it had a trade surplus.

ANS: Mercantilism PTS: 1 DIF: Difficulty: Moderate REF: p. 40 OBJ: LO: 02-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 6. Endowments used to produce goods and services are called ______.

ANS: factors of production PTS: 1 DIF: Difficulty: Easy REF: p. 40 OBJ: LO: 02-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 7. When the value of exports exceeds the value of imports, this refers to ______.

ANS: trade surplus PTS: 1 DIF: Difficulty: Easy REF: p. 40 OBJ: LO: 02-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 8. _______ refers to the ability of one country to produce a good or service more efficiently than another.

ANS: Absolute advantage PTS: 1 DIF: Difficulty: Easy REF: p. 42 OBJ: LO: 02-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 9. The ability of one country that has an absolute advantage in the production of two or more goods (or services) to produce one of them relatively more efficiently than the other refers to ______.

ANS: comparative advantage PTS: 1 DIF: Difficulty: Moderate REF: p. 42 OBJ: LO: 02-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 10. All government actions that seek to alter the size of merchandise and/or service flows from and to a country refers to ______.

ANS: trade policy PTS: 1 DIF: Difficulty: Easy REF: p. 47 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 11. ______ refers to taxes on imports (also known as custom duties in some countries).

ANS: Tariffs PTS: 1 DIF: Difficulty: Easy REF: p. 47 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 12. ______ refers to an import tax that assigns a fixed dollar amount per physical unit.

ANS: Specific tariff PTS: 1 DIF: Difficulty: Easy REF: p. 47 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

13. A tax on imports levied as a constant percentage of the monetary value of one unit of the imported good refers to ______.

ANS: ad valorem tariff PTS: 1 DIF: Difficulty: Moderate REF: p. 47 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 14. ______ refers to an especially advantageous or low import tariff established by a nation for all or some goods of certain countries and not applied to the same goods of other countries.

ANS: Preferential duties PTS: 1 DIF: Difficulty: Moderate REF: p. 47 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 15. ______ refers to an agreement where a large number of developed countries permit duty-free imports of a selected list of products that originate from specific countries.

ANS: Generalized system of preferences PTS: 1 DIF: Difficulty: Moderate REF: p. 47 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 16. ______ refers to a negative tariff or tax aimed at boosting exports.

ANS: Export subsidy PTS: 1 DIF: Difficulty: Easy REF: p. 47 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 17. Taxes meant to raise export cost and divert production for home consumption refers to _______.

ANS: export taxes PTS: 1 DIF: Difficulty: Easy REF: p. 47 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 18. ______ refers to an agreement among WTO countries in which any tariff concession granted by one member to any other country will automatically be extended to all other countries of WTO.

ANS: Most favored nation PTS: 1 DIF: Difficulty: Moderate REF: p. 48 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 19. _______ refers to regulations that limit the amount or number of units of products that can be imported to a country.

ANS: Import quotas PTS: 1 DIF: Difficulty: Easy REF: p. 49 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 20. _______ refers to a non-tariff barrier in which an efficient exporting nation agrees to limit exports of a product to another country for a temporary period.

ANS: Voluntary export restraint PTS: 1 DIF: Difficulty: Moderate REF: p. 49 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 21. Regulations requiring that a certain percentage of the value of import be sourced domestically refers to _______.

ANS: domestic content provisions PTS: 1 DIF: Difficulty: Moderate REF: p. 49 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 22. Agreements, sometimes temporary, between countries (or a group of countries) that aim at achieving certain trade outcomes refers to _______.

ANS: managed trade PTS: 1 DIF: Difficulty: Moderate REF: p. 49 OBJ: LO: 02-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 23. Agreement in which an exporter of goods or services to another country commits to import goods or services of corresponding value from that country is called ______.

ANS: countertrade PTS: 1 OBJ: LO: 02-04

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity

REF: p. 50

STA: DISC: Environmental Influence

KEY: Bloom's: Knowledge

24. _______ refers to a group of countries that could effectively control export volume to keep their export prices, revenues, and economic growth stable or high.

ANS: Export cartel PTS: 1 DIF: Difficulty: Moderate REF: p. 50 OBJ: LO: 02-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 25. _______ refers to the temporary provision of protection to nascent industries that have good prospects of becoming globally competitive in the medium term.

ANS: Infant industry argument PTS: 1 DIF: Difficulty: Moderate REF: p. 51 OBJ: LO: 02-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 26. Trade sanctions which are imposed upon a nation to restrict trade with that country refers to _______.

ANS: embargoes PTS: 1 DIF: Difficulty: Easy REF: p. 52 OBJ: LO: 02-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge ESSAY 1. Defend the following statement: Trade and foreign investment are good for society.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 35-40 OBJ: LO: 02-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. Compare and contrast theories of absolute and comparative advatages.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 41-42 OBJ: LO: 02-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis

3. Differentiate between H-O theory and factor price equalization theory.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 42-43 OBJ: LO: 02-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis 4. Explain Porter’s “Diamond” model of national competitive advantage.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 43-46 OBJ: LO: 02-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 5. Briefly describe some of the main instruments of trade policy that countries use to interfere with free trade.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 47-48 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 6. Briefly explain the socio-economic and geo-political rationales that policymakers in countries use in practicing managed trade.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 49-53 OBJ: LO: 02-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis CASE Scenario – Power Trip Unlimited, LLC

Is it hurricane season? Is there a tsunami warning? Did an earthquake take place somewhere in the world? While these are not pleasant questions to ask, the Miami, Florida-based business Power Trip Unlimited needs to be ready to quickly respond to such events. This unique company offers a vast line of emergency generators and supplies to help individuals caught in the devastation these types of natural occurrences can create.

Staffed by experts in the generator field, Power Tripp Unlimited has assisted numerous people begin the recovery process in the aftermath of a calamity. In the past year alone, sales for this company have surpassed every goal that was set. This financial boom occurred while the company conducted sales only in the U.S. market.

Power Trip’s management team now realizes that foreign markets such as India and China offer incredible opportunities for the company. Both foreign nations desire to engage in trade with the company in exchange for allowing its products to be introduced within their borders. India and China have agreed to supply Power Trip with several necessary components for its generators in exchange for allowing the company free operations inside their national boundaries. Power Trip realizes there are numerous challenges facing the company in the foreign market arena. But guided by the belief in the expertise of its staff and the quality of its products, it is ready to face any challenges foreign markets put in front of them. This company stands eagerly poised awaiting its first international sale.

1. The agreement between Power Trip Unlimited, China, and India to engage in foreign trade will ultimately provide greater opportunities for consumers of Power Trip’s products.

Which one of the following is least likely to be considered a benefit of this trade agreement? a.

Consumer choices may be limited by government restrictions on the operational capacity of the various products. b.

There will be a greater amount of choice for consumers. c.

Consumers may be offered a lower price on the goods. d.

Consumers will be afforded a higher living standard. e.

Consumers may have greater access to the product during emergency situations ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 36-37 OBJ: LO: 02-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. Which one of the following would be the least restrictive way in which India and China could impede sales of Power Trip’s products within their borders despite the agreement to allow free operations of the company within their nations’ boundaries? a.

Place a tariff on the products b.

Establish an ad valorem tariff for the products c.

Establish a generalized system of preferences (GSP) d.

Establish a very high specific tariff e.

Establish stringent custom duties ANS: c

PTS: 1 DIF: Difficulty: Moderate REF: p. 47-49 OBJ: LO: 02-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. The agreement reached between Power Trip and the two foreign nations where they would sell components to Power Trip in exchange for allowing sales of its products within their borders most closely resembles which one of the following? a.

Subsidizing exports b.

Establishing a generalized system of preferences c.

Development of a domestic content provision d.

Establishment of a quantitative restriction (QR) e.

Engagement in countertrade ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 49-50 OBJ: LO: 02-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation Scenario – The Audrey Firm The Audrey Firm is an international trade consulting firm currently providing its services in eight foreign nations. The primary goal of this company is to prevent trade missteps from taking place between foreign nations conducting business with each other. The participating nations prefer to seek counsel with this firm before any of their actions result in major international involvement or World Trade Organization intervention.

In the past, the Audrey Firm’s team of experts has handled international situations having the potential to create serious unrest between neighboring countries. Their guidance and expertise have been successful in keeping trade operating freely in several areas of the globe. The Audrey Firm is receiving an award for their exemplary service later this year in Washington D.C. 4. As one of the Audrey Firm’s more prestigious clients, OPEC, which exemplifies an export cartel, requires constant overseeing to ensure it complies with the agreement arranged for export cartels. Which one of the following items is least likely to appear on this type of agreement? a.

Substitutes for the goods being offered must not be available b.

Demand for the product in question must be elastic c.

There needs to be a strong demand for the product in question at basically any price d.

There must be no cheating on the stated agreement by the agreeing members e.

Inelasticity in the demand for the product being offered must exist ANS: b PTS:

1

DIF:

Difficulty: Moderate

REF: p. 50-51

OBJ: LO: 02-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. Many of the clients engaging the services of the Audrey Firm practice managed trade. All of the following would most likely be a practice these nations engage in when conducting trade with other nations except which one? a.

Offer protection for specific companies b.

Adhere to stringent guidelines concerning the use of child labor c.

Pay close attention to the safety of products produced d.

Embargoes are employed to punish nations engaging in offensive practices e.

Strategic industries are given free rein in their trade practices ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 49-53 OBJ: LO: 02-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. The clients of the Audrey Firm use various techniques to restrict imports to their countries other than tariffs. Which one of the following would not be considered a nontariff barrier used by the clients of the Audrey Firm? a.

Import quotas b.

Voluntary export restraint c.

Quantitative restrictions d.

Preferential duties e.

Domestic content provisions ANS: d PTS: 1 DIF: Difficulty: Easy REF: p. 49 OBJ: LO: 02-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation

Chapter 3: Regional Economic Integration TRUE/FALSE 1. One could argue that regional and global integration are not complements, but substitutes to economic development of a particular region.

ANS: F PTS: 1 REF: p. 60 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

2. Both free-trade areas and customs unions include abolition of restrictions on factor movements.

ANS: F PTS: 1 REF: p. 61 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

3. The World Bank’s World Development Report (WDR), titled “Reshaping Economic Geography,” analyzes trade and regional economic integration through the lens of economic geography (i.e., market size, location, and openness to trade). The WDR concludes that positive changes within these three categories are essential for successful regional integration.

ANS: T PTS: 1 REF: p. 63 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

4. The appropriate approach for countries interested in regional integration could include the following three fundamentals: start small, think global, and compensate the least fortunate.

ANS: T PTS: 1 REF: p. 64 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

5. Although market access is essential for economic growth, proximity to major world markets is the biggest liability for just-in-time production, exports of perishable goods and tradable services.

ANS: F PTS: 1 REF: p. 66 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

6. Remote regions with small local markets which Paul Collier calls the “bottom billion,” are located in Central Asia; East, Central and West Africa; and the Pacific Islands.

ANS: T REF: p. 69

PTS: 1 OBJ: LO: 03-02

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity

STA: DISC: Environmental Influence

KEY: Bloom's: Evaluation

7. With uncertainty surrounding the outcome of the Doha Round of trade negotiations, countries (large and small) are clamoring for bilateral or regional trade agreements to meet their specific agendas causing economists to be concerned about the prospects of creating a truly open global economic system that benefits all countries.

ANS: T PTS: 1 REF: p. 71 OBJ: LO: 03-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

8. CAFTA is the most highly evolved example of regional integration in the world.

ANS: F PTS: 1 REF: p. 71 OBJ: LO: 03-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

9. Through various treaties such as the Maastricht Treaty, the Copenhagen Treaty, the Treaty of Nice, and the Lisbon Treaty, the EU is deepening and strengthening its institutional (economic, political, social, and defense) linkages; this will hopefully, enable the EU to act as one country that will effectively compete with the U.S. ANS: T PTS: 1 REF: p. 73 OBJ: LO: 03-04 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

10. Geographically, only about 25 percent of Turkey’s land mass is in Europe.

ANS: F PTS: 1 REF: p. 73 OBJ: LO: 03-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

11. NAFTA is a comprehensive free-trade agreement among Canada, United States, and Mexico that addresses issues ranging from protection of workers’ rights and the environment to phased reduction of tariff and non-tariff trade barriers, which were finally eliminated in 2009.

ANS: T PTS: 1 REF: p. 75 OBJ: LO: 03-05 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

12. ASEAN, headquartered in New Delhi, India, was established in August 1967 by five founding members: India, Malaysia, the Philippines, Singapore, and Thailand.

ANS: F PTS: 1 REF: p. 77 OBJ: LO: 03-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. In 2003, ASEAN leaders agreed to establish an ASEAN Community based on three pillars: ASEAN Security Community; ASEAN Economic Community; and ASEAN Socio-Cultural Community.

ANS: T PTS: 1 REF: p. 78 OBJ: LO: 03-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

14. A growing ASEAN concern is the economic ascendancy of Turkey, which as a major low-cost manufacturing center, has been one of the world’s most attractive destinations for foreign direct investment.

ANS: F PTS: 1 REF: p. 80 OBJ: LO: 03-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

15. In 1969, frustrated by the lack of progress in LAFTA, Bolivia, Chile, Colombia, Ecuador, and Peru joined in creating the Andean Group, which aimed to create economic integration through reduced taxes, a common external tariff, and investment in the poorer industrial areas of their respective countries.

ANS: T PTS: 1 REF: p. 80 OBJ: LO: 03-07 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

MULTIPLE CHOICE 1. According to the Cultural Perspective box in Chapter 03, when French President, Nicolas Sarkozy, assumed his six-month European Union presidency in July 2008, the first initiative he launched was the Union for the _____. a. Northeast b. Southwest c. North Americans d. Mediterranean e. Australians ANS: D PTS: 1 REF: p. 59 OBJ: LO: 03-01 STA: DISC: Leadership Principles

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

2. _____ refers to the process of allowing efficient geographic distribution of business activities within and among countries. a. Regional integration b. Spatial transformations c. Free trade d. Economic integration e. Economic geography ANS: B

PTS:

1

DIF:

Difficulty: Easy

REF: p. 61 OBJ: LO: 03-01 STA: DISC: Environmental Influence

NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

3. Three countries, X, Y, and Z are part of a member area where they have eliminated all barriers to trade such as tariffs, quotas, and non-tariff barriers like border restrictions, while at the same time keeping their own external tariffs against nonmembers. Such an area could be described as a(n) _____ area. a. regional b. spatial c. open trade d. embargo e. free trade ANS: E PTS: 1 REF: p. 61 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Application

4. According to the text, which of the following is NOT a stage of regional integration? a. A customs union b. An economic union c. A free trade area d. A common market e. A embargo union ANS: E PTS: 1 REF: p. 61 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

5. According to the text, which of the following is the third stage of regional integration? a. A customs union b. An economic union c. A free trade area d. A common market e. A political union ANS: D PTS: 1 REF: p. 61 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

6. A group of free trade member countries that have adopted a common external tariff with nonmember countries is called a(n) _____. a. customs union b. economic union c. free trade area d. common market e. political union ANS: A PTS: 1 REF: p. 62 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

7. The union created when member countries of an economic and monetary union work closely with one another to arrive at common defense and foreign policies and behave as a single country is known as a(n) _____. a. customs union b. economic union c. free trade area d. common market e. political union ANS: E PTS: 1 REF: p. 62 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

8. A market formed when members of a common market agree to implement common social programs and coordinated macroeconomic policies that would lead to the creation of a single regional currency and a regional apex central bank is known as a(n) _____. a. customs union b. economic union c. free trade area d. common market e. political union ANS: B PTS: 1 REF: p. 62 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

9. Of the following, which is NOT a benefit of regional integration? a. Creating a larger pool of consumers with growing incomes and similar culture, tastes, and social values b. Encouraging economies of scale in production c. Reducing the power of the national government d. Increasing cooperation, peace, and security among nations in the region e. Encouraging member states the enhance their level of social welfare ANS: C PTS: 1 REF: p. 63 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

10. Of the following, which is NOT a cost of regional integration? a. Undermining the most-favored-nation status rule b. Reducing the powers of the national government c. Losing sovereignty, national independence, and identity d. Increasing the probability of rising crime e. Encouraging economies of scale in production ANS: E PTS: 1 REF: p. 63 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

11. The World Bank’s (2009) World Development Report does which of the following? a. Forecasts the economic surplus of countries based on topography

b. Analyzes trade and regional economic integration through the lens of economic geography c. Forecasts the economic deficit of countries through population lens d. Analyzes economies of scale through production cycles e. Analyzes regional integration blocs ANS: B PTS: 1 REF: p. 63 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

12. All of the following statements about regional integration are true EXCEPT: a. regional integration should initially address a broad, ill-defined area of cooperation. b. regional integration should not create unconnected or isolated countries. c. regional integration should compensate the least fortunate. d. regional integration has advantages and disadvantages. e. regional integration may reduce the powers of the national government.

ANS: A PTS: 1 REF: p. 64 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

13. When the various regional integration blocs are analyzed from an economic geography perspective, they fall under three general categories – regional blocs close to major world markets, remote regions with large local markets, or _____. a. urban regions with small local markets b. urban regions with large local markets c. urban regions with no local markets d. remote regions with small local markets e. remote regions with no local markets ANS: D PTS: 1 REF: p. 64 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

14. According to the text, which of the following is NOT a major world market? a. The United States b. The European Union c. India d. China e. Germany ANS: E PTS: 1 REF: p. 66 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

15. According to the text, which of the following is NOT a regional bloc close to world markets? a. Guatemala b. Chile c. Russia

d. Singapore e. None of the above is a regional bloc ANS: C PTS: 1 REF: p. 66 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

16. Of the following statements about regional blocs close to major world markets, which is NOT true? a. The ASEAN is intensifying its free trade relations with the huge markets in China. b. India, Japan, and South Korea play an important role in the SAARC. c. Access to markets is essential for economic growth. d. The oil-rich regional economy of the Middle East and North Africa has been growing fast and creating jobs for its population. e. Countries close to major markets have the advantage of connecting to suppliers and ideas.

ANS: D PTS: 1 REF: p. 66 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

17. The Maghreb Union consists of Algeria, Libya, Mauritania, Morocco, and _____. a. Niger b. Tunisia c. Egypt d. Ethiopia e. Yemen ANS: B PTS: 1 REF: p. 67 OBJ: LO: 03-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

18. Of the following, which is NOT a primary reason why countries are now seeking to pursue regional integration at the expense of multilateral trade liberalization? a. Uncertainty surrounding the Doha Round b. Concern that the prospect of creating a truly open global economic system that benefits all countries may recede c. Some governments may initiate regional pacts d. Some countries are clamoring for bilateral or regional trade agreements to meet their specific agendas e. NAFTA is pushing the EU to pursue regional integration ANS: E PTS: 1 REF: p. 71 OBJ: LO: 03-03 STA: DISC: Environmental Influence 19. In which country is the EU headquartered? a. Belgium b. France c. Germany d. Italy

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

e. Turkey ANS: A PTS: 1 REF: p. 71 OBJ: LO: 03-04 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

20. All of the following statements about the EU are true EXCEPT: a. it is headquartered in Brussels. b. it is the most highly evolved example of regional integration in the world. c. its founding members consisted of ten countries. d. its origins can be traced to the creation of the European Coal and Steel Community. e. its eastward enlargement reflects a common past.

ANS: C PTS: 1 REF: p. 71 OBJ: LO: 03-04 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

21. The largest country in the EU, in terms of population, is _____. a. Denmark b. Cyprus c. Italy d. Turkey e. Germany ANS: E PTS: 1 REF: p. 73 OBJ: LO: 03-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

22. How many of the 27 EU member countries are permitted to use the euro as their currency? a. 5 b. 10 c. 17 d. 20 e. 27 ANS: C PTS: 1 REF: p. 73 OBJ: LO: 03-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

23. Of the following statements regarding the euro, which is NOT true? a. The U.K., Denmark, and Sweden use the euro as their currency. b. It was introduced on January 1, 1999. c. Seventeen of the 27 EU countries are permitted to use it as their currency. d. The euro was considered the crowning success of the EU’s plans to integrate European economies. e. The European Central Bank is the apex central bank for the Eurozone countries.

ANS: A PTS: 1 REF: p. 73 OBJ: LO: 03-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

24. Which of the following is NOT an objective of NAFTA? a. The expansion of the trade in goods and services b. The phased elimination of all trade barriers c. Protection of intellectual property rights d. The creation of a uniform currency in North America e. The creation of institutions to address potential problems ANS: D PTS: 1 REF: p. 75 OBJ: LO: 03-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

25. In which country is ASEAN headquartered? a. Indonesia b. Vietnam c. Canada d. Japan e. India ANS: A PTS: 1 REF: p. 77 OBJ: LO: 03-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

26. ASEAN’s current membership stands at how many countries? a. 5 b. 10 c. 2 d. 25 e. 30 ANS: B PTS: 1 REF: p. 77 OBJ: LO: 03-06 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

27. Of the following statements about ASEAN, which is NOT true? a. Its current membership stands at 15 countries. b. It is headquartered in Jakarta, Indonesia. c. It was established in 1967. d. It was established by five founding countries. e. It has a population larger than that of the EU. ANS: A PTS: 1 REF: p. 77 OBJ: LO: 03-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

28. ASEAN has two main objectives: 1) to accelerate economic growth, social progress, and cultural development in the region; and 2) _____. a. to trade with NAFTA b. to promote regional peace and stability c. to cover Asian countries to use of the euro d. to create more countries in Asia

e. to become a world power ANS: B PTS: 1 REF: p. 78 OBJ: LO: 03-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

29. How does ASEAN differ from the EU? a. It does NOT call for the free movement of labor across ASEAN. b. It does call for the free movement of labor across ASEAN. c. It calls for the establishment of a single market. d. It calls for the establishment of a production base. e. It does not differ from the EU. ANS: A PTS: 1 REF: p. 78 OBJ: LO: 03-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

30. Of the following, which is NOT true about the future of ASEAN? a. ASEAN’s Vision 2020 calls for aggressive outward-looking economic policies. b. Several bilateral Free Trade Agreements are currently being implemented. c. A growing ASEAN concern is the economic ascendancy of North Korea. d. The ASEAN-Japan Comprehension Economic Partnership agreement covers trade in goods, services, and investment and economic cooperation. e. The ASEAN Australian-New Zealand FTA was signed in February 2009.

ANS: C PTS: 1 REF: p. 80 OBJ: LO: 03-06 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

31. The Treaty of Montevideo created _____. a. the EU b. ASEAN c. LAFTA d. NAFTA e. MERCOSUR ANS: E PTS: 1 REF: p. 80 OBJ: LO: 03-07 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

32. With the anticipated success of NAFTA, formal discussions to establish a Free Trade Area of the Americas began under the _____ administration. a. Obama b. Bush c. Clinton d. Reagan e. Carter ANS: C PTS: 1 REF: p. 82 OBJ: LO: 03-07 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

33. Common external tariffs and quota system is part of all of the stages of regional integration EXCEPT which one? a. A customs union b. An economic union c. A free trade area d. A common market e. A political union ANS: C PTS: 1 REF: p. 61 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

34. Abolition of restriction on factor movements is part of which stages of regional integration? a. A customs union and an economic union b. An economic union and a free trade area c. A free trade area and a customs union d. A common market and an economic union e. A common market and a customs union ANS: D PTS: 1 REF: p. 61 OBJ: LO: 03-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

COMPLETION 1. Implementation of a multitude of economic and/or political steps by member states to increase their global competitiveness, including preferential trade access refers to _______.

ANS: regional integration PTS: 1 DIF: Difficulty: Moderate REF: p. 61 OBJ: LO: 03-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 2. The process of allowing efficient geographic distribution of business activities within and among countries refers to _______.

ANS: spatial transformations PTS: 1 DIF: Difficulty: Moderate REF: p. 61 OBJ: LO: 03-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 3. ________ is an area in which two or more countries agree to eliminate all barriers to trade such as tariffs, quotas, and non-tariff barriers like border restrictions, while at the same time keeping their own external tariffs (within WTO guidelines) against nonmembers.

ANS: Free-trade area

PTS: 1 DIF: Difficulty: Moderate REF: p. 61 OBJ: LO: 03-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 4. A group of free trade member countries that have adopted a common external tariff with nonmember countries refers to ______.

ANS: customs union PTS: 1 DIF: Difficulty: Moderate REF: p. 62 OBJ: LO: 03-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 5. A market formed when member countries of a customs union remove all barriers to allow the movement of capital and labor within the customs union refers to _______.

ANS: common market or single market common market single market PTS: 1 DIF: Difficulty: Moderate REF: p. 62 OBJ: LO: 03-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 6. ________ refers to a union formed when members of a common market agree to implement common social programs (on education, employee benefits and retraining, health care, etc.) and coordinated macroeconomic policies (such as fiscal and monetary policies) that would lead to the creation of a single regional currency and a regional apex central bank.

ANS: Economic and monetary union PTS: 1 DIF: Difficulty: Moderate REF: p. 62 OBJ: LO: 03-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 7. ________ is the union created when member countries of an economic and monetary union work closely with one another to arrive at common defense and foreign policies and behave as a single country.

ANS: Political union PTS: 1 DIF: Difficulty: Moderate REF: p. 62 OBJ: LO: 03-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 8. The study of principles that govern the efficient spatial allocation of economic resources and the resulting consequences refers to _____.

ANS: economic geography PTS: 1 DIF: Difficulty: Moderate REF: p. 63 OBJ: LO: 03-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Knowledge ESSAY 1. Describe briefly the form and stages of regional integration.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 61-62 OBJ: LO: 03-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 2. Explain the pros and cons of regional integration.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 63 OBJ: LO: 03-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. If you are hired as an advisor for countries interested in regional integration, what would be your recommendation for the appropriate approach for these countries? Explain.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 64-65 OBJ: LO: 03-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Synthesis 4. Compare and contrast EU and NAFTA as regional integration blocs.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 71-75 OBJ: LO: 03-04 | LO: 03-05 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 5. Some argue that Asia may become the most important free trade region for this century. Do you agree? Explain.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 77-80 OBJ: LO: 03-06 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Evaluation CASE Scenario – Sarten Gas Company Established in Salt Lake City, UT in 1975, the Sarten Gas Company (SGC) has grown to be a recognized name in the industry. Since its inception, this company has been able to withstand serious economic downturns in the economy. It has been able to remain financially stable when many others in the industry have struggled with financial losses.

The expertise and knowledge of its leaders has led the SGC to be one of the few companies in the industry able to report continued growth.

This excellent track record has inspired the owners of SGC into embracing the idea of expansion. Sarten plans to begin trading with Canada this year and plans to include trading with Mexico within the next three years. The leaders of Sarten Gas feel confident these new trade deals will prove successful for the company and its shareholders.

1. Which one of the following represents a trade agreement most likely to impact the Sarten Gas Company and its proposed trading partners? a.

NAFTA b.

ASC c.

ASEAN d.

CAFTA e.

NATO ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 75-77 OBJ: LO: 03-05 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Application 2. Which of the following is not a free trade policy impacting Sarten Gas Company? a.

Phased elimination of all trade barriers b.

Protection of intellectual property c.

Stringent immigration policies d.

Environmental protection standards e.

Protection of workers’ rights ANS: c

PTS: 1 DIF: Difficulty: Moderate REF: p. 75-77 OBJ: LO: 03-05 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 3. Given that SGC’s home country, the United States, is part of a regional integration bloc that is based on purely economic goals, benefits to these countries would include all but which one of the following? a.

Increase the global competitiveness of each member b.

Surrender of sovereignty of each member c.

Provide a free trade area for the members d.

Eliminate tariffs and non-tariff barriers to trade for the members e.

Provide for the creation of a larger pool of consumers for the members ANS: b PTS: 1 DIF: Difficulty: Challenging REF: p. 60-71 OBJ: LO: 03-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation Scenario – The Lynnette Company The Lynette Company was founded in 1982 by Solomon and Andrea Lynette. It is currently based in Jakarta, Indonesia and plans to remain in the region due to the potential for continued market growth. The company provides modern office equipment to customers throughout Southeast Asia and has watched a steady rise in need for its products.

Last year, Lynette grossed over five million dollars in sales. It anticipates gross sales to more than double this year. The Lynette Company is pleased by the ample supply of workers from the local region available to help the company. The owners realize this area of the world has the potential to become an important global market.

4. Which one of the following would most likely set guidelines for the Lynette Company to follow as it conducts its business in Southeast Asia? a.

European Union b.

NAFTA c.

ASC d.

MERCOSUR e.

ASEAN ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 77-78 OBJ: LO: 03-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. All of the following EXCEPT which one represents a founding member of the regional bloc affecting Lynette?

a. b. c. d. e.

Philippines Thailand China Malaysia Singapore

ANS: c PTS: 1 DIF: Difficulty: Challenging REF: p. 77-78 OBJ: LO: 03-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. Which one of the following is not considered a main objective of the regional bloc affecting Lynette? a.

To accelerate economic growth b.

To increase cultural development in the region c.

To encourage regional peace d.

To diminish relationships with major powers e.

To promote stability through the rule of law ANS: d PTS: 1 DIF: Difficulty: Challenging REF: p. 77-80 OBJ: LO: 03-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 7. The Lynette Company’s plan to continue its operations within the Asia market offers many benefits as well as challenges. Which one of the following would provide the least degree of challenge for the stability of this company’s business operations? a.

Development of a free trade agreement with China b.

The economic rise of China c.

Ability to tap China’s declining business market d.

Job loss prevention through a free trade agreement with China e.

Ability to tap China’s growing consumer market ANS: a PTS: 1 DIF: Difficulty: Challenging REF: p. 77-80 OBJ: LO: 03-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis

Chapter 4: The International Flow of Funds and Exchange Rates TRUE/FALSE 1. One factor affecting change in currency values is different price levels in different countries for the same goods and services.

ANS: T PTS: 1 REF: p. 90 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

2. In flow of funds analysis, money moving into a country is a debit (negative sign), while money leaving the same country is a credit (plus sign).

ANS: F PTS: 1 REF: p. 91 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

3. Whether the trade balance is positive (surplus) or negative (deficit) is important because it provides a measure of the financing needs of a particular country. Hence, the trade balance is more important than current account balance.

ANS: F PTS: 1 REF: p. 93 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

4. The statistical discrepancy line reconciles any remaining imbalance to ensure that all debit and credit entries in the BOP statement sum to zero. This line captures statistical inconsistencies in the recording of the credit and debit entries as well as illegal trade.

ANS: T PTS: 1 REF: p. 94 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

5. In a free-market-oriented foreign exchange market, major currency values are determined by the demand for and supply of currencies; this is called the fixed floating exchange rate system.

ANS: F PTS: 1 REF: p. 97 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

6. The forex market consists of spot, forward, and discount markets.

ANS: F PTS: 1 REF: p. 97 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

7. The difference between forward and spot exchange rates reflects expectations by investors about future exchange rate movements.

ANS: T PTS: 1 REF: p. 99 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

8. If the dollar was expected to appreciate in the 60-day forward market against the Japanese yen, it would be selling at a premium.

ANS: T PTS: 1 REF: p. 99 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

9. An example of inflation is, if the amount of money in a country doubled, but the production of goods and services stayed the same, the price of all goods and services would decline by about half, assuming that other factors, such as external trade, were constant.

ANS: F PTS: 1 REF: p. 100 OBJ: LO: 04-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

10. The International Monetary Fund (IMF) was established under the Bretton Woods Agreement to help ensure the stability of the international monetary and financial system.

ANS: T PTS: 1 REF: p. 100 OBJ: LO: 04-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

11. The EMU introduced the euro as a new currency to replace the currencies of the member countries in the Eurozone, which has since grown to 29 members.

ANS: F PTS: 1 REF: p. 101 OBJ: LO: 04-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

12. Together, the dollar, euro, and yen account for around 60 percent of the world economy.

ANS: T PTS: 1 REF: p. 102 OBJ: LO: 04-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. According to the law of one price, identical goods should sell for the same price in different countries according to the local currencies.

ANS: T PTS: 1 REF: p. 103 OBJ: LO: 04-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

14. According to the Big Mac Index, the dollar interest rate on U.S. and European bonds should be the same. Otherwise, there would be no arbitrage opportunities for investors.

ANS: F PTS: 1 REF: p. 105 OBJ: LO: 04-04 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

15. One forecasting approach is to use a multiple regression model to estimate the relationship between changes in spot rates and fundamental factors.

ANS: T PTS: 1 REF: p. 108 OBJ: LO: 04-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

MULTIPLE CHOICE 1. Which of the following statements is NOT true about the global economic and financial crises of 2008-2009? a. They were collectively dubbed the “Great Recession.” b. They were the worst since the Great Depression of the 1930s. c. They were marked by wealth losses for the middle class only. d. They were marked by failures of banking. e. They were marked by rising unemployment.

ANS: C PTS: 1 REF: p. 89 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

2. Which of the following rose substantially in value against most other currencies as well as served as a reserve asset in many countries during the global economic and financial crises of 2008-2009? a. U.S. dollar b. Australian dollar c. Indian Rupee d. Peso e. Yen ANS: A PTS: 1 REF: p. 89 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

3. Of the following, which is NOT listed in the text as a reason why currency values can change? a. Different price levels in different countries for the same goods and services b. Price imbalances due to mispricing c. Varying interest rates across countries d. Price imbalances due to differential inflation e. WTO mandates ANS: E

PTS:

1

DIF:

Difficulty: Moderate

REF: p. 90 OBJ: LO: 04-01 STA: DISC: Environmental Influence

NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

4. Balance of payments is generally split into two major components with major business implications: 1) the current account, and 2) the _____ account. a. balance b. financial c. services d. income e. trade ANS: B PTS: 1 REF: p. 91 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

5. Which of the following is NOT a subaccount of the current account? a. Trade balance b. Services balance c. Income balance d. Financial account e. Net transfers ANS: D PTS: 1 REF: p. 91 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

6. The net of merchandise exports and merchandise imports is known as the _____. a. trade balance b. services balance c. income balance d. financial account e. net transfers ANS: A PTS: 1 REF: p. 92 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

7. Which of the following represents the top trading partner of the United States? a. Mexico b. Canada c. Germany d. Japan e. France ANS: B PTS: 1 REF: p. 92 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

8. According to the services balance, the “+” sign refers to _____ and the “-” sign refers to _____. a. when foreigners use services in a country; when foreign services are used

b. c. d. e.

when foreign services are used; when foreign services are used incoming dollars; merchandise imports merchandise imports; incoming dollars earnings from overseas investment; payments are sent overseas

ANS: A PTS: 1 REF: p. 92 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

9. According to the income balance, the “+” sign refers to _____ and the “-” sign refers to _____. a. when foreigners use services in a country; when foreign services are used b. when foreign services are used; when foreign services are used c. incoming dollars; merchandise imports d. merchandise imports; incoming dollars e. earnings from overseas investment; payments are sent overseas ANS: E PTS: 1 REF: p. 92 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

10. According to the trade balance, the “+” sign refers to _____ and the “-” sign refers to _____. a. when foreigners use services in a country; when foreign services are used b. when foreign services are used; when foreign services are used c. incoming dollars coming in when merchandise is exported; dollars that leave the country to pay for imports d. merchandise imports; incoming dollars e. earnings from overseas investment; payments are sent overseas ANS: C PTS: 1 REF: p. 92 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

11. The net of transfer payments going overseas and inflows from abroad is called the _____. a. services balance b. income balance c. trade balance d. balance of transfers e. financial account ANS: D PTS: 1 REF: p. 93 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

12. According to the balance of transfers, the “+” sign refers to _____ and the “-” sign refers to _____. a. payment of foreign aid loans; a payment going abroad as foreign aid b. when foreign services are used; when foreign services are used c. incoming dollars coming in when merchandise is exported; dollars that leave the country to pay for imports d. merchandise imports; incoming dollars

e. earnings from overseas investment; payments are sent overseas ANS: A PTS: 1 REF: p. 92 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

13. Which of the following is NOT true about the current account balance? a. It is the sum of the trade, services, income, and net transfers balance. b. China, France, Japan, and Singapore have consistently had current account surpluses over recent years. c. If foreign capital will not be available to finance the U.S. current account deficit, it can be predicted that the dollar will become stronger. d. The United States has had large account deficits in recent years. e. Countries with current account surpluses generally finance countries with current account deficits.

ANS: C PTS: 1 REF: p. 93 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

14. The _____ account consists of domestic-country-owned assets abroad, foreign-owned assets in the domestic country, and net financial derivatives. a. balance b. financial c. risk d. services e. trade ANS: B PTS: 1 REF: p. 93 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

15. The financial account of the BOP consists of three subaccounts: 1) U.S.-owned assets abroad, 2) foreign-owned assets in the U.S., and 3) _____. a. a foreign direct investment b. a financial account c. a risk premium d. a balance of transfers e. net financial derivatives ANS: E PTS: 1 REF: p. 93 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

16. _____ encompasses purchases of fixed assets abroad used in the manufacture and sales of goods and services. a. Foreign direct investment b. A current balance account c. A risk premium d. A balance of transfers e. Net financial derivatives

ANS: A PTS: 1 REF: p. 93 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

17. Acquisitions of a foreign company, creation of new manufacturing or research facilities abroad, and expansion of an existing plant in a foreign country are all examples of _____. a. foreign direct investment b. a current balance account c. a risk premium d. a balance of transfers e. net financial derivatives ANS: A PTS: 1 REF: p. 94 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

18. Of the following, which is NOT an example of a foreign direct investment? a. Acquisition of a foreign company b. Creation of new manufacturing facilities abroad c. Creation of new research facilities abroad d. Expansion of an existing plant in a foreign country e. Financial capital flows between countries ANS: E PTS: 1 REF: p. 94 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

19. The _____ reconciles any imbalance between the current account and financial account to ensure that all debit and credit entries in the balance of payments statement sum to zero. a. foreign direct investment b. statistical discrepancy c. security investment d. risk premium e. balance of transfers ANS: B PTS: 1 REF: p. 94 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

20. According to the text, _____ countries’ exports are growing the fastest. a. North American b. South American c. Asian d. African e. European ANS: C PTS: 1 REF: p. 95 OBJ: LO: 04-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

21. The three largest foreign exchange markets are in London, New York, and _____. a. Singapore b. Sydney c. Paris d. Tokyo e. San Francisco ANS: D PTS: 1 REF: p. 97 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

22. _____ is the largest foreign exchange market. a. Singapore b. London c. Paris d. Tokyo e. San Francisco ANS: B PTS: 1 REF: p. 97 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

23. The values of some currencies (e.g. Indian rupee, Singapore dollar, and Thai baht) are determined by the _____. a. WTO exchange rate b. fixed exchange rate system c. independent floating exchange rate system d. managed floating exchange rate system e. U.S. government ANS: D PTS: 1 REF: p. 97 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

24. The system in which the country pegs its currency at a fixed rate to a major currency or basket of currencies, while the exchange rate fluctuates within a narrow margin around a central rate is called a(n) _____. a. spot market b. fixed exchange rate system c. independent floating exchange rate system d. managed floating exchange rate system e. foreign exchange market ANS: B PTS: 1 REF: p. 97 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

25. The forex market consists of spot, forward, and _____ markets. a. exchange b. futures c. independent

d. balance e. foreign ANS: B PTS: 1 REF: p. 97 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

26. The _____ market trades currencies on a real time basis for immediate delivery. a. exchange b. futures c. independent d. balance e. spot ANS: E PTS: 1 REF: p. 97 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

27. A British firm may need dollars to pay for U.S. imports. It can work with banks in London to exchange pounds for dollars to make this payment via electronic transfer. This is an example of a(n) _____ market. a. exchange b. futures c. independent d. balance e. spot ANS: E PTS: 1 REF: p. 97 OBJ: LO: 04-02 STA: DISC: Information Technology

DIF: Difficulty: Challenging NAT: BUSPROG: Technology KEY: Bloom's: Application

28. The difference between bid and ask prices of a currency, or the fee earned by the bank is called the _____. a. exchange rate b. bid-ask spread c. forward rate d. premium e. hedge ANS: B PTS: 1 REF: p. 99 OBJ: LO: 04-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

29. Insurance that reduces future risk is called a(n) _____. a. exchange rate b. bid-ask spread c. forward rate d. premium e. hedge ANS: E

PTS:

1

DIF:

Difficulty: Easy

REF: p. 99 OBJ: LO: 04-02 STA: DISC: Environmental Influence

NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

30. Of the following, which is NOT true about the Bretton Woods System? a. It was established in 1965. b. It established a global currency system based on a gold standard with the U.S. dollar pegged at a fixed rate of exchange to gold in an effort to control inflation. c. The IMF was established under the Bretton Woods Agreement. d. Eventually, major nations met to consider abandoning the Bretton Woods Agreement. e. Under the Smithsonian Agreement, the U.S. devalued the dollar against other countries’ currencies.

ANS: A PTS: 1 REF: p. 100 OBJ: LO: 04-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

31. Of the following, which is NOT a key principle of the Jamaica Agreement? a. Members could adopt their own exchange systems. b. A system of global fixed exchange rates would only be implemented if approved by a vote of 85 percent of membership. c. Gold would no longer be a common denominator of the monetary system. d. The SDR created by the IMF was recommended as the primary reserve asset of the international monetary system. e. All countries would adopt the European Exchange Rate Mechanism.

ANS: E PTS: 1 REF: p. 101 OBJ: LO: 04-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

32. Together, the dollar, euro, and yen account for around _____ percent of the world economy. a. 20 b. 30 c. 40 d. 60 e. 80 ANS: D PTS: 1 REF: p. 102 OBJ: LO: 04-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

33. Which of the following regarding potential problems with an IRP is NOT true? a. Evidence on IRP theories is mixed. b. Herd behavior can cause large purchases or sales of a particular currency that drive values beyond their normal bounds, resulting in problems such as currency crises. c. When interest rates change in the U.S., foreign interest rates should also change under the IRP. However, this may not happen. d. International investors may globally diversify their investments and behave passively toward arbitrage activities. e. There are no problems with IRP.

ANS: E PTS: 1 REF: p. 106 OBJ: LO: 04-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

34. In the equation “F=S(1+P),” “F” is defined as what? a. Forward rate b. Spot rate c. Forward premium d. Financial rate e. Future rate ANS: A PTS: 1 REF: p. 108 OBJ: LO: 04-05 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

COMPLETION 1. A statement of account that shows all transactions between the residents of one country and the rest of the world for a given period of time is called ______.

ANS: balance of payments (BOP) balance of payments BOP PTS: 1 DIF: Difficulty: Easy REF: p. 91 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 2. The activities of consumers and businesses in the economy with respect to the trade balance, services balance, income balance, and net transfers is referred to as _______.

ANS: current account PTS: 1 DIF: Difficulty: Moderate REF: p. 91 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 3. The ______ is the net of merchandise exports and merchandise imports.

ANS: trade balance PTS: 1 DIF: Difficulty: Easy REF: p. 92 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 4. A _______ occurs when merchandise imports exceed merchandise exports for a country.

ANS: trade deficit PTS: 1 DIF: Difficulty: Easy REF: p. 92 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 5. The net of exports of services and imports of services is referred to as the ______.

ANS: services balance PTS: 1 DIF: Difficulty: Easy REF: p. 92 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 6. The ______ is the net of investment income from abroad and investment payments to foreigners.

ANS: income balance PTS: 1 DIF: Difficulty: Easy REF: p. 92 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 7. The net of transfer payments going overseas and inflows from abroad is referred to as the ______.

ANS: balance of transfers PTS: 1 DIF: Difficulty: Moderate REF: p. 93 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 8. The ________ consists of domestic-country-owned assets abroad, foreign-owned assets in the domestic country, and net financial derivatives.

ANS: financial account PTS: 1 DIF: Difficulty: Moderate REF: p. 93 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 9. The _______ is the added return required by investors for risk associated with a security or asset.

ANS: risk premium PTS: 1 OBJ: LO: 04-01

DIF: Difficulty: Easy NAT: BUSPROG: Diversity

REF: p. 93

STA: DISC: Environmental Influence

KEY: Bloom's: Knowledge

10. ____________ encompasses purchases of fixed assets (such as factories and equipment) abroad used in the manufacture and sales of goods and services.

ANS: Foreign direct investment (FDI) Foreign direct investment FDI PTS: 1 DIF: Difficulty: Moderate REF: p. 93 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 11. The _______ line reconciles any imbalance between the current account and financial account to ensure that all debit and credit entries in the balance of payments statement sum to zero.

ANS: statistical discrepancy PTS: 1 DIF: Difficulty: Moderate REF: p. 94 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 12. International banks and currency traders that trade different countries’ currencies in a global network make up ______.

ANS: foreign exchange markets PTS: 1 DIF: Difficulty: Easy REF: p. 97 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 13. The ______is the price that one currency can be converted to another currency.

ANS: exchange rate PTS: 1 DIF: Difficulty: Easy REF: p. 97 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 14. A system that sets the values of major currencies based on their demand and supply in world currency markets are referred to as a(n) ________.

ANS: independant floating exchange rate system PTS: 1 DIF: Difficulty: Moderate REF: p. 97 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

15. A system that determines the value of some currencies partly by demand and supply in the foreign exchange market, and partly by active government intervention in the foreign exchange market is called a ________.

ANS: managed floating exchange rate system PTS: 1 DIF: Difficulty: Moderate REF: p. 97 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 16. _______ refers to the system that pegs the value of a country’s currency at a fixed rate to a major currency or basket of currencies, while the exchange rate fluctuates within a narrow margin around a central rate.

ANS: Fixed exchange rate system PTS: 1 DIF: Difficulty: Moderate REF: p. 97 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 17. ______ refers to the exchange that trades currencies on a real-time basis for immediate delivery.

ANS: Spot market PTS: 1 DIF: Difficulty: Easy REF: p. 97 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 18. The difference between bid and ask prices of a currency; the transaction fee earned by the bank refers to _____.

ANS: bid-ask spread PTS: 1 DIF: Difficulty: Easy REF: p. 99 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 19. Prices of a foreign currency in (for example) dollars, or the number of dollars per foreign currency refers to ______.

ANS: direct quotes PTS: 1 DIF: Difficulty: Easy REF: p. 99 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

20. ______ refers to the reciprocal of the direct quote, or the prices of a dollar (for example) in foreign currency terms.

ANS: Indirect quotes PTS: 1 DIF: Difficulty: Easy REF: p. 99 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 21. ______ refers to an exchange that enables purchases and sales of currencies in the future with prices (or the forward rate) established at a previous time.

ANS: Forward market PTS: 1 DIF: Difficulty: Moderate REF: p. 99 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 22. The price at an earlier time of a currency in terms of another currency established for future delivery in the forward market refers to the ______.

ANS: forward rate PTS: 1 DIF: Difficulty: Easy REF: p. 99 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 23. In the forward market, the selling of a currency at a spot rate that is less than the forward rate refers to a ______..

ANS: discount PTS: 1 DIF: Difficulty: Moderate REF: p. 99 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 24. In the forward market, the selling of a currency at a spot rate that is more than the forward rate refers to the _____.

ANS: premium PTS: 1 DIF: Difficulty: Easy REF: p. 99 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 25. Insurance that reduces future risk is refered to as a _______.

ANS: hedge

PTS: 1 DIF: Difficulty: Easy REF: p. 99 OBJ: LO: 04-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 26. An increase in the prices of goods and services caused by the supply of money exceeding the demand for goods and services is refered to as ______.

ANS: inflation PTS: 1 DIF: Difficulty: Moderate REF: p. 100 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 27. _____ refers to a monetary system that pegs currency values to the market value of gold.

ANS: Gold standard PTS: 1 DIF: Difficulty: Moderate REF: p. 100 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 28. The 1944 decision to establish a global currency system with the U.S. dollar pegged at a fixed rate of exchange to gold, and the currencies of 43 other countries fixed to the dollar is known as the ________.

ANS: Bretton Woods Agreement PTS: 1 DIF: Difficulty: Moderate REF: p. 100 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 29. Financial authority established under the Bretton Woods Agreement in 1944 to help ensure the stability of the international monetary and financial system is known as the __________.

ANS: International Monetary Fund (IMF) International Monetary Fund IMF PTS: 1 DIF: Difficulty: Moderate REF: p. 101 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 30. The ______ is the 1971 decision allowing the U.S. to devalue the dollar against other countries’ currencies, thereby beginning the breakdown of the 1944 Bretton Woods Agreement.

ANS: Smithsonian Agreement

PTS: 1 DIF: Difficulty: Moderate REF: p. 101 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 31. ________ refers to the 1976 international monetary order that allowed countries to adopt different exchange rate systems including floating their currencies in world markets.

ANS: Jamaica Agreement PTS: 1 DIF: Difficulty: Moderate REF: p. 101 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 32. A ______ is a basket of currencies consisting of dollars, euros, pounds, and yen created by the International Monetary Fund (IMF) for use as a benchmark to value the currencies of different countries.

ANS: special drawing right (SDR) special drawing right SDR PTS: 1 DIF: Difficulty: Moderate REF: p. 101 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 33. ____ is a monetary system with minimal government intervention; largely market determined.

ANS: Clean float currency PTS: 1 DIF: Difficulty: Moderate REF: p. 101 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 34. ______ is a monetary system with varying degrees of government intervention to maintain a range of acceptable values against other currencies.

ANS: Dirty float currency PTS: 1 DIF: Difficulty: Moderate REF: p. 101 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 35. ____ is the practice of using the dollar or some other foreign currency together with, or instead of, a domestic currency in a country.

ANS: Dollarization

PTS: 1 DIF: Difficulty: Easy REF: p. 101 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 36. Leading world currencies of developed industrialized countries, including the U.S. dollar, European euro, Japanese yen, and British pound sterling is referred to as _______.

ANS: hard currencies PTS: 1 DIF: Difficulty: Easy REF: p. 102 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 37. Emerging market countries’ currencies that are less stable in value than hard currencies and are sometimes pegged to hard currency values are called _______.

ANS: soft currencies PTS: 1 DIF: Difficulty: Easy REF: p. 102 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 38. _______ is a principle stating that identical goods should sell for the same price in different countries according to local currencies.

ANS: Law of one price PTS: 1 DIF: Difficulty: Moderate REF: p. 103 OBJ: LO: 04-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 39. Buying goods in a lower priced market and selling them in a higher priced market to make profits is referred to as ______.

ANS: arbitrage PTS: 1 DIF: Difficulty: Moderate REF: p. 103 OBJ: LO: 04-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 40. _____ refers to a theory stating that a basket of goods should have approximately the same prices across different countries.

ANS: Purchasing power parity (PPP) Purchasing power parity PPP PTS:

1

DIF:

Difficulty: Moderate

REF: p. 103

OBJ: LO: 04-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 41. Calculation using the cost of a McDonald’s restaurant sandwich to assess the relative values of currencies refers to the ______.

ANS: Big Mac index PTS: 1 DIF: Difficulty: Easy REF: p. 103 OBJ: LO: 04-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 42. ______ refers to the theory stating that interest rates on bonds in different countries should be the same, as investors would buy and sell these bonds to make arbitrage profits until this condition holds.

ANS: Interest rate parity (IRP) Interest rate parity IRP PTS: 1 DIF: Difficulty: Moderate REF: p. 105 OBJ: LO: 04-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 43. The ______ is a principle implying that forward exchange rates and spot exchange rates set interest rates on bonds in different countries equal to one another.

ANS: covered interest rate parity PTS: 1 DIF: Difficulty: Moderate REF: p. 105 OBJ: LO: 04-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 44. ______ refers to the principle implying that expected future spot exchange rates and spot exchange rates set interest rates on bonds in different countries equal to one another.

ANS: Uncovered interest rate parity PTS: 1 DIF: Difficulty: Moderate REF: p. 105 OBJ: LO: 04-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge ESSAY 1. Differentiate between the current account and the financial account for a country.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 91-94 OBJ: LO: 04-01 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis 2. Describe the different components of a forex market.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 97-98 OBJ: LO: 04-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 3. Describe the significance of the Bretton Woods System.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 100-101 OBJ: LO: 04-03 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis 4. Differentiate between hard and soft currencies. Provide an example of each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 102 OBJ: LO: 04-03 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. What is purchasing power parity? What role does Big Mac play in it?

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 103-104 OBJ: LO: 04-04 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. Differentiate between purchasing power parity and interest rate parity.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 103-106 OBJ: LO: 04-04 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis

7. “Fortunately both purchasing power parity and interest rate parity does not have any problems.” Do you agree with this statement? Defend your position.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 103-106 OBJ: LO: 04-04 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 8. Explain how exchange rates can be forecasted using different methodologies.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 108 OBJ: LO: 04-05 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Comprehension CASE Scenario – S & I Creations Sven and Ingrid Allgertson developed the idea for their thriving business while awaiting the birth of their first child, Olga. Finding nowhere to purchase fine handmade baby clothing and other items, the couple decided to start their own business. Neither Sven nor Ingrid imagined just how successful this endeavor would turn out to be for them. Their designer baby clothes and products were an instant hit in the world marketplace. And even though the baby items are quite expensive to purchase, shoppers from around the world are only too happy to spend large sums of money on their beloved children.

Originally S & I Creations only sold products within Sweden, but soon global demand necessitated the company offer its products in several other foreign markets. Now the proud parents of baby Olga are also the proud owners of a $10 billion per year business.

Sven and Ingrid cannot wait to see what the future holds for their family and their business operations.

1. When S & I Creations exports its products to foreign marketplaces, which one of the following is most likely to be affected for the country of Sweden? a.

The income balance of Sweden b.

The services balance of Sweden c.

The World Bank d.

The trade balance of Sweden e.

The FDI of Sweden ANS: d

PTS: 1 DIF: Difficulty: Challenging REF: p. 92 OBJ: LO: 04-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. S & I Creations has over ten thousand customers from London, England. The currency of England is not valued the same as the currency of Sweden. Which one of the following would S & I Creations be most interested in when it comes to currency value? a.

The currency exchange rate b.

The gold standard c.

The Bretton Woods system d.

The International Monetary System e.

Foreign direct investment margin ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 97 OBJ: LO: 04-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. S & I Creations is most likely to use which of the following for converting the currency they are paid in from the foreign countries to the currency of Sweden? a.

The World Trade Organization b.

The Foreign Exchange Market c.

The International Monetary Fund d.

The International Finance Corporation e.

The Big Mac Index ANS: b PTS: 1 DIF: Difficulty: Easy REF: p. 99-104 OBJ: LO: 04-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation Scenario – The Whoppler Firm The Whoppler Firm is an experienced financial specialist firm that advises thousands of clients regarding foreign investments and transactions. It takes pride in the accuracy of the financial advice that is provided to its clients and strives to increase the wealth of each participant. According to the records of the Whoppler Firm, the financial expertise of the company has saved its clients over five million dollars in the last year alone.

4. One of the many factors closely watched by the Whoppler Firm is currency values. This firm understands these values can change frequently and quickly. Which one of the following is least likely to be a cause for a currency value to change? a.

Price level differences for the same goods and services b.

Varying interest rates across countries

c. d. e.

Varying economic prospects of differing countries Price imbalances caused by mispricing of goods and services in differing countries Stable economic and pricing conditions between differing nations

ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 89-102 OBJ: LO: 04-01| LO: 04-02| LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. When the experts at the Whoppler Firm suggest to a client that it is advisable to engage in arbitrage, what exactly are the experts recommending their client to do? a.

Sell goods in lower priced markets to move material throughout the globe b.

Buy goods in a lower priced market and sell them in a higher priced market in order to make a profit c.

Sell identical goods for the same prices in differing markets d.

Buy and sell using only what are considered hard currencies e.

Avoid transactions involving the use of soft currencies ANS: b PTS: 1 DIF: Difficulty: Moderate REF: p. 102-103 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. When a new client signs on with the Whoppler Firm, its financial experts attempt to provide an educational orientation on finance for their newest customer. One of the many financial items discussed is the recommended primary reserve asset of the international monetary system. Which one of the following is most likely being discussed? a.

Dirty float currency b.

Purchasing power parity c.

Clean float currency d.

Special drawing right e.

Dollarization ANS: d PTS: 1 DIF: Difficulty: Moderate REF: p. 101 OBJ: LO: 04-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 7. Many investors seeking assistance from the Whoppler Firm wish to obtain an extra return on their investment because of a perceived higher risk involved with that particular investment.

Which of the following best identifies what these investors are seeking? a.

A risk premium

b. c. d. e.

A risk discount Deficit protection A balance of payments A statistical discrepancy

ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 93 OBJ: LO: 04-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis

Chapter 5: The Cultural Environment TRUE/FALSE 1. Research studies find that culture is not learned; rather it is inherited.

ANS: F PTS: 1 REF: p. 118 OBJ: LO: 05-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. Verbal and non-verbal communication are the two primary types of language.

ANS: T PTS: 1 REF: p. 118 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

3. The primary reason why language mistakes occur in global business is that organizations tend to use backward translation.

ANS: F PTS: 1 REF: p. 119 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

4. In Kuwait, weekends are Monday and Tuesday, not Saturday and Sunday as they are in most Western nations.

ANS: F PTS: 1 REF: p. 120 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

5. In Arab countries, business executives will often digress from the primary purpose of the meeting, then eventually return to the topic initially discussed.

ANS: T PTS: 1 REF: p. 121 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

6. Mexican negotiators will frequently engage in long periods of silence, or may have peripheral discussions among one another while ignoring foreign business people in the room.

ANS: F PTS: 1 REF: p. 121 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

7. The level of education must be such that high-tech products can be accepted because the market knows how to use them.

ANS: T PTS: 1 REF: p. 122 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

8. Inwa means that groups at the top of the social pyramid exert a great deal of control over others at lower levels of the pyramid.

ANS: F PTS: 1 REF: p. 122 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

9. Power distance examines the extent to which societies tolerate risk or are risk averse.

ANS: F PTS: 1 REF: p. 123 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

10. Hofstede’s masculine vs. feminine dimension is the extent to which a society values traditionally masculine attributes (assertiveness, competition) or traditionally feminine ones (modesty, caring for others).

ANS: T PTS: 1 REF: p. 123 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

11. According to the GLOBE Project, the lowest level of instituional collectivism existed for the Anglo group.

ANS: F PTS: 1 REF: p. 124 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

12. The U.S. Department of Commerce Country Commercial Guide provides cultural information for 133 countries.

ANS: T PTS: 1 REF: p. 127 OBJ: LO: 05-04 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. When doing business in Russia, it is not appropriate to look directly into the eyes of your Russian hosts.

ANS: F PTS: 1 REF: p. 128 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

14. Guanxi refers to the relationship between subordinates and superiors. It denotes friendship among unequals involving unlimited exchanges of favors; thus, it is not based upon sentiment.

ANS: T PTS: 1 REF: p. 129 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

15. Latin Americans are not as conscious about time as are North Americans.

ANS: T PTS: 1 REF: p. 131 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

MULTIPLE CHOICE 1. Which of the following statements about culture is NOT true? a. It is a concept that is relaively easy to define. b. There are many different components of culture. c. Culture involves how a group of people behave, what they value and appreciate, and many other aspects. d. There are four charecteristics of culture. e. Culture is learned, not inherited.

ANS: A PTS: 1 REF: p. 118 OBJ: LO: 05-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

2. Of the following, which is NOT a charcteristic of culture that is important for global companies to recognize? a. Culture is learned, not inherited. b. It is nearly impossible to change an entire country’s culture. c. It is the responsibility of the global firm to ascertain the level of importance of various aspects of culture in the foreign markets it serves. d. Companies’ operations, cheifly marketing and management, need to recognize and adjust to the cultural environment existing in the countries the global company serves. e. Culture can be imposed from home country to host country.

ANS: E PTS: 1 REF: p. 118 OBJ: LO: 05-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

3. Mexican business executives who buy business-to-business products from U.S. suppliers indicate that “knowledge of the mexican culture” and “enthusiasm” were the most important cutural variables determining from which supplier they purchased. this example of which of the four charecteristics of culture which is important for global companies to recognize? a. Culture is larned, not inherited. b. It is nearly impossible to change an entire county’s culture. c. It is the responsibility of the global firm to ascertain the level of importance of various aspects of culture in the foreign markets it serves. d. Companies’ operations, chiefly marketing and management, need to recognize and

adjust to the cultural environment existing in the countries the global company serves. e. Culture is inherited, not learned.

ANS: C PTS: 1 REF: p. 118 OBJ: LO: 05-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

4. ______ communication refers to tone of voice, gestures, eye contact, body positions, facial grimaces, and other body language that accompanies verbal communication. a. Verbal b. Nonverbal c. Informal d. Formal e. Backward ANS: B PTS: 1 REF: p. 118 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Communication KEY: Bloom's: Knowledge

5. In ____ translation, a message is translated from English to another language, then someone skilled in that foreign language translates it back into English; this second translation can then be compared to the original English version. a. vertical b. horizontal c. forward d. backward e. diagonal ANS: D PTS: 1 REF: p. 119 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Communication KEY: Bloom's: Knowledge

6. Of the following, which is NOT true reguarding religion as a cultural aspect? a. In Muslim countries, American companies cannot antcipate employing women because they are not encouraged to work outside the home. b. Different religions observe different holidays. c. Jews observe a number of annual holidays, including Purim, Passover, and Hanukkah. d. In Kuwait, weekends are Saturday and Sunday. e. Jews and Muslims are prohibited from eating pork.

ANS: D PTS: 1 REF: p. 118 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

7. _____ refers to the way a society does things. a. Values b. Attitudes c. Manners and customs d. Stances

e. Outlooks ANS: C PTS: 1 REF: p. 120 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

8. In some countries, a high premium is placed upon foreigners and foreign items, as they are associated with sophistication –French wines, for example, or Swedish automobiles. In other countries, there is subtle resistance to foreign items. This is an example of a cultural _____. a. value b. attitude c. manners and custom d. stance e. outlook ANS: A PTS: 1 REF: p. 120 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

9. In Country A, proposed change is viewed with suspicion – especially if it is suggested by foreigners. This is an example of a cultural _____. a. value b. attitude c. manners and customs d. stance e. outlook ANS: B PTS: 1 REF: p. 120 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

10. In Arab countries, business executives will often digress from the primary purpose of the meeting, then eventually return to the topic initially discussed. This is an example of a cultural _____. a. value b. attitude c. manners and customs d. stance e. outlook ANS: C PTS: 1 REF: p. 121 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

11. In China, consumers drink soup, which usually contains rice, and do not use a spoon. In Muslim countries, it would be inappropriate to bring a gift for another man’s wife. These are example of cultural_____. a. value b. attitude c. manners and customs d. stance

e. outlook ANS: C PTS: 1 REF: p. 121 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

12. _____ infrastructure refers to housing, medical services, and educational institutions. a. Material b. Technological c. Social d. Financial e. Economic ANS: C PTS: 1 REF: p. 121 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. The color black in the United States indicates mourning, but in Japan white is the color of mourning. Green is an acceptable color in Muslim countries; all flags of those countries contain green. These are examples of which of the following? a. Material culture b. Aesthetics c. Social institutions d. Stratification e. Intangible culture ANS: B PTS: 1 REF: p. 122 OBJ: LO: 05-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

14. _____ refers to the way people in a society relate to one another within group settings. a. Material culture b. Aesthetics c. Social institution d. Stratification e. Intangible culture ANS: C PTS: 1 REF: p. 122 OBJ: LO: 05-02 STA: DISC: Group Dynamics

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

15. The extent to which groups at the top of the social pyramid exert control over others at the lower levers of the pyramid is referred to as _____. a. material culture b. aesthetics c. a social institution d. social stratification e. intangible culture ANS: D REF: p. 122

PTS: 1 OBJ: LO: 05-02

DIF: Difficulty: Easy NAT: BUSPROG: Diversity

STA: DISC: Group Dynamics

KEY: Bloom's: Knowledge

16. Of the following, which is NOT a cultural level identified by Hofstede? a. Individualism vs. collectivism b. Power distance c. Masculine vs. feminine d. Uncertainty avoidance e. Internal control vs. external control ANS: E PTS: 1 REF: p. 123 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

17. Of the following, which dimension identified by Hofstede refers to the extent to which societies tolerate risk or are risk averse? a. Individualism vs. collectivism b. Power distance c. Masculine vs. feminine d. Uncertainty avoidance e. Internal control vs. external control ANS: D PTS: 1 REF: p. 123 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

18. Of the following, which dimension identified by Hofstede refers to the level of egalitarianism in a society? a. Individualism vs. collectivism b. Power distance c. Masculine vs. feminine d. Uncertainty avoidance e. Internal control vs. external control ANS: B PTS: 1 REF: p. 123 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

19. Of the following, which is NOT true regarding Hofstede’s cultural dimensions? a. Japan and Mexico are highly collectivistic. b. Australia and the United States are high power distance countries. c. Japan, Greece, and Belgium have been described as highly masculine cultures. d. Finland and Sweden are less tolerant of risk than Portugal and Brazil. e. China and Japan have much longer time horizons than do most Western nations.

ANS: B PTS: 1 REF: p. 123 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

20. Which of the following is NOT one of the nine cultural variables researched by the GLOBE Project? a. Power distance

b. c. d. e.

Uncertainty avoidance Humane orientation Performance orientation Emotionality

ANS: E PTS: 1 REF: p. 125 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

21. According to the GLOBE Project research, _____ was ranked first on power distance. a. Germanic Europe b. Southern Asia c. Eastern Europe d. the Arabic group e. Latin Europe ANS: B PTS: 1 REF: p. 124 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

22. According to the GLOBE Project research, _____ has emerged as the group that was the most in favor of uncertainty avoidance. a. Germanic Europe b. Southern Asia c. Eastern Europe d. the Arabic group e. Latin Europe ANS: A PTS: 1 REF: p. 124 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

23. Of the following, which is NOT a primary or secondary source that can be used to learn about foreign countries’ cultures? a. The U.S. Department of Commerce Commercial Guide b. The Economist’s Intelligence Unit c. Culture Grams d. Craigshead’s International Business, Travel and Relocation Guide to 84 Countries e. Forbes’s Countries of the World ANS: E PTS: 1 REF: p. 127 OBJ: LO: 05-04 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

24. Of the following, which provides cultural information for 133 countries? a. The U.S. Department of Commerce Commercial Guide b. The Economist’s Intelligence Unit c. Culture Grams d. Craigshead’s International Business, Travel and Relocation Guide to 84 Countries e. Forbes’s Countries of the World

ANS: A PTS: 1 REF: p. 127 OBJ: LO: 05-04 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

25. Of the following, which is NOT a cultural aspect of doing business in Korea? a. The number 1 is good, whereas the number 4 signifies death. b. Business card etiquette is the most important aspect of closing the deal. c. Younger brothers and sisters are not allowed to use the names of their older siblings. d. “Yangban” refers to the noble class. e. Children are not supposed to say their parents’ names, even when used with a title.

ANS: B PTS: 1 REF: p. 128 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

26. Of the following, which is NOT a cultural aspect of doing business in Korea? a. The number 1 is good, whereas the number 4 signifies death. b. Avoid sitting so that the sole of one’s shoe is shown. c. Younger brothers and sisters are not allowed to use the names of their older siblings. d. “We” is more important than “I.” e. Children are not supposed to say their parents’ names, even when used with a title.

ANS: B PTS: 1 REF: p. 129 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

27. _____refers to a Chinese philosophy examining the relationship between subordinates and supervisors. It denotes friendship among unequals involving unlimited exchanges of favors. a. Guanxi b. Inwa c. Yangban d. Stratification e. Aesthetics ANS: A PTS: 1 REF: p. 129 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

28. In ______, teachers are so revered that walking in their shadows is viewed as impolite. a. Latin America b. Korea c. Russia d. Arab countries e. India ANS: B PTS: 1 REF: p. 129 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

29. _____refers to a Korean philosophy stressing harmony among unequals, loyalty to parents and authority figures, and superiors being responsible for the well-being of subordinates. a. Guanxi b. Inwa c. Yangban d. Stratification e. Aesthetics ANS: B PTS: 1 REF: p. 129 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

30. When doing business in _____, it is important to understand that potential customers want to develop a personal relationship before doing business with foreign executives. Dinner exchanges and lunch meetings provide a good time for executives to get to know one another better. Dinners most often occur in the late evening, at 9 or 10pm. a. China b. Japan c. Korea d. Latin America e. Arab countries ANS: D PTS: 1 REF: p. 131 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

31. Guanxi is a term utilized in _____. a. China b. Japan c. Korea d. Latin America e. Arab Countries ANS: A PTS: 1 REF: p. 129 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

32. Inwa is a term utilized in _____. a. China b. Japan c. Korea d. Latin America e. Arab Countries ANS: C PTS: 1 REF: p. 129 OBJ: LO: 05-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

33. Of the following, which is NOT true about managing and marketing in overseas markets? a. Only one management style need be used. b. There can be different cultural groups within countries of which organizations

need to be aware. c. Advertising campaigns must be tailored to local cultures. d. Culture has an impact on communication styles. e. Clear communication can improves the outcomes of management decisions.

ANS: A PTS: 1 REF: p. 132 OBJ: LO: 05-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

34. Of the following, which dimension identified by Hofstede refers to the extent to which a society emphasizes short-run or long-run time horizons? a. Time orientation b. Power distance c. Masculine vs. feminine d. Uncertainty avoidance e. Internal control vs. external control ANS: A PTS: 1 REF: p. 123 OBJ: LO: 05-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

35. Of the following, which dimension identified by Hofstede refers to the extent to which a society minimizes gender inequality? a. Time orientation b. Power distance c. Masculine vs. feminine d. Uncertainty avoidance e. Internal control vs. external control ANS: C PTS: 1 REF: p. 123 OBJ: LO: 05-06 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

COMPLETION 1. ________ refers to learned behavior; a way of life for one group of people living in a single, related and independent community.

ANS: Culture PTS: 1 DIF: Difficulty: Easy REF: p. 118 OBJ: LO: 05-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 2. The ability of a firm to adjust to a culture different from it own is referred to as _________.

ANS: acculturation PTS: 1 OBJ: LO: 05-02

DIF: Difficulty: Easy NAT: BUSPROG: Diversity

REF: p. 118

STA: DISC: Environmental Influence

KEY: Bloom's: Knowledge

3. The ________ cultral dimension involves the worth of the individual versus the worth of the groups of which that person is a member (“me versus the group”).

ANS: individualism vs. collectivism PTS: 1 DIF: Difficulty: Easy REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 4. The extent to which a society values traditionally masculine attributes (assertiveness, competition) or traditionally feminine ones (modesty, caring for others) is known as the ________ dimension.

ANS: masculine vs. feminine PTS: 1 DIF: Difficulty: Easy REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 5. ________is the cultural dimension that refers to egalitarianism (equality) versus authority.

ANS: Power distance PTS: 1 DIF: Difficulty: Moderate REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 6. _______dimension refers to the extent to which societies tolerate risk or are risk averse.

ANS: Uncertainty avoidance PTS: 1 DIF: Difficulty: Moderate REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 7. The cultural dimension that refers to extent to which a society emphasizes short-run or long-run time horizons is know as ______.

ANS: time Orientation PTS: 1 DIF: Difficulty: Easy REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 8. ________ is Trompenaar’s cultural variable that refers to the importance of rules versus relationships.

ANS: Universalism vs. particularism PTS: 1 DIF: Difficulty: Moderate REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 9. The extent to which a society expresses itself emotionally is defined by Hofstede as ________variable.

ANS: neutral vs. emotional PTS: 1 DIF: Difficulty: Easy REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 10. The ______ variable refers to the degree to which a society compartmentalizes roles.

ANS: specific vs. diffuse PTS: 1 DIF: Difficulty: Moderate REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 11. The _________ variable refers to how rewards in a society are handed out.

ANS: achievement vs. ascription PTS: 1 DIF: Difficulty: Moderate REF: p. 124 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 12. “______” is the Korean philosophy that involves harmony among unequals: loyalty is owed to parents and authority figures, yet superiors are responsible for the well-being of their subordinates.

ANS: “Inwa” Inwa PTS: 1 DIF: Difficulty: Moderate REF: p. 129 OBJ: LO: 05-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 13. The Chinese philosophy that denotes friendship among unequals involving unlimited exchanges of favors; thus, it is not based upon sentiment is referred to as “_____”.

ANS: “guanxi” guanxi

PTS: 1 DIF: Difficulty: Moderate REF: p. 129 OBJ: LO: 05-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge ESSAY 1. Briefly describe the four characteristics of culture important for global companies.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 118 OBJ: LO: 05-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 2. Briefly describe any four elements of culture. Provide an example of each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 118-122 OBJ: LO: 05-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 3. Describe five dimensions of Hofstede’s research using country examples for each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 4. Trompenaars builds upon work of Hofstede’s research. Describe the added cultural dimensions of Trompenaars using country examples for each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 123 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 5. Compare and contrast the cultural dimensions of Hofstede’s research and the GLOBE project.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 123-125 OBJ: LO: 05-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 6. Describe the cultural dimensions of doing business in Japan.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 127-128 OBJ: LO: 05-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 7. Differentiate between the cultural dimensions of doing business in Korea and China.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 128-130 OBJ: LO: 05-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 8. Explain why culture is important in global marketing.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 132-135 OBJ: LO: 05-06 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension CASE Scenario – Reardon Enterprises Reardon Enterprises was founded in 1985 by Jonas and Samuel Reardon. Initially this company was based solely in Santa Fe, New Mexico and sold products only in the U.S. market. Now, this organization has grown to become fifth in the fine glassware industry in the world. It proudly claims the distinction of having 14 manufacturing facilities located on foreign soil. It currently provides its delicate and refined glass products to 24 foreign marketplaces around the world.

Samuel continues to work in the field and feels his expertise in foreign relations is a large part of the reason the company has known such global success. While Jonas contends the factories and workers located on foreign soil should not be treated differently from those in Santa Fe, Samuel contends it is important to know how the other countries operate. Even with the differences in business philosophies and beliefs between the two owners, Reardon Enterprises remains a multi-billion dollar operation with a glistening future ahead of it.

1. Samuel is quite knowledgeable about the foreign cultures where Reardon Enterprises conducts its operations. He understands the vital characteristics surrounding a country’s culture. Which one of the following is not one of these characteristics? a.

Culture is learned through associations and family. b.

A company’s marketing and management must adjust and adapt to the culture of the foreign marketplace. c.

Culture is not dynamic and changes slowly over a long period of time. d.

Companies have the responsibility to understand what is valued and accepted in the foreign marketplace. e.

Culture is inherited from others living within the society.

ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 118-122 OBJ: LO: 05-01| LO: 05-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. Jonas has decided that Samuel makes a valid point when he states the importance of knowing the culture of the foreign country in which they wish to conduct business. Jonas has decided to learn as much as he can about the culture of Japan in order to be better prepared for the company’s business endeavor there. Which of the following would not be a valued source of information about foreign cultures? a.

U.S. Department of the Interior b.

Discussion with individuals who have worked in Japan c.

Craigshead’s International Business d.

Doing Business in 118 Countries by Price Waterhouse Cooper e.

Country Report from the Economist ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 127 OBJ: LO: 05-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. Reardon Enterprises has its second largest manufacturing facility located in South America.

Which one of the following would not be an important cultural fact Samuel and Jonas should know before conducting business meetings there? a.

Formal manners and attire are valued at dinner business meetings b.

Business dealings must be discussed first and decisions made quickly c.

Development of a personal relationship should come before conducting business d.

Time is not an essential entity in that culture for it is believed there is always tomorrow e.

Dinner meetings are considered a time to get to know those who would be doing business together

ANS: b PTS: 1 DIF: Difficulty: Challenging REF: p. 127-133 OBJ: LO: 05-04| LO: 05-05 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation Scenario – The Sandman Group The Sandman Group is a multinational pharmaceutical business, which provides needed medications to a variety of foreign markets around the globe. It has recently acquired a new customer that is based in Saudi Arabia. This area of the world is new to the company.

Sandman plans to send ten representatives and managers to the Saudi region to better serve this new client’s needs. The company feels confident in its products and its people and believes strongly they will be able to accommodate the needs of this client.

4. The Sandman Group realizes the business must be able to adjust to the vastly different Saudi culture quickly in order to retain this new client. Which of the following best describes what the Sandman Group needs to accomplish? a.

Proliferation b.

Ascription c.

Acculturation d.

Guanxi e.

Social stratification ANS: c PTS: 1 DIF: Difficulty: Easy REF: p. 118-122 OBJ: LO: 05-01| LO: 05-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. The representatives of Sandman must be aware of cultural do’s and don’ts of the Saudi Arabia region. Which one of the following would be considered unacceptable or inappropriate for them to do during a business meeting? a.

Maintaining good posture. b.

Not inquiring about the wives of foreign businessmen. c.

Not overly praising the possessions of the Arab host. d.

Not bringing a woman to the meeting without first seeking the host's approval. e.

Sitting with the sole of the shoe showing.

ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 130 OBJ: LO: 05-05 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation

6. The Sandman Group is determined to be successful in its business dealings with its newest Saudi customer. It has been working diligently with the ten representatives and managers it plans to send into the region. Sandman wants each one to be well versed in the culture of the region before they depart on their assignment. Which one of the following would not be of high concern for those individuals to learn before leaving the United States? a.

Effective verbal communication skills b.

Awareness of non-verbal language and its meanings c.

Food for eating must be prepared in the halal way d.

Financial infrastructure of the region e.

Knowledge of the value system of the region ANS: d PTS: 1 DIF: Difficulty: Moderate REF: p. 118-122 OBJ: LO: 05-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation

Chapter 6: The Legal and Political Environment of Global Business TRUE/FALSE 1. Totalitarian government refers to a form of government in which total (all) citizenry have the right to vote.

ANS: F PTS: 1 REF: p. 142 OBJ: LO: 06-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. The openness of democratic countries like Finland, and the protections such countries tend to generally provide for property rights and freedom of expression, usually make those countries more hospitable places to conduct global business than countries with totalitarian or semi-totalitarian political regimes.

ANS: T PTS: 1 REF: p. 143 OBJ: LO: 06-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

3. Singapore historically has had a highly anti-business political system in a parliamentary model context, with one ruling party, in power since 1959.

ANS: F PTS: 1 REF: p. 143 OBJ: LO: 06-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

4. Under Communist economic ideology, collectivistic rights give way in the extreme to individual rights.

ANS: F PTS: 1 REF: p. 144 OBJ: LO: 06-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

5. Very little role for government exists in a purely capitalistic or “free market” economic system.

ANS: T PTS: 1 REF: p. 145 OBJ: LO: 06-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

6. China, with its strong individualistic, entrepreneurial, free-market spirit, historically has been viewed as the leading economically capitalistic economy in the world.

ANS: F PTS: 1 REF: p. 145 OBJ: LO: 06-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

7. Currency devaluation and conversion restrictions are two of the many economic risks companies take when engaging in international business.

ANS: T PTS: 1 REF: p. 146 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

8. Fortunately for global businesses, economic risks are independent of political risks.

ANS: F PTS: 1 REF: p. 146 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

9. A country’s potential nationalization of companies in the oil industry would represent a macropolitical risk.

ANS: F PTS: 1 REF: p. 147 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

10. Rankings of countries throughout the world by potential political risks typically place Scandinavian and European countries such as Norway, Sweden, Switzerland, Luxembourg and Denmark near the top of the list, meaning that companies engaging in business in these countries face the least number of potential political risks.

ANS: T PTS: 1 REF: p. 147 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

11. There are essentially two kinds of business corruption: private corruption and public corruption.

ANS: T PTS: 1 REF: p. 148 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

12. In the world today, Islamic law, as followed in countries such as Iran and Saudi Arabia, is the primary example of theocratic law in operation.

ANS: T PTS: 1 REF: p. 151 OBJ: LO: 06-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. Tax law is the body of law governing legally enforceable agreements between parties to engage in economic exchange.

ANS: F PTS: 1 REF: p. 153 OBJ: LO: 06-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

14. Patent rights generally remain enforcable for 5-20 years, depending on the invention and the country.

ANS: T PTS: 1 REF: p. 157 OBJ: LO: 06-05 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

MULTIPLE CHOICE 1. _____ is Greek for “rule by the people”; it is a form of government in which all citizens have the right to vote. a. Democracy b. Totalitarianism c. Dictator d. Egalitarianism e. Communism ANS: A PTS: 1 REF: p. 142 OBJ: LO: 06-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. _____ government is a system of government in which individuals govern without the support or consent of the citizenry. a. Athenian b. Totalitarianism c. Representative d. Egalitarian e. Communism ANS: B PTS: 1 REF: p. 142 OBJ: LO: 06-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

3. Most, if not all, democracies today are what are known as _____ democracies. a. athenian b. totalitarianism c. representative d. egalitarian e. communism ANS: C PTS: 1 REF: p. 142 OBJ: LO: 06-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

4. Of the following statements, which is NOT true about democracies? a. Democracy is Greek for “rule by the people.” b. Most, if not all, democracies today are what are known as athenian democracies. c. Some democracies, such as Japan, Spain, and Great Britain, also have ceremonial monarchs

d. Opposite democracies are totalitarian countries. e. Athenian democracy was developed around 500 BCE. ANS: B PTS: 1 REF: p. 142 OBJ: LO: 06-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

5. Of the following statements, which is NOT true about totalitarian governments? a. Finland, South Korea, and Norway are run by a military dictatorship. b. Iran has a totalitarian government where religious “Ayatollahs” hold principal sway. c. A totalitarian variant is the absolute monarchy. d. King Henry VIII who ruled England was an absolute monarch. e. The dictatorships that prevailed in Eastern Europe during the Cold War are an example of military dictatorships.

ANS: A PTS: 1 REF: p. 143 OBJ: LO: 06-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

6. Which of the following is NOT true about family planning in China? a. Beginning in 1850, the communist government of China formally adopted a “one child” family planning policy. b. The goal of the program has been to help alleviate China’s overpopulation problem. c. The program has resulted in “gendercide.” d. Young Chinese men are finding it very difficult to get married. e. Observers have attributed about 50 percent of the increase in China’s saving rate over the past 25 years due to its one child policy.

ANS: A PTS: 1 REF: p. 144 OBJ: LO: 06-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

7. _____ involves an economic ideology in which the government or state plays a strong role in the economy and may own stakes in certain businesses. a. Totalitarianism b. Democracy c. Communism d. Capitalism e. Socialism ANS: E PTS: 1 REF: p. 145 OBJ: LO: 06-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

8. _____ refers to an economic system where businesses are privately owned with a strong individualistic profit orientation. a. Totalitarianism b. Democracy c. Communism

d. Capitalism e. Socialism ANS: D PTS: 1 REF: p. 145 OBJ: LO: 06-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

9. Which of the following is NOT true about socialism? a. Socialism involves an economic ideology in which the government or state plays a strong role in the economy and may own stakes in certain businesses. b. Countries with socialist economies aspire to be “classless.” c. Socialistic economies tend to be somewhat more collectively than individualistically oriented. d. Many European countries have strong socialistic orientations. e. Socialistic countries put a high degree of importance upon worker and labor rights.

ANS: B PTS: 1 REF: p. 145 OBJ: LO: 06-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

10. Which of the following is NOT true about capitalism? a. Capitalism refers to an economic system where businesses are privately owned with a strong individualistic profit orientation. b. Very little role for government exists in a purely capitalistic or “free market” economic system. c. Individual gains and losses of wealth can be very large. d. Individual incentives are at the core of capitalistic economic ideology. e. Historically, Russia has been viewed as the leading economically capitalistic economy in the world.

ANS: E PTS: 1 REF: p. 145 OBJ: LO: 06-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

11. A country that has particularly militant labor unions known for frequent unplanned or wildcat strikes, or perhaps a country known for holding corporate executives hostage until their demands are met, are examples of _____ risk. a. political b. environmental c. individual d. economic e. financial ANS: D PTS: 1 REF: p. 146 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

12. _____ risks are the risks that political forces or problems in a given country will have a meaningful negative impact upon the conduct of business in that country. a. Political b. Environmental

c. Individual d. Economic e. Financial ANS: A PTS: 1 REF: p. 147 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. A country’s potential nationalization of companies in the oil industry would represent a(n) _____ risk. a. marketing b. environmental c. individual d. macropolitical e. micropolitical ANS: E PTS: 1 REF: p. 147 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

14. The potential overthrow of a democratically elected presidential regime by a military junta is likely a(n) _____ risk. a. marketing b. environmental c. individual d. macropolitical e. micropolitical ANS: D PTS: 1 REF: p. 147 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

15. Which of the following laws provides for (after a certain deductible) U.S. government insurance coverage for the risk of a U.S. business or property being attacked by a “foreign person or foreign interest?” a. Foreign Corrupt Practices Act b. Overseas Private Investment Act c. Terrorism Risk Insurance Act d. Antitrust Act e. United We Stand Act ANS: C PTS: 1 REF: p. 148 OBJ: LO: 06-03 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

16. Which of the following is a U.S. government agency that sells political risk insurance to U.S. businesses operating in countries with which the U.S. has a bilateral investment treaty? a. Foreign Corrupt Corporation b. Overseas Private Investment Corporation c. Terrorism Risk Corporation d. Antitrust Corporation

e. United Corporation ANS: B PTS: 1 REF: p. 148 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

17. A situation where businesses are able to illegally alter relevant private and/or public decision making by way of bribes, kickbacks, blackmail, extortion, and related activities is known as _____. a. corruption b. an ethical violation c. dishonesty d. treachery e. deceitfulness ANS: A PTS: 1 REF: p. 148 OBJ: LO: 06-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

18. _____ corruption is business corruption involving other private businesses, individuals, or groups. a. Public b. Private c. Open d. Closed e. External ANS: B PTS: 1 REF: p. 148 OBJ: LO: 06-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

19. _____ involves unlawful arts or violence threatening the physical safety of others. a. Persecuting b. Oppressing c. Intimidating d. Bullying e. Terrorism ANS: E PTS: 1 REF: p. 147 OBJ: LO: 06-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

20. Paying “protection money” or giving sales kickbacks to an organized crime group would represent at example of _____ corruption. a. public b. private c. open d. closed e. external ANS: B

PTS:

1

DIF:

Difficulty: Challenging

REF: p. 148 OBJ: LO: 06-03 STA: DISC: Ethical Responsibilities

NAT: BUSPROG: Ethics KEY: Bloom's: Application

21. A supplier paying a bribe to an officer of a company that purchases its products to help “facilitate” the purchase of said products is an example of _____ corruption. a. public b. private c. open d. closed e. external ANS: B PTS: 1 REF: p. 148 OBJ: LO: 06-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Challenging NAT: BUSPROG: Ethics KEY: Bloom's: Application

22. A 2010 survey asked individuals whether they or someone in their household had paid a bribe in the past 12 months. The survey found a _____ percent bribery rate in the United States. a. 1 b. 5 c. 13 d. 22 e. 33 ANS: B PTS: 1 REF: p. 149 OBJ: LO: 06-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Challenging NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

23. According to the text regarding a study of corporate bribery in developed countries conducted by Transparency International, _____ had the most corporate bribery. a. Russia b. Belgium c. Canada d. Brazil e. Taiwan ANS: A PTS: 1 REF: p. 150 OBJ: LO: 06-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Evaluation

24. The practice of making illegal payments to government officials or engaging in blackmail, extortion, or other related activities to obtain government contracts or governmental approval for business activities is called _____ corruption. a. public b. private c. open d. closed e. external ANS: A REF: p. 149

PTS: 1 OBJ: LO: 06-03

DIF: Difficulty: Easy NAT: BUSPROG: Ethics

STA: DISC: Ethical Responsibilities

KEY: Bloom's: Knowledge

25. The _____ is a U.S. law that prohibits U.S. companies from bribing or otherwise corrupting foreign government officials to win foreign government contracts or obtain other foreign government assistance for their businesses. a. Foreign Corrupt Practices Act b. Overseas Private Investment Act c. Terrorism Risk Insurance Act d. Antitrust Act e. United We Stand Act ANS: A PTS: 1 REF: p. 149 OBJ: LO: 06-03 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

26. A legal system based on a comprehensive listing of legal rules in sets of written codes of law is known as a _____ law legal system. a. civil b. common c. theocratic d. representative e. family ANS: A PTS: 1 REF: p. 151 OBJ: LO: 06-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

27. A legal system where legislative bodies generally enact specific legal rules giving judges or courts considerable authority in interpreting these rules based on precedent and other factors is called a _____ law legal system. a. civil b. common c. theocratic d. representative e. family ANS: B PTS: 1 REF: p. 151 OBJ: LO: 06-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

28. Of the following statements about common law legal systems, which is NOT true? a. They originated in Asia in 1250. b. A key advantage of this approach is that judges have a fair amount of flexibility to change their interpretations of the law based on changing societal developments. c. One downside of the common law approach is that it gives much power to the courts and judges. d. It is a legal system where legislative bodies generally enact specific legal rules giving judges or courts considerable authority in interpreting these rules based on precedent and other factors. e. Some say that in common law countries it is often appointed judges who “make

the law” rather than elected legislators.

ANS: A PTS: 1 REF: p. 151 OBJ: LO: 06-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

29. _____ establishes which violations of a nation’s laws are crimes punishable by possible incarceration. a. Democratic b. Common c. Theocratic d. Representative e. Criminal ANS: E PTS: 1 REF: p. 152 OBJ: LO: 06-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

30. A party wishing to sell a given piece of commercial real estate to another party would enter into a real estate agreement with the other party. This is an example of which type of law? a. Tax b. Common c. Contract d. Theocratic e. Criminal ANS: C PTS: 1 REF: p. 153 OBJ: LO: 06-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

31. Laws to promote “fair competition” among businesses are known as _____ laws. a. tax b. common c. contract d. theocratic e. antitrust ANS: E PTS: 1 REF: p. 154 OBJ: LO: 06-04 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

32. “Coca-Cola,” the Nike “swoosh” logo, and McDonald’s “golden arches” are examples of _____. a. intellectual property b. patents c. trademarks d. generalized trademarks e. contracts ANS: C REF: p. 157

PTS: 1 OBJ: LO: 06-05

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity

STA: DISC: Legal Responsibilities

KEY: Bloom's: Application

33. The words “aspirin,” “escalator,” and “zipper” are examples of _____. a. intellectual property b. patents c. trademarks d. generalized trademarks e. contracts ANS: D PTS: 1 REF: p. 157 OBJ: LO: 06-05 STA: DISC: Legal Responsibilities

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

COMPLETION 1. ________ ; Greek for “rule by the people”; is a form of government in which all citizens have the right to vote.

ANS: Democracy PTS: 1 DIF: Difficulty: Easy REF: p. 142 OBJ: LO: 06-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 2. ______is a pure form of democracy, in which all adult citizens vote directly on matters affecting the community.

ANS: Athenian democracy PTS: 1 DIF: Difficulty: Moderate REF: p. 142 OBJ: LO: 06-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 3. A form of government in which citizens vote to elect given individuals to serve as their representatives for a certain period of time is referred to as a(n) _________.

ANS: representative democracy PTS: 1 DIF: Difficulty: Easy REF: p. 142 OBJ: LO: 06-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 4. A system of government in which individuals govern without the support or consent of the citizenry; for example, a military dictatorship is called a _______.

ANS: totalitarian government PTS: 1 OBJ: LO: 06-01

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity

REF: p. 142

STA: DISC: Environmental Influence

KEY: Bloom's: Knowledge

5. _______ is an economic ideology where by the government owns and controls all major factors of production, and is philosophically an economically classless society.

ANS: Communism PTS: 1 DIF: Difficulty: Easy REF: p. 144 OBJ: LO: 06-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 6. ________ is an economic ideology in which the government plays a strong role in the economy and may own stakes in certain businesses.

ANS: Socialism PTS: 1 DIF: Difficulty: Easy REF: p. 145 OBJ: LO: 06-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 7. An economic ideology where businesses are privately owned, strong individual incentives exist, and the government plays very little role in the economy is known as ________.

ANS: capitalism PTS: 1 DIF: Difficulty: Easy REF: p. 145 OBJ: LO: 06-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 8. _______ risks are those that financial problems or mismanagement in a given country will have a meaningful negative impact upon the conduct of business in that country ANS: Economic PTS: 1 DIF: Difficulty: Easy REF: p. 146 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 9. The risks that government insability or problems in a given country will have a meaningful negative impact upon the conduct of business in that country make up the ______ risks.

ANS: political PTS: 1 DIF: Difficulty: Easy REF: p. 147 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 10. A political risk that only affects a certain industry or set of firms in a given country is called a ______ risk.

ANS: micropolitical PTS: 1 DIF: Difficulty: Moderate REF: p. 147 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Diversity 11. A political risk that essentially affects all businesses in a given country is referred to as a _______ risk.

ANS: macropolitical PTS: 1 DIF: Difficulty: Moderate REF: p. 147 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Diversity 12. _______ is defined as unlawful acts or violence threatening the physical safety of others.

ANS: Terrorism PTS: 1 DIF: Difficulty: Moderate REF: p. 147 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 13. The ________ is a United States law that after a certain deductible provides U.S. businesses government insurance coverage for the risk of terrorism.

ANS: Terrorism Risk Insurance Act of 2002 PTS: 1 DIF: Difficulty: Moderate REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 14. The _______ is a U.S. government agency that sells political risk insurance to U.S. businesses operating in countries with which the U.S. has a bilateral investment treaty.

ANS: Overseas Private Investment Corporation (OPIC) PTS: 1 DIF: Difficulty: Challenging REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 15. ______ is defined as a situation where businesses are able to illegally alter relevant private and/or public decision making by way of bribes, kickbacks, blackmail, extortion and related activities.

ANS: Corruption

PTS: 1 DIF: Difficulty: Easy REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 16. Business corruption involving other private businesses, individuals, or groups is called _____.

ANS: private corruption PTS: 1 DIF: Difficulty: Easy REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 17. The practice of making illegal payments to government officials or engaging in blackmail, extortion or other related activities in order to obtain government contracts or governmental approval for business activities is known as ______.

ANS: public corruption PTS: 1 DIF: Difficulty: Easy REF: p. 149 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 18. The _________ is a United States law that prohibits U.S. companies from bribing or otherwise corrupting foreign government officials in order to win foreign government contracts or obtain other foreign government assistance for their businesses ANS: Foreign Corrupt Practices Act (FCPA) PTS: 1 DIF: Difficulty: Moderate REF: p. 149 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 19. _______ legal system is based on a comprehensive listing of legal rules in sets of written codes of law.

ANS: Civil law PTS: 1 DIF: Difficulty: Moderate REF: p. 151 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 20. _______ legal system is where legislative bodies generally enact less specific legal rules giving judges or courts considerable authority in interpreting these rules based on precedent and other factors ANS: Common law PTS:

1

DIF:

Difficulty: Moderate

REF: p. 151

OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 21. A legal system based on a religious document and religious teachings is referred to as a _______ legal system.

ANS: theocratic law PTS: 1 DIF: Difficulty: Moderate REF: p. 151 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 22. ______ law that establishes which violations of a nation’s laws are crimes punishable by possible incarceration.

ANS: Criminal PTS: 1 DIF: Difficulty: Easy REF: p. 152 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 23. _________ law is the body of law governing legally enforceable agreements between parties to engage in economic exchange.

ANS: Contract PTS: 1 DIF: Difficulty: Easy REF: p. 153 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 24. The body of law dealing with governmental levying of taxes on individuals and corporations is referred to as ______ law.

ANS: tax PTS: 1 DIF: Difficulty: Easy REF: p. 153 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 25. Countries with little or no tax transparency are know as _______ countries.

ANS: tax haven PTS: 1 DIF: Difficulty: Easy REF: p. 154 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 26. ______ laws are enacted to promote “fair competition” among businesses.

ANS: Antitrust PTS: 1 DIF: Difficulty: Easy REF: p. 154 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 27. The practice of companies acting in a manner which secretly thwarts competition amongst themselves is known as _______.

ANS: collusion PTS: 1 DIF: Difficulty: Moderate REF: p. 154 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 28. A situation where there is only a single seller of a product in an industry and there are very high barriers to enter this industry is called a _______.

ANS: monopoly PTS: 1 DIF: Difficulty: Easy REF: p. 154 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 29. The law which establishes the standards of product safety to which the manufacturers and sellers of products are to be held is called _________ law.

ANS: product safety PTS: 1 DIF: Difficulty: Easy REF: p. 155 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 30. _______ or “buyer beware”; involves placing the burden of determining product safety on consumers.

ANS: Caveat emptor PTS: 1 DIF: Difficulty: Challenging REF: p. 155 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 31. _______ or “Seller beware”; involves placing on manufacturers or sellers of products the burden of making sure products are safe or at least clearly and explicitly warning consumers about the potential safety risks of said product.

ANS: Caveat venditor PTS:

1

DIF:

Difficulty: Challenging

REF: p. 155

OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 32. _________ law governs how disputes arising in the conduct of global business are settled.

ANS: Dispute settlement PTS: 1 DIF: Difficulty: Moderate REF: p. 156 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 33. _________ involves bringing a dispute to a publicly or governmentally run court of law for resolution.

ANS: Litigation PTS: 1 DIF: Difficulty: Easy REF: p. 156 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 34. An alternative dispute resolution process whereby the parties designate a neutral private person or group of persons to hear and decide the case is referred to as _______.

ANS: arbitration PTS: 1 DIF: Difficulty: Moderate REF: p. 155 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 35. _________ is property that is the creative product of an individual’s intellectual, rather than physical, activity.

ANS: Intellectual property PTS: 1 DIF: Difficulty: Easy REF: p. 156 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 36. Patents, trademarks, and copyrights are all examples of ________.

ANS: intellectual property protections PTS: 1 DIF: Difficulty: Moderate REF: p. 157 OBJ: LO: 06-05 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 37. A _______is the right granted to the inventor of a product or process that excludes others from selling, making or using the invention for a certain period of time.

ANS: patent PTS: 1 DIF: Difficulty: Moderate REF: p. 157 OBJ: LO: 06-05 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 38. A ________ is a distinctive phrase, name, word, picture, symbol or design, or combination of these, that identifies a given business’ service or product, and is owned by said business.

ANS: trademark PTS: 1 DIF: Difficulty: Moderate REF: p. 157 OBJ: LO: 06-05 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 39. A __________ trademark is a trademark that has become so well known or colloquial that it describes a general class of product or service, rather than a specific product or service as intended by the trademark’s owner.

ANS: genericized PTS: 1 DIF: Difficulty: Moderate REF: p. 157 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge 40. A _______ is the exclusive legal right that authors, playwrights, publishers, artists, composers, performers, photographers, and other creators have to publish and disseminate their work as they see fit.

ANS: copyright PTS: 1 DIF: Difficulty: Moderate REF: p. 159 OBJ: LO: 06-05 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge ESSAY 1. Differentiate between democracy and totalitarinism as political systems affecting global businesses.

ANS: Students responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 142-143 OBJ: LO: 06-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 2. Differentiate between communism, capitalism, and socialism as economic ideologies affecting global businesses.

ANS: Students responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 144-145 OBJ: LO: 06-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. Describe the economic and political risks faced by companies doing business in global arena.

ANS: Students responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 144-148 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 4. Differentiate between public and private corruption and explain how they affect global businesses.

ANS: Students responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 148-150 OBJ: LO: 06-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. Explain the three primary kinds of legal systems.

ANS: Students responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 150-151 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Comprehension 6. Differentiate between contract law and tax law.

ANS: Students responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 153-154 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Analysis 7. What are antitrust laws and how do these laws affect business at a global level?

ANS:

Students responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 154-155 OBJ: LO: 06-04 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Comprehension 8. Describe how patents, trademarks, and copyrights help protect intellectual properties in today;s global business.

ANS: Students responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 156-159 OBJ: LO: 06-05 NAT: BUSPROG: Diversity STA: DISC: Legal Responsibilities KEY: Bloom's: Comprehension CASE Scenario – Britton Manufacturing Brittany and Brandi Britton recently took over the family business, Britton Manufacturing, after their father and company founder retired. The company manufactures the finest of bed linens and has grown to be recognized as sixth in the industry for sales. Britton Manufacturing’s products have been produced and sold strictly within the continental United States until this point in time. Now, the new owners desire to change things and plan to begin exporting the company’s products to England, France, Norway, Greece, Egypt, China, and Germany.

Both Brittany and Brandi have graduated college with degrees in business and are looking forward to putting their educations to good use in growing the company. They realize there is much to learn and are looking forward to the challenges facing their international endeavor. They have projected an increase in sales by 15 million dollars in the first year as well as employment opportunities for an additional 500 workers in the U.S. 1. One of the international markets in which Britton Manufacturing plans to sell its products is China. All but which one of the following identifies a significant challenge facing the company in this international marketplace? a.

The product laws of China are very similar to those found within the United States. b.

China is considered a communist country in which the government owns or controls most of the factors of production. c.

There is the possibility of the Chinese government confiscating the assets (the products) of Britton Manufacturing. d.

For the most part, the government of China continues to maintain control of the unions within China. e.

The market of China provides enormous opportunity for foreign companies because it has been emerging as one of the most economically powerful nations in the world in recent years.

ANS: a PTS: 1 DIF: Difficulty: Challenging REF: p. 144-150 OBJ: LO: 06-02| LO: 06-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. Entering foreign marketplaces poses many challenges to companies like Britton Manufacturing. Which one of the following would Britton Manufacturing least expect to be a challenge in its international business expansion? a.

The potential for the company’s executives to be kidnapped and held for ransom while on foreign soil b.

The constant fluctuation of foreign currencies in relation to the U.S. dollar c.

The economic downturn in the United States resulting in many experienced workers being unemployed or underemployed d.

The instability and volatility of some foreign governments around the world e.

The potential for terrorist activity within certain foreign nations ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 146-150 OBJ: LO: 06-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. Britton Manufacturing faces many laws and regulations that will impact the company while it conducts business on foreign soil. Which one of the following is least likely to be of concern to Britton in the international marketplace? a.

Contract Law b.

U. S. Labor Laws c.

Tax Law d.

Product Safety Laws e.

Dispute Settlement Law ANS: b PTS: 1 DIF: Difficulty: Moderate REF: p. 150-156 OBJ: LO: 06-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Legal Responsibilities KEY: Bloom's: Evaluation Scenario – The Rochester Corporation The Rochester Corporation is a multinational import-export firm with headquarters in the New York, USA. It currently has thirteen offices located on foreign soil and plans to open seven more by the end of the year. Rochester is quite proud of the fact that it reached over four billion dollars in revenue last year. The officers of the corporation are expecting to net over six billion per year with the projected expansion.

The Rochester Corporation considers it is a veteran when it comes to dealing with foreign governments and nations. The company maintains strict guidelines for employees and will only hire those who have expatriate experience of at least three years. The owners of Rochester attribute the company’s continued success to the experience and knowledge of its employees.

4. If the Rochester Corporation experienced unresolved legal problems with one of its customers located in a foreign country, all of the following except which one would be a potential way to remedy the problem? a.

Engage in arbitration b.

Have the court system use dispute settlement law to reach a resolution to the problem c.

Use the services of a mediator or an arbitrator d.

Bring about litigation in the reigning court of law e.

Obtain an executive order from the U.S. Attorney General’s office ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 150-156 OBJ: LO: 06-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Legal Responsibilities KEY: Bloom's: Analysis 5. In dealing with such a varied number of customers from virtually all major points in the world, the Rochester Corporation is subjected to many risks. Which one of the following would not be considered an economic risk Rochester potentially faces in its global dealings? a.

Restriction in the transfer of foreign currency b.

The devaluation of foreign currency c.

Government confiscation of company assets d.

Currency conversion restrictions e.

Potential for hyper-inflation to occur ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 146 OBJ: LO: 06-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. The Rochester Corporation has three products that were created by its employees. These products have received patents from both the United States and twenty foreign nations. All three products are currently exported to all of the company’s customers. Which one of the following does not reflect guidelines or rules governing these patents? a.

The inventor has exclusive rights to the product for a certain period of time b.

Patent rights remain enforceable for 5-20 years depending upon the invention and the country involved c.

Patents have an expiration date set some time in the future depending on the invention

d. e.

Modifications to the product by others are allowed after one year and with government consent Patents offer inventors limited legal monopoly rights

ANS: d PTS: 1 DIF: Difficulty: Moderate REF: p. 156-157 OBJ: LO: 06-05 NAT: BUSPROG: Reflective Thinking STA: DISC: Legal Responsibilities KEY: Bloom's: Analysis

Chapter 7: Corruption and Ethics in Global Business TRUE/FALSE 1. The four basic steps in ethical decision making are: define all the facts and circumstances, identify the people affected, determine the alternative decisions and consequences, and make the decision and carry it out.

ANS: T PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

2. In the business world, the purpose of ethics is to direct business men and women to make as much money as they can any way possible.

ANS: F PTS: 1 REF: p. 167 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Comprehension

3. If people did not ethically behave, trust is not possible.

ANS: T PTS: 1 REF: p. 167 OBJ: LO: 07-02 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

4. Corporate social responsibility refers only to the company’s obligations to its stockholders and investors.

ANS: F PTS: 1 REF: p. 170 OBJ: LO: 07-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

5. One way to resolve an ethical question is to apply the formal policies of your company or code of conduct to help determine the ethical course of action.

ANS: T PTS: 1 REF: p. 171 OBJ: LO: 07-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Comprehension

6. The Sarbanes-Oxley Act of 2002 set “green” standards for companies.

ANS: F PTS: 1 REF: p. 174 OBJ: LO: 07-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Evaluation

7. WorldCom is a perfect example of effective social and ethical responsibility in the financial sector.

ANS: F PTS: 1 REF: p. 175 OBJ: LO: 07-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

8. In 2005, Bernie Ebbers was recognized by the Better Business Bureau for his company being a leader in social responsibility.

ANS: F PTS: 1 REF: p. 175 OBJ: LO: 07-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

9. Vivendi, a French-based multination corporation, gained international scorn when it was discovered they cooked their books to make their performance appear better than it actually was for the purpose of making a number of acquisitions.

ANS: T PTS: 1 REF: p. 175 OBJ: LO: 07-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

10. The five fundamentals of ethics education proposed by AACSB are: personal integrity, responsibility of business in society, ethical decision making, ethical leadership, and corporate governance.

ANS: T PTS: 1 REF: p. 175 OBJ: LO: 07-05 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

11. The global slave trade that exists today is referred to as human trafficking.

ANS: T PTS: 1 REF: p. 178 OBJ: LO: 07-05 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

12. Internal control procedures fit into two categories: 1) preventing accidental errors and intentional misrepresentations and 2) identifying errors and irregularities after they occur so that corrective action may be taken.

ANS: T PTS: 1 REF: p. 181 OBJ: LO: 07-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

13. The Foreign Corrupt Practices act consist of two parts: an anti-bribery provision and a requirement to comply with green standards.

ANS: F PTS: 1 REF: p. 182 OBJ: LO: 07-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Comprehension

14. SOX requires that the CEO and the CFO of a publicly traded corporation must certify in each periodic report containing financial statements that the report fully complies with the Securities Exchange Act of 1934 and that the information fairly represents the company’s financial condition and results of operations.

ANS: T PTS: 1 REF: p. 183 OBJ: LO: 07-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

15. Production quality control and internal auditing are example of feedback controls.

ANS: T PTS: 1 REF: p. 181 OBJ: LO: 07-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Application

MULTIPLE CHOICE 1. The branch of philosophy that addresses the values pertaining to human behavior, with regard to the “rightness” and “wrongness” of actions and to the “goodness” and “badness” of the intent and results of such actions is called _____. a. ethics b. integrity c. values d. morals e. principles ANS: A PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

2. Of the following statements, which is NOT true about ethics and integrity? a. A person of integrity has knowledge about what morally constitutes the right things to do. b. A person of integrity has the courage to do what is right. c. Ethical situations are always black and white. d. There are four basic steps in ethical decision making. e. An ethical dilemma occurs when one must make a choice among alternative actions and the right choice is not absolutely clear.

ANS: C PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

3. A person of integrity has two essential characteristics: 1) knowledge about what morally constitutes the right thing to do, and 2) _____. a. follows the steps of ethical decision making b. the ability to solve an ethical dilemma c. the courage to do what is right d. the ability to evaluate goals and objectives

e. the ability to think cognitively ANS: C PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

4. There are _____ basic steps in ethical decision-making. a. two b. three c. four d. five e. six ANS: C PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

5. Do what produces the greatest good. This statement refers to the _____ principle. a. essence b. governance c. imperative d. utilitarian e. generalization ANS: D PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

6. Do what is right, but filter the action by consideration of its consequences. Make a decision by considering the consequences if everyone made the same choice under similar circumstances. These statements refer to the _____ argument. a. essence b. governance c. imperative d. utilitarian e. generalization ANS: E PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

7. The government can force an individual to sell his or her land so that a road can be built for the benefit of the public as a whole. This is an example of the _____ principle. a. essence b. governance c. imperative d. utilitarian e. generalization ANS: D REF: p. 166

PTS: 1 OBJ: LO: 07-01

DIF: Difficulty: Challenging NAT: BUSPROG: Ethics

STA: DISC: Ethical Responsibilities

KEY: Bloom's: Application

8. The third step of ethical decision making is to _____. a. identify the alternative decisions and consequences b. make the decision c. define all the facts and circumstances d. identify the people affected by the situation e. determine that a decision needs to be made ANS: A PTS: 1 REF: p. 167 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Evaluation

9. The fourth step of ethical decision making is to _____. a. identify the alternative decisions and consequences b. make the decision c. define all the facts and circumstances d. identify the people affected by the situation e. determine that a decision needs to be made ANS: B PTS: 1 REF: p. 167 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Evaluation

10. Which of the following is NOT a value described in the BBB Code of Business Practices? a. Build trust b. Make the decision c. Define all the facts and circumstances d. Identify the people affected by the situation e. Determine that a decision needs to be made ANS: B PTS: 1 REF: p. 167 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Evaluation

11. The _____ is a report published each year by Transparency International, providing metrics to the potential corruption risk for 180 countries. a. Corruption Perceptions Index b. Social Responsibility Report c. Ponzi Scheme d. Integrity Perceptions Report e. Ethical Violations Index ANS: A PTS: 1 REF: p. 169 OBJ: LO: 07-02 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

12. A company’s obligations to society, including the welfare of people and places affected by company activities is called _____. a. Ponzi scheme b. corporate social responsibility

c. ethics d. integrity e. green business ANS: B PTS: 1 REF: p. 170 OBJ: LO: 07-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

13. Of the following, which is NOT a mandate that companies with corporate social responsibility strive to do? a. Provide a quality product or service to its customers b. Treat its employees with dignity and respect c. Do whatever it takes to be profitable d. Meet its legal obligations e. Fairly deal with suppliers ANS: C PTS: 1 REF: p. 171 OBJ: LO: 07-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

14. Asking oneself “What if everyone did it?” is an example of the principle of _____. a. morality b. consistency c. fairness d. justice e. respect ANS: B PTS: 1 REF: p. 171 OBJ: LO: 07-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Challenging NAT: BUSPROG: Ethics KEY: Bloom's: Application

15. _____ received the CSR Award for the Environment from the Retail Council of Canada in 2010. a. Wal-Mart b. Coca-Cola c. Procter & Gamble d. Starbucks e. Exxon ANS: A PTS: 1 REF: p. 173 OBJ: LO: 07-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

16. _____ is considered by many to be the most infamous financial scandal in United States history. a. Bank of America b. Enron c. Vivendi d. Parmalat e. Teapot Dome

ANS: B PTS: 1 REF: p. 174 OBJ: LO: 07-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

17. Of the following, which is NOT true of the Enron financial scandal? a. It was a key event leading the U.S. Congress to pass the Sarbanes-Oxley Act of 2002. b. Unfortunately, it was always regarded as an unethical company. c. In 2000, corporate revenues exceeded $100 billion. d. The company’s former president, Jeffrey Skilling, led Enron to abuse an accounting practice known as mark to market accounting. e. The truth about Enron was revealed in 2001.

ANS: B PTS: 1 REF: p. 175 OBJ: LO: 07-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

18. Of the following statements about WorldCom, which is NOT true? a. It began in 1983 as Long Distance Discount Services, Inc. b. From 1999 to 2002, the company had manipulated earnings by using fraudulent accounting methods. c. Five techniques were used to cook the books. d. WorldCom filed for Chapter 11 bankruptcy in 2002. e. CEO Bernie Ebbers was sentenced to 25 years in prison.

ANS: C PTS: 1 REF: p. 175 OBJ: LO: 07-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

19. Of the following statements about Vivendi, which is NOT true? a. It is a Swiss-based corporation. b. Between October 2000 and April 2002, the company cooked its books to make its financial performance appear better than it was. c. Vivendi agreed to pay a fine of $50 million. d. Company CEO Jean Merrier was required to pay a fine of $1 million. e. Company CEO Jean Merrier was required to forfeit his $25 million severance package.

ANS: A PTS: 1 REF: p. 175 OBJ: LO: 07-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

20. According to the text, what question ought to be asked when acting upon high ethical standards in business? a. If everyone else is cheating, then how can an ethical person possibly succeed? b. How do you measure success? c. What would others in my situation do? d. What would my family think? e. Will I regret this decision?

ANS: B

PTS:

1

DIF:

Difficulty: Challenging

REF: p. 178 OBJ: LO: 07-05 STA: DISC: Ethical Responsibilities

NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

21. Who said, “To educate a person in mind and not in morals is to educate a menace to society”? a. George Bush b. Henry Ford c. Theodore Roosevelt d. George Washington e. Erin Brockovich ANS: C PTS: 1 REF: p. 179 OBJ: LO: 07-05 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

22. _____ refers to a system of rules and procedures designed to ensure the accuracy and reliability of financial and accounting information. a. Internal controls b. External controls c. Environmental controls d. Global controls e. Legal controls ANS: A PTS: 1 REF: p. 181 OBJ: LO: 07-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

23. Internal control procedures fit into _____ categories. a. two b. three c. four d. five e. six ANS: A PTS: 1 REF: p. 181 OBJ: LO: 07-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

24. Internal control procedures fit into two categories: 1) preventing accidental errors and intentional misrepresentations from occurring, and 2) _____. a. reprimanding employees responsible for errors b. covering up errors after the occur c. punishing those responsible for errors d. identifying errors and irregularities after the occur e. overlooking errors after they occur ANS: D PTS: 1 REF: p. 181 OBJ: LO: 07-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

25. Examples of _____ controls include production quality control and internal auditing.

a. b. c. d. e.

feedforward feedback vertical horizontal identical

ANS: B PTS: 1 REF: p. 181 OBJ: LO: 07-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Challenging NAT: BUSPROG: Ethics KEY: Bloom's: Application

26. Which of the following is NOT true regarding the Foreign Corrupt Practices Act? a. It was passed in 1952. b. It is a U.S. federal law that contains two parts. c. It has an anti-bribery provision. d. It has a requirement to maintain an adequate internal control system over financial records. e. A few people complain that the FCPA puts American firms at a disadvantage against non-U.S. competitors.

ANS: A PTS: 1 REF: p. 182 OBJ: LO: 07-06 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

27. Imperative principle suggests which of the following? a. Do what produces the greatest good b. Do what is right c. Make the most money d. Develop an eminent domain e. Match rewards with performance ANS: B PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Evaluation

28. Act according to absolute moral rules represent the _____ argument. a. universal b. governance c. imperative d. utilitarian e. sustainable ANS: C PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

29. Employees of ABC International generally describe their CEO, Mr. James Duncan, as a man of moral and ethical principles, sound moral character, and honest. Mr. Duncan can be described as an individual with ______. a. CSR b. integrity c. loyalty

d. Ponzi scheme e. control issues ANS: B PTS: 1 REF: p. 166 OBJ: LO: 07-01 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Application

30. Which of the following is not a fundamentals of ethics education suggested by AACSB? a. Personal integrity b. Emotional intelligence c. Ethical leadership d. Corporate governance e. Responsibility of business in society ANS: B PTS: 1 REF: p. 178 OBJ: LO: 07-05 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

COMPLETION 1. ______ is the branch of philosophy that addresses the values pertaining to human behavior, with specific regard to the “rightness” and “wrongness” of actions and to the “goodness” and “badness” of the intent and results of such actions.

ANS: Ethics PTS: 1 DIF: Difficulty: Easy REF: p. 166 OBJ: LO: 07-01 NAT: BUSPROG: Ethics STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 2. Adherence to moral and ethical principles; soundness of moral character; and honesty demonstrates _________.

ANS: integrity PTS: 1 DIF: Difficulty: Easy REF: p. 166 OBJ: LO: 07-01 NAT: BUSPROG: Ethics STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 3. ________ is a report published each year by Transparency International, providing metrics to the potential corruption risk for 180 countries.

ANS: Corruption Perceptions Index (CPI) Corruption Perceptions Index CPI PTS: 1 OBJ: LO: 07-02

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics

REF: p. 169

STA: DISC: Ethical Responsibilities

KEY: Bloom's: Knowledge

4. ________ refers to a company’s obligations to society, including the welfare of people and places affected by company activities ANS: Corporate Social Responsibility PTS: 1 DIF: Difficulty: Easy REF: p. 170 OBJ: LO: 07-03 NAT: BUSPROG: Ethics STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 5. A type of fraud, in which money received from later investors is used to provide returns to earlier investors, thus giving an appearance of a profitable investment is called a ______ scheme.

ANS: Ponzi PTS: 1 DIF: Difficulty: Moderate REF: p. 177 OBJ: LO: 07-04 NAT: BUSPROG: Ethics STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 6. Accounting practices that update the value of an asset to its current market levels are referred to as ______.

ANS: mark to market accounting PTS: 1 DIF: Difficulty: Moderate REF: p. 175 OBJ: LO: 07-04 NAT: BUSPROG: Ethics STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 7. _________ are a system of rules and procedures within a business designed to ensure the accuracy and reliability of financial and accounting information ANS: Internal controls PTS: 1 DIF: Difficulty: Moderate REF: p. 181 OBJ: LO: 07-06 NAT: BUSPROG: Ethics STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge 8. The _______ is a U.S. federal law that consists of two parts: an anti-bribery provision and a requirement to maintain an adequate internal control system over financial books and records ANS: Foreign Corrupt Practices Act (FCPA) Foreign Corrupt Practices Act FCPA PTS:

1

DIF:

Difficulty: Moderate

REF: p. 182

OBJ: LO: 07-06 NAT: BUSPROG: Ethics STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge CASE Scenario – Bradley Corporation The Bradley Corporation manufactures packaged food items that are sold around the globe.

Baby food is the prominent product line currently produced by the corporation. Many of the customers for these products are located in third world countries where infant nutrition is a serious problem.

Bradley has recently decided to change its internal management structure. New managers for the corporation are now in place; however these new leaders do not appear to have the same value system as the former leaders. The former leaders embraced the idea of product safety and exhibited integrity in the production of the corporation’s product lines. While the new managers claim these are important to them also, it seems the bottom line profit has precedent with them.

These changes have created concern in the company. There is strong disapproval for the way the company is conducting its business at the present time. The Board of Directors for Bradley is facing the serious question of whether profit is the only thing that matters now to the corporation.

1. The Bradley Corporation is faced with a decision that involves selling an outdated product such as baby food to foreign markets to make a large profit versus losing money by destroying outdated products. Which of the following best identifies what the Bradley Corporation is experiencing? a.

A financial predicament b.

An ineffective board c.

The actions of a profitable business d.

A matter for internal decision making e.

An ethical dilemma ANS: e PTS: 1 DIF: Difficulty: Easy REF: p. 165-168 OBJ: LO: 07-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Ethical Responsibilities KEY: Bloom's: Evaluation 2. Corporate social responsibility is defined as a company’s obligations to society, including the welfare of people and places affected by the company’s activities. Which one of the following would not demonstrate the Bradley Corporation’s adherence to its corporate social responsibility? a.

All Bradley employees regardless of their position have a say in new human resource policies before they are implemented. b.

The Bradley Corporation is engaged with green technologies to eliminate

c. d. e.

potential environmental damage.

The Bradley Corporation makes certain a significant return on investment is provided to its stockholders regardless of what must be sacrificed.

The corporation maintains a reputation for dealing fairly and honestly with its suppliers.

Bradley is known throughout the industry as a company that consistently meets all of its financial and legal obligations.

ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 170-174 OBJ: LO: 07-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Ethical Responsibilities KEY: Bloom's: Analysis 3. There is a distinct difference in the value systems between the original and new managers of the Bradley Corporation. All of the following except which one represents a key issue in ethics education, which if reinforced to the new managers, could strengthen their current value systems? a.

Reinforcement of corporate governance b.

Reinforcement of ethical decision-making c.

Identification of ethical leadership d.

Recognition for the necessity of vast profits e.

Fortifying information regarding the responsibility of business in society ANS: d PTS: 1 DIF: Difficulty: Moderate REF: p. 165-173 OBJ: LO: 07-01| LO: 07-02| LO: 07-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Ethical Responsibilities KEY: Bloom's: Evaluation Scenario – GCD Industries GCD Industries is a multinational organization that produces heavy equipment. It supplies many foreign nations with the necessary equipment to conduct reconstruction after natural disasters. One of the company’s largest sales resulted from the devastation that occurred in Japan after the tsunami hit that nation. GCD is committed to helping nations recover from destruction brought about by natural phenomenon.

GCD prides itself on conducting its business in an honest and ethical manner. It does not wish to deal with countries that engage in corrupt business practices, but realizes that all nations have differing business practices. When the need arises for its products, this company strives to impart integrity into all of its business deals with foreign nations regardless of that nation’s accepted practices.

4. GCD Industries attempts to always conduct its business in an ethical manner. It investigates the foreign nations in which it operates so it will be aware of any upcoming business practice differences such as corruption levels the company may face. Which one of the following is the most likely source of the information sought by GCD Industries? a.

CPI b.

WTO c.

CSR d.

WHO e.

FCPA ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 169 OBJ: LO: 07-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Ethical Responsibilities KEY: Bloom's: Evaluation 5. GCD Industries acknowledges it is under the guidelines of the Foreign Corrupt Practices Act whenever it has dealings in the foreign marketplace. Which one of the following is not addressed by this Act? a. Making the offer to pay money to a foreign official for special privilege afforded to the company b. Establishing pay scales for employees of the company while working on foreign soil c. Offering a gift to the head of the foreign political party of the nation where work is being performed d. Making a promise of payment to government officials for directing business to the company e. Provision indicating access to assets is allowed only by management’s specific authorization ANS: b PTS: 1 DIF: Difficulty: Moderate REF: p. 181-184 OBJ: LO: 07-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Ethical Responsibilities KEY: Bloom's: Evaluation 6. GCD Industries employs a set of internal controls within its operations to help ensure ethical behavior and to help prevent financial impropriety. Which one of the following is least likely to be used as an internal control by this company? a.

Corrective actions are taken immediately whenever a department goes over its budget b.

Adequate and accurate documentation and records are maintained c.

Financial and accounting records are periodically audited d.

The company has written policies and procedures for all members to follow e.

All funds due the company and all checks for expenditures are handled by the same person

ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 178-184 OBJ: LO: 07-05| LO: 07-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Ethical Responsibilities KEY: Bloom's: Evaluation

Chapter 8: Entry Strategies in Global Business TRUE/FALSE 1. A fundamental consideration that must be made in business is the risk-return trade-off. In general, the greater the risk (loss of capital invested) entrepreneurs are willing to take, the greater the rewards (profit) they are likely to reap.

ANS: T PTS: 1 REF: p. 192 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

2. Interestingly, licensing and franchising typically leads to the penetration of international markets without significant capital investment abroad by the parent company.

ANS: T PTS: 1 REF: p. 195 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

3. When it comes to franchising, the parent company’s objective is to make sure that when a customer visits its franchisee in any country, the quality of products and services provided are as different and unique in every store.

ANS: F PTS: 1 REF: p. 195 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

4. Strategic alliances differ from joint ventures in one major characteristic: they involve non-equity arrangements, meaning that strategic alliances do not involve the creation of a separate entity with joint ownership.

ANS: T PTS: 1 REF: p. 196 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

5. When Coca-Cola acquired major assets of Parle Exports in India, it instantly received access to Parle’s huge national bottling and distribution network. This is an example of international joint venture in global markets.

ANS: F PTS: 1 REF: p. 199 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

6. Subsidiaries require major marketing efforts to penetrate the international market because of cultural differences and because the entrant is new and relatively unknown.

ANS: T REF: p. 199

PTS: 1 OBJ: LO: 08-01

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

STA: DISC: Strategy

KEY: Bloom's: Analysis

7. General Electric (United States), Sony (Japan), BMW (Germany), and Petrobras (Brazil) are just a few of the hundreds examples of large MNEs. ANS: T PTS: 1 REF: p. 200 OBJ: LO: 08-02 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

8. In a free enterprise system, the overriding objective of firms wanting to invest abroad is to funnel the proceeds to a central government.

ANS: F PTS: 1 REF: p. 201 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

9. When MNEs go abroad, they generally do so for two major reasons. There could be massive competition in the home market or firms may genuinely identify new business opportunities abroad based upon the company’s competitive advantage in production, technology and management.

ANS: T PTS: 1 REF: p. 201 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

10. While economic growth rates in stable economies may be high compared with emerging-market economies like BRIC, their high per-capita-income levels translate to poor levels of consumption that could prove to be an unstable source of revenue and profits for MNEs wanting to enter these markets.

ANS: F PTS: 1 REF: p. 202 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

11. Trade barriers lead to decreased competition from abroad, and raise prices and profits of domestic firms. Interestingly, such protection over time will often lead to higher-quality domestic products and services.

ANS: F PTS: 1 REF: p. 203 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

12. A major reason why growth-oriented MNEs establish operations abroad is to diversify and minimize risk so that overall corporate cash flows and earnings will be relatively stable.

ANS: T PTS: 1 REF: p. 204 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

13. A relatively simple approach to diversification is to identify overseas projects that have performance levels that are highly correlated to domestic cash flows or project returns over time.

ANS: F PTS: 1 REF: p. 205 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

14. Mexico consistently has been the world’s largest recipient of FDI capital in the world averaging some $200 billion a year in net FDI inflows since 2005. Mexico has been made more globally competitive as a consequence of such FDI flows.

ANS: F PTS: 1 REF: p. 206 OBJ: LO: 08-04 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

15. Chaebols, the South Korean conglomerates discussed in the textbook, are examples of socially responsible and transparent companies.

ANS: F PTS: 1 REF: p. 207-208 OBJ: LO: 08-05 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

MULTIPLE CHOICE 1. According to the text, wholly-owned foreign subsidiary businesses have_____ risk and _____ return. a. low; low b. high; high c. low; high d. high; low e. moderate; high ANS: B PTS: 1 REF: p. 193 OBJ: LO: 08-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

2. According to the text, which of the following entry strategies has the highest degree of risk? a. Licensing b. Wholly-owned foreign subsidiary c. Foreign acquisition d. Joint venture e. Strategic alliance ANS: B PTS: 1 REF: p. 193 OBJ: LO: 08-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

3. According to the text, which of the following entry strategies has the lowest degree of risk?

a. b. c. d. e.

Licensing Wholly-owned foreign subsidiary Foreign acquisition Joint venture Strategic alliance

ANS: A PTS: 1 REF: p. 193 OBJ: LO: 08-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

4. Of the following, which is NOT true about the export-import business? a. Many employees, often 100+, are required for an export-import business to operate. b. The export-import business is a relatively low-risk operation. c. The export-import business involves penetrating foreign markets or importing merchandise at competitive prices for domestic consumption. d. The opportunity to participate in export-import business is significant. e. Government agencies offer specialized seminars and programs on how to identify markets overseas and sell merchandise there.

ANS: A PTS: 1 REF: p. 193 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

5. Around _____ percent of international trade is conducted by small business. a. 5 b. 20 c. 35 d. 50 e. 65 ANS: B PTS: 1 REF: p. 193 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

6. Which of the following is NOT true about licensing? a. It involves slightly more risk to the licensee than licensor. b. The license fee could be based on a percentage of final sales revenue of the product, or the number of units sold. c. When a product is licensed, the foreign partner will use the licensor’s patented technology as agreed to manufacture and sell products that meet the licensor’s standards. d. Unscrupulous licensees have been known to manufacture licensed products and sell them under different brand names. e. Licensing is the practice in which a company or individual provides the foreign partner with the technology to manufacture and sell products or services in a target country for an annual fee ANS: A PTS: 1 REF: p. 194 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

7. Disney Consumer Goods and Bayer Aspirins are examples of _____. a. licensing b. franchising c. a foreign acquisition d. a joint venture e. an export-import business ANS: A PTS: 1 REF: p. 194 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

8. The practice in which the parent firm is obligated to provide its brand name, specialized equipment and/or service, and sometimes to fund some startup costs, to another firm in return for an annual fee is known as _____. a. licensing b. franchising c. a foreign acquisition d. a joint venture e. an export-import business ANS: B PTS: 1 REF: p. 195 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

9. Which of the following is NOT true about franchising? a. It is the practice in which the parent firm is obligated to provide specialized equipment and/or service, and sometimes to fund some startup costs, to franchisees in return for an annual fee. b. The fast-food industry is best known for franchises. c. In franchising, the parent firm assumes relatively less risk than with licensing. d. The parent company’s objective is to make sure that when a customer visits a franchise in any country, the quality of products and services provided are similar. e. Franchising typically leads to the penetration of international markets without significant capital investment abroad by a parent company.

ANS: C PTS: 1 REF: p. 195 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

10. An agreement between two or more firms that do not involve the creation of a separate entity with joint ownership and in which the firms stand to gain revenues and maximize profits through cooperation for a given period of time is called a(n) _____. a. license b. franchise c. foreign acquisition d. strategic alliance e. export-import business ANS: D REF: p. 196

PTS: 1 OBJ: LO: 08-01

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

STA: DISC: Strategy

KEY: Bloom's: Knowledge

11. Strategic alliances are primarily aimed at _____. a. acquiring other companies b. making a brand name c. improving environmental sustainability d. helping others e. enhancing revenues ANS: E PTS: 1 REF: p. 196 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

12. A business that is jointly owned and operated by two or more firms that pool their resources to penetrate host country markets, generate and split profits, and share commercial risk is called a(n) _____. a. license b. franchise c. foreign acquisition d. strategic alliance e. international joint venture ANS: E PTS: 1 REF: p. 197 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

13. The ultimate objective of most joint ventures is _____. a. acquiring other companies b. making a brand name c. developing sustainable environment d. using joint production and sales distribution networks to increase revenue e. helping others ANS: D PTS: 1 REF: p. 196 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

14. Coca-Cola has built 41 bottling plants and two concentrate manufacturing plants with three separate partners in China since 1979. This is an example of a(n) _____. a. license b. franchise c. foreign acquisition d. strategic alliance e. international joint venture ANS: E PTS: 1 REF: p. 197 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

15. The United States spends _____ percent of its GDP on health care. a. 15

b. c. d. e.

30 45 60 75

ANS: A PTS: 1 REF: p. 198 OBJ: LO: 08-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

16. The purchase of established firms abroad with the goal of using the existing production, marketing, and distribution networks and of having instant access to foreign markets that fit the purchasing firm’s global strategy is known as a(n) _____. a. subsidiary b. multinational enterprise c. foreign acquisition d. strategic alliance e. divestiture ANS: C PTS: 1 REF: p. 199 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

17. In 1993, Coca-Cola acquired major assets of Parle Exports in India, it instantly received access to Parle’s huge national bottling and distribution network. This is an example of a(n) a. subsidiary b. multinational enterprise c. foreign acquisition d. strategic alliance e. divestiture ANS: C PTS: 1 REF: p. 199 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

18. Of the following, which is NOT true of mergers and acquisitions? a. By merging the strengths of the home company with those of the host country firm, the new firm will become more competitive internationally. b. The company being acquired should be well established and have a good reputation in the local market. c. Mergers and acquisitions are relatively low-risk. d. Corporate cultural differences may inhibit smooth integration of the two organizations. e. An exit strategy should be in place that enables the home company to leave the host country.

ANS: C PTS: 1 REF: p. 199 OBJ: LO: 08-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

19. General Electric, Microsoft, Sony, Toyota, and BMW are examples of _____. a. subsidiaries

b. c. d. e.

multinational enterprises foreign acquisitions strategic alliances acquisitions

ANS: B PTS: 1 REF: p. 199 OBJ: LO: 08-02 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Application

20. Of the following, which is NOT an emerging-market? a. South Africa b. India c. Australia d. Brazil e. Russia ANS: C PTS: 1 REF: p. 200 OBJ: LO: 08-02 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

21. When did the growth of MNEs accelerate? a. After the Revolutionary War b. After the Civil War c. After WW I d. After WW II e. After the Vietnam War ANS: D PTS: 1 REF: p. 200 OBJ: LO: 08-02 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

22. In a free enterprise system, the overriding objective of firms wanting to invest abroad is to _____. a. acquire other companies b. make a brand name c. gain market share d. use joint production and sales distribution networks to increase revenue e. maximize shareholder wealth ANS: E PTS: 1 REF: p. 201 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

23. The so-called BRIC countries consist of: _____. a. Brazil, Russia, India, and China b. Belgium, Russia, Iran, and Canada c. Britain, Russia, Iraq, and Cuba d. Brazil, Russia, Iraq, and Canada e. Britain, Russia, India, and Cuba ANS: A

PTS:

1

DIF:

Difficulty: Moderate

REF: p. 202 OBJ: LO: 08-03 STA: DISC: Strategy

NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

24. Brazil is one of the world’s lowest cost producers of ethanol and soybeans. Japanese corporations have heavily invested in Brazil to lease large tracts of land to grow soybeans for export to Japan, where they are used to derive products such as soy sauce and chicken feed. These Japanese companies are cutting costs by _____. a. minimizing factor input costs b. generating revenue c. acquiring other companies d. exploring joint ventures e. reacting to exchange rate movements ANS: A PTS: 1 REF: p. 204 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

25. U.S. corporations have been pouring investments into China to build manufacturing facilities to produce goods for the local and export markets. Since economists expect the Chinese yuan to appreciate against the dollar in the future, the forthcoming Chinese yuan profits of U.S. MNEs when converted to U.S. dollars will be high. This is an example of U.S. companies cutting costs by _____. a. minimizing factor input costs b. generating revenue c. acquiring other companies d. exploring joint ventures e. reacting to exchange rate movements ANS: E PTS: 1 REF: p. 204 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

26. The Coca-Cola company has operations in more than 140 countries and generates more that 55 percent of its profits from its overseas operations. Coca-Cola’s annual profits are, therefore, more stable than those of a firm that focuses upon the U.S. market alone.

Coca-Cola is engaging in _____. a. importing b. diversification c. a merger d. a joint venture e. an exchange rate movements ANS: B PTS: 1 REF: p. 205 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

27. The first stage of the product life cycle is _____. a. decline b. introduction c. growth

d. maturity e. development ANS: B PTS: 1 REF: p. 205 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

28. The second stage of the product life cycle is _____. a. decline b. introduction c. growth d. maturity e. development ANS: C PTS: 1 REF: p. 205 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

29. The third stage of the product life cycle is _____. a. decline b. introduction c. growth d. maturity e. development ANS: D PTS: 1 REF: p. 205 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

30. The last stage of the product life cycle is _____. a. decline b. introduction c. growth d. maturity e. development ANS: A PTS: 1 REF: p. 205 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

31. Who identified three key economic “advantages” that firms should have for FDI to occur? a. Hawthorne b. Maslow c. Dunning d. Ford e. Roosevelt ANS: C PTS: 1 REF: p. 206 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

32. Dunning identified _____ key economic “advantages” that firms should have for FDI to occur. a. two b. three c. four d. five e. six ANS: B PTS: 1 REF: p. 206 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

33. _____ advantages are internal to the firm that can be transferred at a very low cost within a MNE regardless of location. a. Ownership, or firm specific b. Locational, or country-specific c. Internalization d. Externalized e. Environmental ANS: A PTS: 1 REF: p. 206 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

34. A firm that has a patent for manufacturing a particular brand-name drug will have monopoly rights to use that brand name abroad to produce goods profitably. This is an example of a(n) _____ advantage. a. ownership, or firm specific b. locational, or country-specific c. internalization d. externalized e. environmental ANS: A PTS: 1 REF: p. 206 OBJ: LO: 08-03 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

35. Of the following, which is NOT a cost of foreign direct investment? a. Developing countries may be exploited by MNEs. b. Human rights firms may exploit the labor force in host countries. c. Local governments in host countries may lack corporate social responsibilities on the part of MNEs. d. Host countries have been concerned about political interference by MNEs in their country’s affairs when things do not go the way the foreign company wants. e. It led to a lapse in job creation and economic flow in the United States.

ANS: E PTS: 1 REF: p. 207 OBJ: LO: 08-04 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

COMPLETION 1. ______ refers to the potential financial loss that entrepreneurs are willing to take in a business.

ANS: Risk profile PTS: 1 DIF: Difficulty: Easy OBJ: LO: 08-01 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 192 STA: DISC: Strategy

2. A relatively low-risk business operation that involves penetrating foreign markets (by exporting) or importing merchandise at competitive prices for domestic consumption refers to _______.

ANS: export-import business PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-01 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 193 STA: DISC: Strategy

3. _______ refers to the practice in which a company or individual provides the foreign partner with the technology to manufacture and sell products or services in a target country for an annual fee.

ANS: Licensing PTS: 1 DIF: Difficulty: Easy OBJ: LO: 08-01 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 194 STA: DISC: Strategy

4. _______ refers to the practice in which the parent firm is obligated to provide specialized equipment and/or service, and sometimes funding some startup costs to host-country firm in return for an annual fee.

ANS: Franchising PTS: 1 DIF: Difficulty: Easy OBJ: LO: 08-01 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 195 STA: DISC: Strategy

5. An agreement between two or more firms that do not involve the creation of a separate entity with joint ownership and in which the firms stand to gain revenues and maximize profits through cooperation for a given period of time refers to _______.

ANS: strategic alliances PTS: 1 OBJ: LO: 08-01

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

REF: p. 196 STA: DISC: Strategy

KEY: Bloom's: Knowledge 6. ______ is a business that is jointly owned and operated by two or more firms that pool their resources to penetrate host country markets, generate and split profits, and share commercial risk.

ANS: International joint venture PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-01 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 197 STA: DISC: Strategy

7. ______ refers to the purchase of established firms abroad with the goal of utilizing the existing production, marketing, and distribution networks and of having instant access to foreign markets that fit the purchasing firm’s global strategy.

ANS: International acquisition PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-01 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 199 STA: DISC: Strategy

8. New facilities built and operated overseas that require large investment of capital to tailor to the exact needs of the home country firm refers to _____.

ANS: subsidiaries PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-01 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 199 STA: DISC: Strategy

9. ______ are firms that are headquartered in one country, but own and control manufacturing, services, research and development facilities, or other business entities on foreign soil.

ANS: Multinational enterprises PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-02 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 199 STA: DISC: Strategy

10. To maximize the net present value of future cash flows of foreign investment adjusted for exchange rate movements or to maximize profits so that shareholders could receive larger dividends and see their share prices rise over time refers to ______.

ANS: maximizing shareholder wealth PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-03 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 201 STA: DISC: Strategy

11. _______ explains what happens to a product’s revenue and profits at different stages of its development before the product is discontinued.

ANS: Product life cycle theory PTS: 1 DIF: Difficulty: Easy OBJ: LO: 08-03 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 205 STA: DISC: Strategy

12. _______ describes how countries exercise authority and how efficiently they deliver basic infrastructure services like water, sanitation, roads, electricity, security, and the like for public as well as private firms.

ANS: Governance PTS: 1 DIF: Difficulty: Easy OBJ: LO: 08-05 NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

REF: p. 210 STA: DISC: Strategy

ESSAY 1. ABC Manufacturing is exploring entering the global arena. Describe the three lowest risk entry strategies in global business for ABC. ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-01 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

REF: p. 192-195 STA: DISC: Strategy

2. Differentiate between strategic alliances and international joint ventures.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-01 NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

REF: p. 196-197 STA: DISC: Strategy

3. Companies go global for three possible motives. Describe each of these three motives and the possible strategies available to companies under each motive.

ANS: Student answers will vary.

PTS: 1 OBJ: LO: 08-03

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic

REF: p. 201-205 STA: DISC: Strategy

KEY: Bloom's: Evaluation 4. Briefly describe Dunning’s Eclectic Theory of Foreign Direct Investment.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-03 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

REF: p. 205-206 STA: DISC: Strategy

5. What are the benefits and costs of foreign direct investment from the host country’s perspective? Explain.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-04 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

REF: p. 206-208 STA: DISC: Strategy

CASE Scenario – Lewis Fabrication Lewis Fabrication was founded in 2001 and is based in Maryland, USA. This company manufactures custom designed motorcycle parts and currently has over two thousand U.S. customers. Due to the growing number of inquiries received from foreign countries such as Japan, Canada, China, and Indonesia, Lewis Fabrication has decided to begin operations on a global scale. The owners realize there is much to learn before undertaking this monumental step. However, financial projections indicate about $1 million in profit is very likely in the first year of going global. The owners are very excited and looking forward to the business expansion.

1. While Lewis Fabrication has decided to begin operations on a global scale, it realizes there is still much to learn. One of the fundamental things it must have knowledge on is the manner in which it can begin operations globally. Which one of the following would not be considered a choice for starting international business operations for this company? a.

Begin as an export-import business b.

License a foreign business partner to produce and sell the company’s products c.

Open wholly owned subsidiaries of the company in the Midwest d.

Sell franchises of the business to foreign buyers e.

Form a strategic alliance with a foreign firm ANS: c PTS:

1

DIF:

Difficulty: Moderate

REF: p. 192-199

OBJ: LO: 08-01 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Evaluation

STA: DISC: Strategy

2. The global markets in which Lewis Fabrication plans to expand provides this company with the opportunity for entering relatively high-growth markets with a product that is in demand.

Which one of the following would Lewis Fabrication be least likely to expect to find in this type of market? a.

No government or military influence or intervention for Lewis Fabrication b.

Per capita incomes are rising and expected to continue to rise c.

The middle class is growing in numbers and so is their demand for products d.

A larger percent of the population is financially classed as below middle class in certain of these foreign markets e.

These foreign markets are considered to have high profitability potential for companies such as Lewis Fabrication ANS: a PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-03 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Analysis

REF: p. 201-206 STA: DISC: Strategy

3. In its quest for global expansion Lewis Fabrication must examine its rationales for wanting to expand into the foreign marketplace. Which one of the following is not a reason why this company would want to expand globally? a.

To maximize shareholder wealth b.

To minimize risk of failure for the business c.

To increase the revenues of the company d.

To cut costs of production for the company e.

To reduce risks associated with business cycle fluctuations ANS: b PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-03 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Evaluation

REF: p. 201-206 STA: DISC: Strategy

Scenario – Boseman Clothier, Inc. Boseman Clothier, Inc. has been in operation for over 75 years. It is based in South Carolina, USA and is a well-recognized name in the industry. It produces custom fitted men’s suits that are in high demand throughout the world. The average cost of one of its suits is in excess of five thousand U.S. dollars. Boseman proudly states it has more customer orders than its one store can fill within the next six months. With growing demand from overseas, the company has recently decided to open operations in four foreign markets next year.

Boseman realizes the potential of this move will generate increased revenues for the company. One of the options it is contemplating is exploring forming an international joint venture. Boseman is also entertaining the thought of opening operations differently in each of the four new foreign markets. The company feels the use of different strategies may increase its odds of generating profits in each different market.

4. Boseman Clothier, Inc. has decided to begin international operations using an international joint venture. Which one of the following is not one of the expectations from this type of entry into the foreign market arena? a.

The joint venture partners will have shared company equity b.

The profits earned will be shared with the joint venture partner c.

The increased risk from operating abroad will be shared with the joint venture partner d.

Use of joint production and distribution will help to increase market share e.

Boseman will maintain all decision making rights in the foreign market ANS: e PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-01 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Analysis

REF: p. 196-197 STA: DISC: Strategy

5. Boseman Clothier, Inc. has indicated it would like to use different entry strategies for each of the four markets it plans to enter. Which of the following would not be considered a benefit from using licensing in the other foreign markets it plans to enter? a.

This type of relationship is expected to last for years so there must be a high level of trust between the companies involved b.

Bozeman will be subjected to the least amount of risk with this type of entry into a foreign market c.

Bozeman is expected to provide the foreign partner with the process necessary to produce its highly desired suits d.

Bozeman’s partner is expected to pay an annual license fee to the company for the use of its production process and the ability to sell its products e.

Bozeman does not have to have financial resources to open new production facilities within the foreign country ANS: b PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-01 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Evaluation

REF: p. 194-195 STA: DISC: Strategy

6. Bozeman is also considering making the entry into the international market by engaging in foreign direct investments in the nations. Which one of the following is not a true statement regarding foreign direct investment from the host country’s perspective? a.

Significant financial inflows always result from engaging in foreign direct investment.

b. c. d. e.

Foreign direct investment can create new jobs and can generate tax revenues for governments A concern of the local governments in host countries is the lack of corporate social responsibility There is the potential for exploitation of human labor within certain countries These investments may take the form of plants, buildings, or inventories

ANS: a PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 08-04 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Evaluation

REF: p. 206-208 STA: DISC: Strategy

Chapter 9: Control of Global Business TRUE/FALSE 1. The stakeholder model of strategy formulation believes businesses exist to benefit not just their shareholders, but also all the various groups that have a meaningful stake in their operations. Such groups, for example, might include a company’s employees, customers, and the community where it operates.

ANS: T PTS: 1 REF: p. 220 OBJ: LO: 09-01 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

2. Walmart deciding to buy more apparel products from lower-priced Chinese manufacturers (rather than from somewhat more expensive apparel manufacturers in the United States) during the next six months is an example of an operational plan.

ANS: T PTS: 1 REF: p. 220 OBJ: LO: 09-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

3. The plan for ABC International to build and open a textile manufacturing plant in China within the next two-and-one-half years would be an example of an operational plan.

ANS: F PTS: 1 REF: p. 220 OBJ: LO: 09-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

4. Target Corporation is often accused of being a defender in terms of its market strategies and strategic implementation.

ANS: F PTS: 1 REF: p. 220 OBJ: LO: 09-01 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

5. Hershey Corporation has expanded and extended its business by developing new products and increasing global reach, but has done so in a very careful manner, avoiding undue risks and protecting its existing business operations. For this reason, it would fall into the category of an analyzer.

ANS: T PTS: 1 REF: p. 223 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

6. When R&D discoveries in the United States operations of Toddler Toys, Inc. (TTI) can easily be communicated to and accepted by its operations in Ghana, it is an example of TTI’s absorptive capacity.

ANS: T PTS: 1 REF: p. 225 OBJ: LO: 09-03 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

7. Rules that all employees in the organization must fly coach when they travel on commercial airlines or a rule that employees can spend no more than $50 per person for a business-related company-reimbursed dinner are examples of interpersonal controls.

ANS: F PTS: 1 REF: p. 226 OBJ: LO: 09-04 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

8. Six Sigma refers to global corporate social responsibility standards for companies operating in the six most industrialized countries.

ANS: F PTS: 1 REF: p. 230 OBJ: LO: 09-04 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

9. In a United States banking law called the Community Development Act (CDA), all banks in the U.S. receive annual grades (“excellent,” “satisfactory,” or “unsatisfactory”) from federal banking regulators based on their community reinvestment and CSR activities.

ANS: F PTS: 1 REF: p. 230 OBJ: LO: 09-04 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

10. Organizational culture can be a very effective control mechanism for an organization, particularly when the norms of a given business’s culture are fully accepted by that organization’s workforce.

ANS: T PTS: 1 REF: p. 231 OBJ: LO: 09-05 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

11. Many times, organizational change in a business is most effective when pushed from the top by the company’s middle-level managers.

ANS: F PTS: 1 REF: p. 232 OBJ: LO: 09-05 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

12. CEOs who rise internally within the company, but who have followed a non-traditional path to the executive suite, (for example, the former CEO of General Electric Corporation, Jack Welch) are referred to as “outsiders-insiders”.

ANS: F PTS: 1 REF: p. 232 OBJ: LO: 09-05 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

13. In 2009, Google Corporation was the subject of various U.S. Department of Justice and Federal Trade Commission antitrust investigations.

ANS: T PTS: 1 REF: p. 230 OBJ: LO: 09-05 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

14. Smithfield Foods Company, the world’s largest pork producer, has set the clear organizational goal of getting $0.10 profit for each pound of its processed pork products (like Armour smoked bacon) that is sold. This is an example output controls and measurements.

ANS: T PTS: 1 REF: p. 227 OBJ: LO: 09-04 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Application

MULTIPLE CHOICE 1. In _______ strategy, global businesses define their overall goals. a. formulating b. controlling c. implementing d. organizing e. directing ANS: A PTS: 1 REF: p. 218 OBJ: LO: 09-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

2. “In everything we do, we’re driven by a common mission: saving people money so they can live better.” This is an example of Wal-Mart’s _____. a. vision statement b. mission statement c. business plan d. flow chart e. strategy chart ANS: B PTS: 1 REF: p. 218 OBJ: LO: 09-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

3. “To inspire and nurture the human spirit – one person, one cup, one neighborhood at a time.” This is an example of Starbucks’s _____. a. vision statement b. mission statement c. business plan d. flow chart e. strategy chart

ANS: B PTS: 1 REF: p. 219 OBJ: LO: 09-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

4. It is predicted that by 2014, at least_____ percent of books being sold will be digital “e-books.” a. 10-15 b. 20-25 c. 35-40 d. 55-60 e. 70-75 ANS: B PTS: 1 REF: p. 220 OBJ: LO: 09-01 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Technology KEY: Bloom's: Knowledge

5. Starbucks Corporation takes a(n) ______ approach toward strategy formulation, because it places considerable emphasis upon how its business decisions affect its customers and the neighborhoods and communities where it does business. a. supplier b. environmental c. global d. shareholder e. stakeholder ANS: E PTS: 1 REF: p. 219-220 OBJ: LO: 09-01 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

6. The large oil exploration company, Anadarko Petroleum Corporation, takes a(n) ______ toward strategy formulation, placing a very clear emphasis in strategy formulation upon how its business decisions will help deliver and ongoing and competitive rate of return to its owners. a. supplier b. environmental c. global d. shareholder e. stakeholder ANS: D PTS: 1 REF: p. 221 OBJ: LO: 09-01 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

7. Organizations that have basic strategic implementations involving extending their success through global expansions and finding new market opportunities are called _____. a. defenders b. prospectors c. reactors d. analyzers e. coordinators

ANS: B PTS: 1 REF: p. 222 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

8. To achieve its longer-term “low price” strategic objectives, Wal-Mart could have a plan to buy more apparel products from lower-priced Chinese manufacturers during the next six months. This is an example of a(n) _____ plan. a. intentional b. equipped c. strategic d. tactical e. operational ANS: E PTS: 1 REF: p. 222 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

9. A(n) _____ plan for Wal-Mart might be to build and open a textile manufacturing plant in China within the next two-and-one-half years. a. reactionary b. standing c. strategic d. tactical e. operational ANS: D PTS: 1 REF: p. 222 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

10. Anadarko Petroleum Corporation may decide that the best long-term way to implement its strategic goal of providing financial returns to its shareholders could be to explore for oil in other parts of the world where it has not yet explored, such as Africa. This is an example of Miles’ and Snows’ _____ typology. a. defender b. prospector c. reactor d. analyzer e. coordinator ANS: B PTS: 1 REF: p. 222 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

11. Altria Group, Inc., may feel that the importance of “fiscal discipline” in its stated mission mandates that it reduce its operations and concentrate upon making its existing U.S.-based Marlboro operations as efficient and profitable as possible. In short, Altria will be most concerned with maintaining its existing strategic position. This is an example of Miles’ and Snows’ _____ typology. a. defender b. prospector

c. reactor d. analyzer e. coordinator ANS: A PTS: 1 REF: p. 222 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

12. Companies that are _____ take a middle ground between being prospectors and defenders. a. neutrals b. maintainers c. reactors d. analyzers e. coordinators ANS: D PTS: 1 REF: p. 223 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

13. Hershey Corporation has assiduously expanded and extended its business by developing new products and increasing global reach, but it has done so in a very careful manner, avoiding undue risks and protecting its existing business operations. This is an example of Miles’ and Snows’ _____ typology. a. defender b. prospector c. reactor d. analyzer e. coordinator ANS: D PTS: 1 REF: p. 223 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

14. Knowledge that is codifiable and easy to communicate or write down is called _____ knowledge. a. tacit b. explicit c. absorptive d. working e. stored ANS: B PTS: 1 REF: p. 225 OBJ: LO: 09-03 STA: DISC: Individual Dynamics

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

15. A special cake recipe from a family member that calls for “a pinch of this” and “pinch of that” is an example of _____. a. tacit knowledge b. explicit knowledge c. absorptive capacity d. working capacity

e. stored capacity ANS: A PTS: 1 REF: p. 225 OBJ: LO: 09-03 STA: DISC: Individual Dynamics

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

16. Toyota Motor Company has frequently sent hundreds of workers hired at a plant it is opening in a new country to Japan for months of training in the special “Toyota way” of auto manufacturing. This is an example of _____. a. tacit knowledge b. explicit knowledge c. absorptive capacity d. working capacity e. stored capacity ANS: B PTS: 1 REF: p. 225 OBJ: LO: 09-03 STA: DISC: Individual Dynamics

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

17. Of the following, which is NOT true about knowledge management and systems? a. The ability of organizations to recognize, assimilate, and apply new knowledge is down is called absorptive capacity. b. Knowledge that is codifiable and easy to communicate or write down is called explicit knowledge. c. Traditionally, making necessary transformations of tacit knowledge into explicit knowledge has presented major challenges for global businesses. d. New technologies such as the Internet have aided global businesses absorptive capacity. e. Absorptive capacity refers to systems of rules and regulations promulgated within a global business.

ANS: E PTS: 1 REF: p. 225 OBJ: LO: 09-03 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

18. A rule that all employees in the organization (including the CEO) must fly coach when they travel on commercial airlines represents a consistent _____ control within an organization. a. interpersonal b. intrapersonal c. bureaucratic d. output e. input ANS: C PTS: 1 REF: p. 226 OBJ: LO: 09-04 STA: DISC: Leadership Principles

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

19. _____controls involve establishing specific goals given metrics and then measuring to what extent these goals are being achieved at certain time intervals. a. Interpersonal b. Intrapersonal

c. Organic d. Output e. Input ANS: D PTS: 1 REF: p. 227 OBJ: LO: 09-04 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

20. Michael Dell, the founder of Dell Corporation, interacted directly with every single employee during the early days of the company. Michael was practicing _____ control. a. interpersonal b. intrapersonal c. bureaucratic d. output e. input ANS: A PTS: 1 REF: p. 226 OBJ: LO: 09-04 STA: DISC: Leadership Principles

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

21. Smithfield Foods Company, the world’s largest pork-producer, has set the clear organizational goal of getting $0.10 profit for each of its processed pork products that is sold. Which of the following output controls and measurement is Smithfield Foods Company using? a. Profits b. Employee turnover c. Growth d. Productivity e. Market share ANS: A PTS: 1 REF: p. 227 OBJ: LO: 09-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

22. In the banking industry, a particular bank’s efficiency ratio is a closely monitored metric. If one bank can achieve a profit of $2 million per year with 90 employees, and another bank needs to employ 200 employees to achieve the same level of profits, the first bank’s employees are more efficient than the second. Which of the following output controls and measurement is the banking industry using? a. Profits b. Quality control c. Growth d. Productivity e. Market share ANS: D PTS: 1 REF: p. 228 OBJ: LO: 09-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

23. Smithfield Foods CEO Larry Pope says his focus upon what happens with the company’s Chinese operations is on “five or ten years” from now. Smithfield may be willing to lose some money with respect to its unprocessed pork sales in China in order to gain a toe-hold in that country’s huge pork market. Which of the following output controls and measurement is Larry Pope using? a. Profits b. Quality control c. Growth d. Productivity e. Market share ANS: C PTS: 1 REF: p. 228 OBJ: LO: 09-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

24. For generations there has been a norm of “highest quality in journalism” at the New York Times newspaper. In this context, the newspaper’s reporters don’t require close supervision to do great journalistic work. This is an example of the organizational _____ at the New York Times. a. culture b. background c. traditions d. customs e. mores ANS: A PTS: 1 REF: p. 231 OBJ: LO: 09-05 STA: DISC: Group Dynamics

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

25. Organizational_____ involves implementation of a different business or cultural path for an organization. a. culture b. change c. adjustment d. modification e. alteration ANS: B PTS: 1 REF: p. 232 OBJ: LO: 09-05 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

26. While ______ are the owners of the given business, ______ are individuals or groups that have a vested interest in the business. a. employees; customers b. customers; employees c. shareholders; stakeholders d. employees; shareholders e. stakeholders; shareholders ANS: C REF: p. 218

PTS: 1 OBJ: LO: 09-01

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

STA: DISC: Environmental Influence

KEY: Bloom's: Comprehension

27. Mission statements of a company should a. ouline why the company exists and what it strives to accomplish. b. define the role government will play in their business. c. explore what it wants to become in the future. d. identify its competitors. e. specify the compensation the employees will receive.

ANS: A PTS: 1 REF: p. 218 OBJ: LO: 09-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

28. ABC Manufacturing focuses on implementing a basic market strategy of concentrating upon existing operations and protecting their home turf. ABC can be described as a _____. a. defender b. prospector c. reactor d. analyzer e. coordinator ANS: A PTS: 1 REF: p. 222 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Application

29. If Dunkin Donuts (DD) were to follow the actions of Starbucks and copy all of their strategies and pricing, DD can be described as a _____. a. defender b. prospector c. reactor d. analyzer e. coordinator ANS: C PTS: 1 REF: p. 222 OBJ: LO: 09-02 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Application

30. One output control measure frequently used by global businesses is productivity or ______. a. employee turnover b. quality control c. maturity d. efficiency e. market share ANS: D PTS: 1 REF: p. 228 OBJ: LO: 09-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

31. The percentage of the business in a certain market that is captured by a product or service that the organization provides refers to its ______. a. employee turnover

b. c. d. e.

quality control maturity efficiency market share

ANS: E PTS: 1 REF: p. 228 OBJ: LO: 09-04 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

COMPLETION 1. A ________ is a written statement of why a company exists and what it plans to accomplish.

ANS: mission statement PTS: 1 DIF: Difficulty: Easy OBJ: LO: 09-01 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 218 STA: DISC: Strategy

2. The _______ model of strategy formulation operates from the premise that the key strategic purpose of a business is to maximize financial returns for its owners.

ANS: shareholder PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-01 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 219 STA: DISC: Strategy

3. The ______ model of strategy formulation model that believes that businesses exist to benefit not just their shareholders, but also all the various groups such as employees and customers that have a meaningful stake in their operation.

ANS: stakeholder PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-01 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 219 STA: DISC: Strategy

4. _______ are very short-term (less than one year) plans formulated for implementing strategic goals.

ANS: Operational plans PTS: 1 DIF: Difficulty: Easy OBJ: LO: 09-01 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 220 STA: DISC: Strategy

5. _______ are one to three year plans formulated for implementing strategic goals.

ANS: Tactical plans PTS: 1 DIF: Difficulty: Easy OBJ: LO: 09-01 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 220 STA: DISC: Strategy

6. Organizations that have a basic strategic implementation involveing extending their success through global expansion, and finding new market opportunities are referred to as _______.

ANS: prospectors PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-01 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 220 STA: DISC: Strategy

7. ________ are organizations that implement a basic market strategy of concentrating upon existing operations and defending their home turf.

ANS: Defenders PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-01 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 220 STA: DISC: Strategy

8. _________ are organizations that have a strategic implementation involving responding to strategic actions initiated by competitors.

ANS: Reactors PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-01 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 220 STA: DISC: Strategy

9. _________ are organizations that take a middle ground between being prospectors and defenders.

ANS: Analyzers PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-02 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 223 STA: DISC: Strategy

10. Knowledge that is informal in nature and difficult to communicate is known as _________.

ANS: tacit knowledge PTS: 1 OBJ: LO: 09-03

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity

REF: p. 225 STA: DISC: Strategy

KEY: Bloom's: Knowledge 11. Knowledge that is codifiable and easy to communicate or write down is called _______..

ANS: explicit knowledge PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-03 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 225 STA: DISC: Strategy

12. ________ refers to the ability of organizations to recognize, assimilate and apply new knowledge.

ANS: Absorptive capacity PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-03 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 225 STA: DISC: Strategy

13. Systems of rules and regulations promulgated within a global business are called __________.

ANS: bureaucratic controls PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-04 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 226 STA: DISC: Strategy

14. ___________ involves executives engaging in personal contact with subordinates as a way of managing an organization ANS: Interpersonal controls PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-04 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 226 STA: DISC: Strategy

15. __________ involve establishing specific goals on given metrics and then measuring to what extent these goals have been achieved at certain time intervals.

ANS: Output controls and measurement PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-04 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 227 STA: DISC: Strategy

16. _______ refers to the personality of a given organization, its shared norms and values.

ANS: Organizational culture

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-05 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 231 STA: DISC: Strategy

17. _________ involves implementation of a different business or cultural path for an organization.

ANS: Organizational change PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-05 NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

REF: p. 232 STA: DISC: Strategy

ESSAY 1. Describe the importance of mission in an organization’s strategy making process.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-01 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

REF: p. 218-219 STA: DISC: Strategy

2. Differentiate between the shareholder and stakeholder model of strategy formulation.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-01 NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

REF: p. 219-220 STA: DISC: Strategy

3. Describe Miles’ and Snow’s four basic types of longer-term strategic implementation for global businesses. Provide an example of each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-02 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

REF: p. 222-224 STA: DISC: Strategy

4. Identify and briefly describe the impediments to the coordination of strategy implementation for global businesses.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-03 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

REF: p. 224-225 STA: DISC: Strategy

5. Differentiate between explicit and tacit knowledge. Explain the role these play in the coordination of strategy implementation for global businesses.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-03 NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

REF: p. 225-226 STA: DISC: Strategy

6. Describe how global companies can utilize the various types of control systems.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-04 NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

REF: p. 226-229 STA: DISC: Strategy

7. Define organizational culture and explain the role it plays in controlling organizational activities.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-05 NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

REF: p. 231-232 STA: DISC: Strategy

CASE Scenario – Blackford Industries, Inc. Blackford Industries, Inc. was established in 2004 by Jeanna and Sean Blackford. The company produces a wide array of restaurant equipment and supplies for restaurant owners throughout the United States. This company has grown substantially year after year since its inception. It attributes its success to having extensive knowledge of the industry it serves. Both owners have advanced culinary degrees from prestigious colleges and feel they understand the needs of their clients thoroughly.

Blackford Industries, Inc. is led by clearly defined guidelines established by its owners.

The company’s philosophy is one of caring for and about each customer. Blackford is known for treating each of its employees as if they were members of their family. Its business practices are honest and trustworthy. The company demonstrates its high level of integrity with each of its business dealings.

Sean and Jeanna are currently considering expanding their business into the European marketplace as this market is fairly unexplored by competitors with American restaurant supplies. They see the vast potential of this market and are aware of the challenges such a decision presents to them. The decision about the company’s international expansion will be made by the end of this year.

1. Blackford Industries, Inc. realizes that each decision it makes affects may stakeholders of the company. Of the following, which one is least likely to be considered a stakeholder of the company? a.

The board members of the competitors b.

The community the business is located in c.

The customers of the business d.

The employees of the business e.

The suppliers of the business ANS: a PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-01 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Evaluation

REF: p. 218-221 STA: DISC: Strategy

2. According to Professors Raymond Miles and Charles Snow, under which of their classifications would Blackford Industries, Inc. must likely fall? a.

Reactors b.

Protectionists c.

Prospectors d.

Defenders e.

Challengers ANS: c PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-02 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Analysis

REF: p. 222 STA: DISC: Strategy

3. One of the remarkable actions of Blackford Industries, Inc. is the treatment of its employees like family. Additionally, the fair and honest way this company conducts its business transactions and the way it respects and treats its customers is most likely a reflection of which one of the following? a.

Corporate strategy b.

Company culture

c. d. e.

Organizational change Government mandates Organizational stakeholder’s credo

ANS: b PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-05 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Evaluation

REF: p. 231 STA: DISC: Strategy

Scenario – Keegan Enterprises Keegan Enterprises is owned by Stanley Keegan of Wichita, Kansas. Stanley started Keegan Enterprises in 1990 and has watched his company grow to become the second largest producer of van trailers in the world. Keegan Enterprises earned $60 million in profit last year and currently has over 17,000 workers around the globe.

In order to achieve its stated mission and goals, Keegan Enterprises has implemented several changes to its business strategy over the past few years. While accomplishing the necessary changes has not been easy or without challenge, Keegan Enterprises appears to be stronger and more unified today than ever before. Stanley Keegan is looking forward to facing future challenges and watching the forward growth of his business. He would like to see his company in the number one spot as the world’s largest producer of van trailers in the world.

4. Keegan Enterprises acknowledges it has undertaken changes within the company’s strategy.

This organizational change can involve the implementation of a different business or cultural path for the organization. Which one of the following is least likely to be true regarding Keegan’s organizational change? a.

Organizational change is often met with considerable resistance b.

The most accepted organizational change is led by top management c.

At times organizational change is better accepted if initiated by an outsider of the company d.

Organizational change indicates a company is in serious financial distress e.

Organizational change can involve both the business strategy and the culture of the company ANS: d PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-05 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Analysis

REF: p. 231-233 STA: DISC: Strategy

5. In meeting its strategic goals, Keegan Enterprises plans to open operations in the Middle Eastern country of Kuwait within two years. This business idea is best identified as which one of the following? a.

An operational plan

b. c. d. e.

A business strategy A demonstration of organizational change A reactor formulation A tactical plan

ANS: e PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-02 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Evaluation

REF: p. 222 STA: DISC: Strategy

6. If Keegan Enterprises was characterized as an analyzer by Miles and Snow, which one of the following would not be true of this company? a.

Companies that use the analyzer strategy take steps to extend their markets while avoiding excessive risk b.

Companies that use the analyzer strategy defend existing operations while taking steps to extend their markets c.

Companies recognized as analyzers take a middle ground between being prospectors and defenders d.

Companies using an analyzer strategy take extensive risks to expand into global markets e.

Strategic implementation using an analyzer strategy can be impeded by legal, technological, and political challenges ANS: d PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 09-02 NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Evaluation

REF: p. 223 STA: DISC: Strategy

Chapter 10: The Organization of Global Business TRUE/FALSE 1. There are four stages of globalization: Global companies produce goods in one country and export them to other countries, foreign subsidiaries are established to handle the exports from their own countries, operations are set up in other countries, the corporation locates their core corporate functions and top executive in different countries in order to achieve competitive advantage.

ANS: T PTS: 1 REF: p. 243 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. At GM, North American Operations, GM Acceptance Corporation, International Operations, and Hughes Electronics are examples of the company’s subsidiaries.

ANS: F PTS: 1 REF: p. 244 OBJ: LO: 10-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

3. C.K. Prahalad an expert in the field and professor at the University of Michigan suggests that stateless corporations represent the third stage of globalization.

ANS: F PTS: 1 REF: p. 243 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

4. According to Ms. Bartz, former CEO of Yahoo!, organizational structure promotes innovation.

ANS: F PTS: 1 REF: p. 245 OBJ: LO: 10-02 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

5. The first step a domestic firm takes when entering an international arena is usually to create an international division.

ANS: F PTS: 1 REF: p. 246 OBJ: LO: 10-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

6. Research shows that separating domestic and international operations is a smart strategic decision that has virtually no drawbacks.

ANS: F PTS: 1 REF: p. 248 OBJ: LO: 10-03 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

7. The functional organizational structure has three main advantages: It promotes economies of scale, promotes in-depth skill development, and helps eliminate competition from the market.

ANS: F PTS: 1 REF: p. 249 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

8. The reason why some organizations reject a functional organizational structure is because they believe it renders them unable to respond to environmental changes that require coordination between functional areas, and because it offers each employee a restricted view of the organizations primary goal.

ANS: T PTS: 1 REF: p. 249 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

9. The varying functions of ExxonMobil’s Upstream, Downstream, and Chemical subunits demonstrate its product organizational structure.

ANS: T PTS: 1 REF: p. 250 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

10. A market structure is a particular kind of divisional structure that groups products into separate divisions according to the needs of different customers.

ANS: T PTS: 1 REF: p. 251 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

11. A market structure is also called area structure.

ANS: F PTS: 1 REF: p. 251 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

12. Global businesses with a hybrid structure are said to be organized by more than one dimension at the top level.

ANS: T PTS: 1 REF: p. 252 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

13. A global defense contractor needs deep functional skills as well as the ability to coordinate across the functions of each contract or project. For this example, the organizational structure that would best suit their needs would be a matrix structure.

ANS: T PTS: 1 REF: p. 254 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

14. The organizational structure that results from combining functional and divisional structures is called a geographic region structure.

ANS: F PTS: 1 REF: p. 254 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

15. Under a matrix structure, the functional managers and the divisional managers have equal authority within the organization.

ANS: T PTS: 1 REF: p. 254 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

MULTIPLE CHOICE 1. Lenovo, the Chinese computer manufacturer, is a corporation where it is difficult to identify one country as the home country. Lenovo can be described as a _____ corporation. a. domesticated b. stateless c. divided d. hybrid e. matrix ANS: B PTS: 1 REF: p. 242 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

2. While many major corporations have a global presence, stateless corporations are different because _____. a. they have no board of directors b. they are socially responsible c. they are more concerned with human rights d. they are usually more profitable e. they attempt to transcend nationality altogether ANS: E PTS: 1 REF: p. 243 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

3. C.K. Prahalad postulates that stateless corporations represent the _____ stage of globalization. a. first b. second c. third

d. fourth e. fifth ANS: D PTS: 1 REF: p. 243 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

4. According to C.K. Prahalad, the first stage of globalization is _____. a. when global firms set up operations in other countries b. when companies produce goods in one country and export them to other countries c. when global businesses establish foreign subsidiaries to handle the exports from their home countries d. when stateless corporations locate their core corporate functions and top executives in different countries e. when multinational companies headquarter in their home country ANS: B PTS: 1 REF: p. 243 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

5. According to C.K. Prahalad, the fourth stage of globalization is _____. a. when global firms set up operations in other countries b. when companies produce goods in one country and export them to other countries c. when global businesses establish foreign subsidiaries to handle the exports from their home countries d. when stateless corporations locate their core corporate functions and top executives in different countries e. when multinational companies headquarter in their home country ANS: D PTS: 1 REF: p. 243 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

6. Of the following, which is NOT listed in the text as a purpose of organizational structure? a. It allows the members of the organization to perform a wide variety of activities based upon a division of labor that leads to specialization of functions. b. It permits the organization members the coordination of their activities. c. It permits the organization members to create hierarchical supervision. d. It determines the boundaries of the organization and regulates its interfaces with the environment and its interactions with other organizations. e. It allows the members of an organization to develop a cohesive company culture.

ANS: E PTS: 1 REF: p. 243 OBJ: LO: 10-01 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

7. A business subunit that consists of a collection of functions or departments that share responsibility for producing a particular product or service is known as a(n) _____. a. partition b. division c. structure

d. union e. formation ANS: B PTS: 1 REF: p. 244 OBJ: LO: 10-02 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

8. At GM, several subunits share responsibility for producing automobiles. These consist of: North American Operations, GM Acceptance Corporation, International Operations, and Hughes Electronics. This is an example of an organization with _____. a. partition b. divisions c. stateless position d. union e. formation ANS: B PTS: 1 REF: p. 244 OBJ: LO: 10-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Application

9. Of the following, which is NOT an advantage of an international division? a. It permits global businesses to concentrate all international efforts in one location. b. If the international division is at the same organizational level as domestic operations, it signals to international customers their importance to the company. c. It ensures that the company will be more profitable. d. It fosters a global mindset in the people working within the division. e. It facilitates the key process of designing products that cater to local tastes.

ANS: C PTS: 1 REF: p. 247 OBJ: LO: 10-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

10. Of the following, which is NOT a disadvantage of an international division? a. Managers in the international division may feel like “second class” citizens. b. Designing products with both domestic and international appeal may be difficult. c. Core competencies and knowledge may not be shared. d. It may be difficult to capture learning-curve savings. e. It fosters a global mindset in the people working within the division.

ANS: E PTS: 1 REF: p. 248 OBJ: LO: 10-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

11. Global businesses with a narrow product line or a highly integrated product mix, such as aircraft manufacturers or oil and gas firms typically use a _____ organizational structure. a. functional b. product c. geographical region d. matrix e. hybrid

ANS: A PTS: 1 REF: p. 249 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

12. Of the following, which is NOT an advantage of the functional structure? a. It promotes economies of scale. b. It can help the organization to acquire the latest and most scale-intensive machinery. c. It promotes in-depth skill development of employees. d. It ensures that organizations will engage in socially responsible efforts. e. It encourages collaboration, efficiency, and quality within the function.

ANS: D PTS: 1 REF: p. 249 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

13. A special case of the divisional structure where products are grouped into separate divisions according to their similarities or differences is called a _____ structure. a. matrix b. product c. geographical region d. divisional e. hybrid ANS: B PTS: 1 REF: p. 250 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

14. At ExxonMobil, divisions include Upstream, Downstream, and Chemical. The Upstream division includes exploration, development, production, and gas and power marketing. The Downstream division includes refining and supply, fuels and marketing, and lubricants.

ExxonMobil utilizes a _____ structure. a. matrix b. product c. geographical region d. market e. hybrid ANS: B PTS: 1 REF: p. 250 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

15. At IBM, there are five divisions: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing. IBM utilizes a _____ structure. a. matrix b. product c. geographical region d. market e. hybrid ANS: B

PTS:

1

DIF:

Difficulty: Challenging

REF: p. 251 OBJ: LO: 10-04 STA: DISC: Operations Management

NAT: BUSPROG: Analytic KEY: Bloom's: Application

16. Hilton Hotels Corporation has the following divisions which cater to different customer classes around the world: Hilton, Hilton Garden Inn, Doubletree, Embassy Suites, Hampton, and Timeshares. Hilton Hotels Corporations has a _____ structure. a. matrix b. product c. geographical region d. market e. hybrid ANS: D PTS: 1 REF: p. 251 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

17. CEMEX has three divisions: North American, South America and the Caribbean, and Europe, Asia, and the Middle East. CEMEX has a _____ structure. a. matrix b. product c. geographical region d. market e. hybrid ANS: C PTS: 1 REF: p. 252 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

18. A defense contractor may need deep functional skills as well as the ability to coordinate across the functions for each contract or project. This contractor ought to use a _____ structure. a. functional b. product c. geographical region d. market e. matrix ANS: E PTS: 1 REF: p. 254 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

19. A basic problem of the _____ structure is it is difficult to determine the responsibility and authority relationships between the functional and divisional managers. a. divisional b. functional c. matrix d. product e. hybrid ANS: C REF: p. 255

PTS: 1 OBJ: LO: 10-04

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

STA: DISC: Operations Management

KEY: Bloom's: Comprehension

20. A basic problem of the matrix structure is _____. a. it does not promote economies of scale. b. it cannot help the organization to acquire the latest and most scale-intensive machinery. c. it is difficult to determine the responsibility and authority relationships between the functional and divisional managers. d. it does not ensure that organizations will engage in socially responsible efforts. e. it does not encourage collaboration, efficiency, and quality within the function.

ANS: C PTS: 1 REF: p. 255 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

21. Bayer AG clustered all of its business operations into six groups under an umbrella company called Bayer World. Each of these six groups have included several subgroups comprised of product categories such as as dyestuffs, fibers, or chemicals. At the same time, each of its administrative and service functions were placed under Bayer World into one of several functional groups, such as marketing, human resources, plant administration, or finance. In addition, top executives who had headed functional groups in the past, were given authority over different geographical regions, which, like the product groups, were supported by and intertwined with the functional groups. The final result of the new organizational structure divided the original nine functional areas into 19 multidisciplinary, interrelated business groups. The new organizational structure that Bayer AG adopted was a _____structure. a. divisional b. functional c. matrix d. product e. hybrid ANS: C PTS: 1 REF: p. 255 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

22. According to the text, ConocoPhillips placed their ethics office in which part of the organization structure? a. Research and development department b. Manufacturing department c. Maintenance department d. Audit and finance department e. Human resources department ANS: D PTS: 1 REF: p. 256 OBJ: LO: 10-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

23. There are typically _____ organizational structures for global business.

a. b. c. d. e.

two three four five six

ANS: C PTS: 1 REF: p. 248 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

24. Limited Clothing Inc. has a corporate headquarters with three divisions: North American Division, European Division, and Asia Division. Limited Clothing Inc. has a _____ structure. a. matrix b. product c. geographical region d. market e. hybrid ANS: C PTS: 1 REF: p. 252 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

25. The initial step toward globalization is ______. a. domestication b. creating a statelessness c. creating a wholly owned subsidiary d. exporting e. developing foreign manufacturing base through joint venture ANS: D PTS: 1 REF: p. 242 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

26. Some companies are global and so well integrated into the countries where they have a presence, that it is difficult, if not impossible, to identify one country as the home country for these corporations. such companies are called _____. a. domestic b. stateless c. divided d. hybrid e. matrix-based ANS: B PTS: 1 REF: p. 242 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

27. According to C.K. Prahalad, global businesses establish foreign subsidiaries to handle the exports from their home country in which stage of globalization? a. First b. Second

c. Third d. Fourth e. Fifth ANS: B PTS: 1 REF: p. 243 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

28. According to C.K. Prahalad, global firms set up operations in another country in which stage of globalization? a. First b. Second c. Third d. Fourth e. Fifth ANS: C PTS: 1 REF: p. 243 OBJ: LO: 10-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

29. A market structure is one where an organization: a. groups people together because they hold similar positions in a company, perform a similar set of tasks, or use the same kind of skills. b. groups products into separate divisions according to their similarities or differences. c. groups products into separate divisions according to the needs of the different geographical regions the company serves. d. groups products into separate divisions according to the needs of different customers. e. is said to be organized by more than one dimension at the top level.

ANS: D PTS: 1 REF: p. 251 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

30. A geographic region structure is one where an organization: a. groups people together because they hold similar positions in a company, perform a similar set of tasks, or use the same kind of skills. b. groups products into separate divisions according to their similarities or differences. c. groups products into separate divisions according to the needs of the different geographical regions the company serves. d. groups products into separate divisions according to the needs of different customers. e. is said to be organized by more than one dimension at the top level.

ANS: C PTS: 1 REF: p. 251 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

31. A functional structure is one where an organization:

a. groups people together because they hold similar positions in a company, perform a similar set of tasks, or use the same kind of skills. b. groups products into separate divisions according to their similarities or differences. c. groups products into separate divisions according to the needs of the different geographical regions the company serves. d. groups products into separate divisions according to the needs of different customers. e. is said to be organized by more than one dimension at the top level.

ANS: A PTS: 1 REF: p. 248 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

32. A product structure is one where an organization: a. groups people together because they hold similar positions in a company, perform a similar set of tasks, or use the same kind of skills. b. groups products into separate divisions according to their similarities or differences. c. groups products into separate divisions according to the needs of the different geographical regions the company serves. d. groups products into separate divisions according to the needs of different customers. e. is said to be organized by more than one dimension at the top level.

ANS: B PTS: 1 REF: p. 250 OBJ: LO: 10-04 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

COMPLETION 1. A _______ is a new phase in the evolution of the multinational corporation, where work is sourced wherever it is most efficient and the corporation transcends nationality altogether.

ANS: stateless corporation PTS: 1 DIF: Difficulty: Moderate REF: p. 242 OBJ: LO: 10-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 2. An ______ is a tool that people use to coordinate their actions to obtain something they seek or value.

ANS: organization PTS: 1 DIF: Difficulty: Easy REF: p. 243 OBJ: LO: 10-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

3. The formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals is referred to as the _______.

ANS: organizational structure PTS: 1 DIF: Difficulty: Easy REF: p. 243 OBJ: LO: 10-02 NAT: BUSPROG: Diversity STA: DISC: Operations Management KEY: Bloom's: Knowledge 4. A ______ is a business subunit that consists of a collection of functions or departments that share responsibility for producing a particular product or service.

ANS: division PTS: 1 DIF: Difficulty: Easy REF: p. 244 OBJ: LO: 10-02 NAT: BUSPROG: Diversity STA: DISC: Operations Management KEY: Bloom's: Knowledge 5. _________ is an organizational structure that groups people together because they hold similar positions in a company, perform a similar set of tasks, or use the same kind of skills.

ANS: Functional structure PTS: 1 DIF: Difficulty: Easy REF: p. 248 OBJ: LO: 10-04 NAT: BUSPROG: Diversity STA: DISC: Operations Management KEY: Bloom's: Knowledge 6. A ________ refers to one type of organizational structure in which functions are grouped together to serve the needs of products, markets, or geographical regions.

ANS: divisional structure PTS: 1 DIF: Difficulty: Easy REF: p. 249 OBJ: LO: 10-04 NAT: BUSPROG: Diversity STA: DISC: Operations Management KEY: Bloom's: Knowledge 7. ________ is a particular kind of divisional structure that groups products into separate divisions according to their similarities or differences.

ANS: Product structure PTS: 1 DIF: Difficulty: Easy REF: p. 250 OBJ: LO: 10-04 NAT: BUSPROG: Diversity STA: DISC: Operations Management KEY: Bloom's: Knowledge

8. Also called customer structure or customer class structure, a ______ is a particular kind of divisional structure that groups products into separate divisions according to the needs of different customers.

ANS: market structure PTS: 1 DIF: Difficulty: Moderate REF: p. 251 OBJ: LO: 10-04 NAT: BUSPROG: Diversity STA: DISC: Operations Management KEY: Bloom's: Knowledge 9. _________ is a particular kind of divisional structure that groups products into separate divisions according to the needs of the different geographical regions the company serves.

ANS: Geographical region structure PTS: 1 DIF: Difficulty: Easy REF: p. 251 OBJ: LO: 10-04 NAT: BUSPROG: Diversity STA: DISC: Operations Management KEY: Bloom's: Knowledge 10. Any combination of different organizational structures is generally referred to as a ________.

ANS: hybrid structure PTS: 1 DIF: Difficulty: Easy REF: p. 252 OBJ: LO: 10-04 NAT: BUSPROG: Diversity STA: DISC: Operations Management KEY: Bloom's: Knowledge 11. An organizational structure in which people are grouped simultaneously by function and by division is known as a ________.

ANS: matrix structure PTS: 1 DIF: Difficulty: Moderate REF: p. 254 OBJ: LO: 10-04 NAT: BUSPROG: Diversity STA: DISC: Operations Management KEY: Bloom's: Knowledge ESSAY 1. “For a global business, organizational structure is not important.” Do you agree with this statement? Defend your position.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 243-246 OBJ: LO: 10-02 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis

2. Are export departments important for global businesses? How do they differ from international divisions? Explain.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 246-248 OBJ: LO: 10-03 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. Differentiate between functional and divisional organizational structures. Provide an example of each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 248-252 OBJ: LO: 10-04 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis 4. Describe the different types of divisional structures using visual diagrams.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 249-252 OBJ: LO: 10-04 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 5. How are hybrid structures different from matrix structures? Explain.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 252-255 OBJ: LO: 10-04 NAT: BUSPROG: Analytic STA: DISC: Environmental Influence KEY: Bloom's: Analysis CASE Scenario – Windmere Technologies

Windmere Technologies has been in operation since 1984. Today, Windmere is actually considered to be a globally-based firm with corporate offices in thirteen foreign nations.

There is not one office of this company with higher authority or more decision making power than any other of the thirteen in operation. Windmere Technologies is recognized as a business leader in all thirteen nations in which it has corporate offices. According to the CEO of the company, “Windmere considers the world to be its home base.” The management has done a good job of creating its organizational structure where people are grouped simultaneously by function and by division.

Windmere is best known for its work in creating alternative energy sources. As this is of vital concern to all nations of the world today, Windmere’s ideas and products are welcomed by all nations. This business takes in revenues in excess of $8 billion per year and expects it to substantially increase in the future.

1. Which one of the following best describes Windmere Technologies claim that the world is its home base? a.

A hybrid structure b.

A functional structure c.

A matrix organization d.

A stateless corporation e.

A geographical regional structure ANS: d PTS: 1 DIF: Difficulty: Moderate REF: p. 242 OBJ: LO: 10-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. Which one of the following would Windmere Technologies not claim as a purpose of its organizational structure? a.

Serves as a barrier to interactions with other organizations b.

Determines the boundaries of the organization c.

Regulates its interactions with the environment d.

Utilizes a division of labor system that leads to departmentalization e.

Integrates mechanisms such as formal rules and procedures ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 243-244 OBJ: LO: 10-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. Which one of the following organizational structures best identifies the one currently used

by Windmere Technologies? a.

Functional structure b.

Matrix structure c.

Divisional structure

d. e.

Market structure Geographical region structure

ANS: b PTS: 1 DIF: Difficulty: Challenging REF: p. 254 OBJ: LO: 10-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation Scenario – Mirkhani Mining Supplies Mirkhani Mining Supplies is the industry leader in the production of underground mining equipment. The company has its headquarters in South Africa and has been in operation there since its inception in 1987. Mirkhani is known worldwide for the safety features it incorporates in its equipment. This company conducts its operations with the safety of the underground miner as its guiding objective.

Mirkhani Mining was recently called in to respond to the latest mine accident in China.

Mirkhani not only provides safe mining equipment, it also makes superior mine rescue equipment. The company will be receiving a global award for freely rendering the use of its rescue equipment to China during a mine collapse. Mirkhani Mining Supplies will be recognized around the globe as saving the lives of forty underground miners in China. The company states, “Saving those lives is better than receiving a billion dollars for mining machinery.”

4. All of the following characteristics would be seen if Mirkhani Mining Supplies was considered a stateless corporation except which one? a.

It is almost impossible to identify the home country of the company b.

It requires the company to maintain its own individuality within the host country c.

It represents a new phase in the evolution of multinational companies d.

It sends work to wherever it is performed most efficiently e.

It allows the company to transcend international boundaries without difficulty ANS: b PTS: 1 DIF: Difficulty: Moderate REF: p. 241-243 OBJ: LO: 10-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. As the growth of Mirkhani Mining Supplies has taken place, which one of the following is least likely to be a step it has taken in its international advancement? a.

Development of an export division b.

Collaboration between the sales department and the export division c.

Use of advanced marketing techniques for its products within its home country of South Africa d.

Adaptation of its products to better fit the needs of its customers e.

Development of an international division

ANS: c PTS: 1 DIF: Difficulty: Challenging REF: p. 246-248 OBJ: LO: 10-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. Which of the following structure type best identifies the structure Mirkhani Mining Supplies would be using if it grouped its products and services into separate divisions based on the needs of different areas served by the company? a.

Matrix structure b.

Hybrid structure c.

Globalized structure d.

Market structure e.

Geographical region structure ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 246-257 OBJ: LO: 10-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation

Chapter 11: Global Human Resource Management TRUE/FALSE 1. Hofstede identified five major dimensions of national culture as they apply to human resource management throughout the world: power distance, uncertainty avoidance, individualism vs. collectivism, introversion vs. extroversion, and masculinity vs. femininity.

ANS: F PTS: 1 REF: p. 269 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. Statistics reflect how immigration laws and the ability of foreign-born individuals to work in a given country vary widely throughout the world. For example, 25.7 percent of the labor force in the United States is foreign born, but in Australia this figure is less than one percent.

ANS: F PTS: 1 REF: p. 269 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

3. Reebok transferring the manufacturing of its sneakers to a third-party company in Thailand would be an example of both outsourcing and offshoring.

ANS: T PTS: 1 REF: p. 273 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

4. Host country nationals are workers already living in the foreign or host country where the U.S. company is opening operations and are being employed by the U.S. company.

ANS: T PTS: 1 REF: p. 274 OBJ: LO: 11-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

5. A U.S. company sending an employee to work for a few years in its Madrid, Spain office while also learning the Spanish language would be an example of training.

ANS: T PTS: 1 REF: p. 275 OBJ: LO: 11-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

6. A company, which has identified an employee with future managerial potential, sending that employee to a three-week university-sponsored program to help develop the individual’s decision making and leadership skills, would be an example of development.

ANS: T REF: p. 275

PTS: 1 OBJ: LO: 11-02

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity

STA: DISC: Environmental Influence

KEY: Bloom's: Analysis

7. In Japan, a lot of training and development is focused upon improving the group, with instruction addressed to small groups and testing focusing upon group questions and answers. In contrast, training and development programs in the United States typically center upon the individual, with individual assignments, readings, testing, and so forth.

ANS: T PTS: 1 REF: p. 276 OBJ: LO: 11-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

8. One key purpose of performance appraisal is to prevent employees from developing and learning new skills, ultimately saving the company money.

ANS: F PTS: 1 REF: p. 277 OBJ: LO: 11-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

9. According to Hofstede research, Russia can be described as a low power distance country, because strict hierarchies are maintained in the performance appraisal system, and managers evaluate subordinate employees.

ANS: F PTS: 1 REF: p. 278 OBJ: LO: 11-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

10. A computer programmer from India continues to receive his or her Mumbai, India base salary and is kept on the Indian operation's balance sheet. Then the company adds various allowances for cost of living, housing, education to this base salary so that the employee's overall standard of living while working in the company's London, England office will be the same as his or her standard of living in Mumbai thus would be an example of the balance sheet approach.

ANS: T PTS: 1 REF: p. 278 OBJ: LO: 11-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

11. The United Nations International Labor Organization (ILO) sets minimal standards that involve prohibitions against slave or forced labor, restrictions on the use of child labor, certain basic job safety protections, and the right of workers to form labor unions.

ANS: T PTS: 1 REF: p. 280 OBJ: LO: 11-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

12. The North American Free Trade Agreement (NAFTA) established free trade between the United States, Argentina, and Brazil.

ANS: F

PTS:

1

DIF:

Difficulty: Easy

REF: p. 280 OBJ: LO: 11-04 STA: DISC: Environmental Influence

NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. Contracts which typically establish work policies including rates of pay, amounts of vacation time, and seniority rights of employees are referred to as collective bargaining agreements.

ANS: T PTS: 1 REF: p. 280 OBJ: LO: 11-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

14. A situation in which a number of employers join together to bargain with a given labor union is called co-determination.

ANS: F PTS: 1 REF: p. 282 OBJ: LO: 11-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

15. In the United States, multi-employer bargaining, or a situation in which a number of employers join together to bargain with a given labor union, is much more common than in Germany.

ANS: F PTS: 1 REF: p. 282 OBJ: LO: 11-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

MULTIPLE CHOICE 1. Of the following, which is NOT true regarding technological implications on human resource management? a. Companies based in the United States are far more likely to have at least some operations in other countries than in the past. b. The Internet, computers, and easy air travel have made it much easier for U.S. companies to conduct business in other countries. c. Technological advances have created what some call a “knowledge economy.” d. The role of human resources and those who manage such resources has become less important in today’s global economy. e. Corporate accountants and human resource managers now fulfill more strategic, higher-level knowledge-based functions.

ANS: D PTS: 1 REF: p. 268 OBJ: LO: 11-01 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Technology KEY: Bloom's: Analysis

2. Of the following, which is NOT true regarding females in the workforce? a. Scandinavian countries such as Sweden and Norway have very high female labor force participation rates, with 76.1 percent of eligible females working in each country. b. The female labor force participation rate in Turkey is very high at 80 percent.

c. The female labor participation rates in Mexico are about 46.7 percent. d. The female labor participation rates in Poland are 56.5 percent. e. The female labor participation rates in the United States are 69.9 percent.

ANS: B PTS: 1 REF: p. 269 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

3. Statistics reflect how immigration laws and the ability of foreign-born individuals to work in a given country vary widely throughout the world. In Japan, _____ percent of the labor force in is foreign born. a. 25.7 b. less than 1 c. 46.5 d. about 33 e. more than 50 ANS: B PTS: 1 REF: p. 269 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

4. Although the global economic recession that began in 2008 increased unemployment rates throughout the world, some countries have faced persistently higher rates of unemployment than others.Unemployment rates in Eastern European countries such as Poland and the Slovak Republic consistently have been in the _____ percent range. a. 15 b. 25 c. 35 d. 40 e. more than 50 ANS: A PTS: 1 REF: p. 269 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

5. Geert Hofstede identified _____ major dimensions of national culture are they apply to human resource management. a. two b. three c. four d. five e. six ANS: D PTS: 1 REF: p. 270 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

6. Hofstede’s dimension of _____ relates to the extent that people think of themselves as members of a group or collective, rather than discrete individuals. a. power distance b. uncertainty avoidance

c. individualism vs. collectivism d. masculinity vs. femininity e. long-term vs. short-term orientation ANS: C PTS: 1 REF: p. 270 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

7. Hofstede’s dimension of _____ relates to values that are traditionally associated with one gender or the other. a. power distance b. uncertainty avoidance c. individualism vs. collectivism d. masculinity vs. femininity e. long-term vs. short-term orientation ANS: D PTS: 1 REF: p. 270 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

8. Hofstede’s dimension of power distance refers to a. the extent that people think of themselves as members of a group or collective, rather than discrete individuals. b. the degree of equality of authority distribution in a given society and its workplaces, and employee expectations related to the same. c. a culture’s desire for predictability, or the lack of predictability in the workplace and elsewhere. d. values such as competition, assertiveness, and achievement versus values like care for the weak and relationships. e. the extent to which members of a given society value future planning as opposed to a more immediate short-term perspective.

ANS: B PTS: 1 REF: p. 270 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

9. Hofstede’s dimension of long-term vs. short-term orientation refers to a. the extent that people think of themselves as members of a group or collective, rather than discrete individuals. b. the degree of equality of authority distribution in a given society and its workplaces, and employee expectations related to the same. c. a culture’s desire for predictability, or the lack of predictability in the workplace and elsewhere. d. values such as competition, assertiveness, and achievement versus values like care for the weak and relationships. e. the extent to which members of a given society value future planning as opposed to a more immediate short-term perspective.

ANS: E PTS: 1 REF: p. 270 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

10. Hofstede’s dimension of masculinity vs. femininity refers to a. the extent that people think of themselves as members of a group or collective, rather than discrete individuals. b. the degree of equality of authority distribution in a given society and its workplaces, and employee expectations related to the same. c. a culture’s desire for predictability, or the lack of predictability in the workplace and elsewhere. d. values such as competition, assertiveness, and achievement versus values like care for the weak and relationships. e. the extent to which members of a given society value future planning as opposed to a more immediate short-term perspective.

ANS: D PTS: 1 REF: p. 270 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

11. Hofstede’s dimension of individualism vs. collectivism refers to a. the extent that people think of themselves as members of a group or collective, rather than discrete individuals. b. the degree of equality of authority distribution in a given society and its workplaces, and employee expectations related to the same. c. a culture’s desire for predictability, or the lack of predictability in the workplace and elsewhere. d. values such as competition, assertiveness, and achievement versus values like care for the weak and relationships. e. the extent to which members of a given society value future planning as opposed to a more immediate short-term perspective.

ANS: A PTS: 1 REF: p. 270 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

12. Hofstede’s dimension of uncertainty avoidance refers to a. the extent that people think of themselves as members of a group or collective, rather than discrete individuals. b. the degree of equality of authority distribution in a given society and its workplaces, and employee expectations related to the same. c. a culture’s desire for predictability, or the lack of predictability in the workplace and elsewhere. d. values such as competition, assertiveness, and achievement versus values like care for the weak and relationships. e. the extent to which members of a given society value future planning as opposed to a more immediate short-term perspective.

ANS: C PTS: 1 REF: p. 270 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. Of the following, which is NOT true about individualism and collectivism?

a. It relates to the extent that people think of themselves as members of a group or collective, rather than discrete individuals. b. The United States is a highly individualistic culture. c. In highly individualistic cultures, people are expected “to make it on their own.” d. Many Asian countries such as Japan rank high on collectivism. e. In collectivist countries, people tend to think of themselves as individuals rather than as part of a group.

ANS: E PTS: 1 REF: p. 270 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

14. Of the following, which is NOT true regarding regulatory issues including immigration and border security? a. In Canada, labor relations are primarily regulated at the provincial level rather than at the national level. b. France instituted its well-publicized 35-hour work week in 1998. c. Belgium increased its work-week to 42 hours per week. d. Governmental regulations related to immigration and border security are among the most important in the field of international HRM e. The Unites States has more restrictions that the EU related to foreign worker entry into its borders.

ANS: C PTS: 1 REF: p. 271-272 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

15. A U.S. company that hires another U.S. company, such as Automatic Data Processing Corporation (ADP) to process all of its corporate payroll functions is engaging in _____. a. outsourcing b. offshoring c. importing d. exporting e. franchising ANS: A PTS: 1 REF: p. 273 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

16. General Motors transferring manufacturing of its Saturn automobiles from a GM plant in Detroit, Michigan to a GM plant in Monterrey, Mexico is engaging in _____. a. outsourcing b. offshoring c. importing d. exporting e. franchising ANS: B PTS: 1 REF: p. 273 OBJ: LO: 11-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

17. Employees from the home countries who are sent to work for their companies overseas are known as _____. a. host country nationals b. parent country nationals c. third country nationals d. inpatriates e. developers ANS: B PTS: 1 DIF: Difficulty: Easy REF: p. 274 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Knowledge 18. Jonathan is a U.S. citizen who works for U.S. based company, XYZ Computers. He was sent by XYZ Computers to France to help open a branch overseas. Jonathan is a(n)_____. a. host country national b. parent country national c. third country national d. trainer e. developer ANS: B PTS: 1 DIF: Difficulty: Moderate REF: p. 274 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Application 19. The rate of expatriate failure has traditionally been _____ percent or more. a. 15 b. 30 c. 45 d. 60 e. 75 ANS: B PTS: 1 DIF: Difficulty: Moderate REF: p. 274 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Knowledge 20. The process that takes place when the expatriate employee returns home is called _____. a. co-determination b. collective bargaining c. a needs assessment d. expatriate failure e. repatriation ANS: E PTS: 1 DIF: Difficulty: Moderate REF: p. 275 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Knowledge 21. Of the following, which is NOT true of expatriates? a. There is risk of expatriate failure. b. Family issues may play a part in expatriate success. c. There is some evidence that the “culture shock” that employees face upon repatriation can be greater than the culture shock they initially faced when first

going to work in a foreign country. d. Host-country national expatriates, in particular, may represent a cheaper source of labor than other alternatives. e. Expatriate assignments may provide very useful career development opportunities.

ANS: D PTS: 1 DIF: Difficulty: Challenging REF: p. 275 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Analysis 22. A U.S. company sending an employee to work for a few years in its Madrid, Spain office would likely see to it that the employee learns to speak Spanish. This is an example of _____. a. co-determination b. development c. a needs assessment d. training e. repatriation ANS: D PTS: 1 DIF: Difficulty: Moderate REF: p. 275 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Application 23. A company that has identified an employee with future managerial potential might send that employee to a three-week university-sponsored program to help improve the individual’s leadership skills. This is an example of _____. a. co-determination b. development c. a needs assessment d. training e. repatriation ANS: B PTS: 1 DIF: Difficulty: Moderate REF: p. 275 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Application 24. Which of the following is NOT true about Qatar? a. Citizens of Qatar are unhappy because they have become second-class residents in their own land. b. Because of Qatar’s incredible economic growth, it has had to import workers by the hundreds of thousands from all over the world. c. Today, Qatar citizens make up 75 percent of the people living in Qatar. d. While Qatari citizens are well taken care of financially, many complain that the best jobs are given to expatriate foreigners. e. Qatar is one of the richest countries in the world.

ANS: C PTS: 1 REF: p. 276 OBJ: LO: 11-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

25. The process of assessing employee performance is called _____. a. performance appraisal

b. c. d. e.

development a needs assessment training repatriation

ANS: A PTS: 1 DIF: Difficulty: Easy REF: p. 277 OBJ: LO: 11-03 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Knowledge 26. Of the following, which is NOT true regarding cultural differences in performance appraisal? a. In Mexico, the norm is not to give feedback at the outset, but instead to focus first upon something positive. b. In the U.S., it is not uncommon for employers to be direct with negative feedback. c. In the U.S. performance reviews are typically conducted at the group level. d. In Japan, performance reviews are typically group oriented. e. It is not uncommon for Japanese performance reviews to focus upon how employees and groups can improve over the long-term.

ANS: C PTS: 1 DIF: Difficulty: Challenging REF: p. 277-278 OBJ: LO: 11-03 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Analysis 27. The _____ approach involves keeping an employee on the home country’s salary structure and also providing additional allowances. a. balance sheet b. collective bargaining c. labor union d. co-determination e. training ANS: A PTS: 1 DIF: Difficulty: Easy REF: p. 277-279 OBJ: LO: 11-03 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Knowledge 28. _______ established free trade between the United States, Canada, and Mexico. a. NAFTA b. NAACP c. WTO d. World Bank e. NLRB ANS: A PTS: 1 REF: p. 280 OBJ: LO: 11-04 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

29. A major complaint about the NAALC process is that _____. a. it is not profitable b. it lacks any real “teeth.” c. it violates human rights laws d. it prohibits free trade

e. it employs child laborers ANS: B PTS: 1 REF: p. 281 OBJ: LO: 11-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

30. Of the following, which is NOT true about NAALC? a. It is an agreement outside the main NAFTA agreement. b. A major complaint is that it lacks any real “teeth.” c. It requires each member of NAFTA to strongly enforce its own existing labor laws and regulations. d. It prohibits free trade among the NAFTA countries e. It has an enforcement mechanism whereby parties in any of the NAFTA countries can approach the labor department in their own country and file a formal complaint about labor standards in another NAFTA country.

ANS: D PTS: 1 REF: p. 281 OBJ: LO: 11-04 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

31. The primary goal of labor unions is to _____. a. engage in negotiations with employers b. engage in negotiations with suppliers c. engage in negotiations with customers d. engage in negotiations with environmental advocates e. engage in negotiations with other unions ANS: A PTS: 1 DIF: Difficulty: Easy REF: p. 281 OBJ: LO: 11-04 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Knowledge 32. Negotiations in which a number of employers jointly bargain with a given labor union is known as _____. a. mediation b. repatriation c. collective bargaining d. multi-employer bargaining e. co-determination ANS: D PTS: 1 DIF: Difficulty: Easy REF: p. 282 OBJ: LO: 11-04 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Knowledge 33. Perhaps the most interesting labor relations system in the world exists in _____. a. Canada b. Great Britain c. Germany d. Australia e. Mexico ANS: C

PTS:

1

DIF:

Difficulty: Moderate

REF: p. 282 OBJ: LO: 11-04 NAT: BUSPROG: Diversity STA: DISC: HRM KEY: Bloom's: Knowledge COMPLETION 1. _____ is the process of a company subcontracting a certain production function to a third party.

ANS: Outsourcing PTS: 1 DIF: Difficulty: Easy REF: p. 272 OBJ: LO: 11-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 2. _____ involves the process of transferring an organizational function to another country whether outsourced or not.

ANS: Offshoring PTS: 1 DIF: Difficulty: Easy REF: p. 273 OBJ: LO: 11-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 3. Employees from the home country that are sent to work for their company overseas refers to _______.

ANS: parent country nationals PTS: 1 DIF: Difficulty: Moderate REF: p. 274 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 4. Workers who are already living in the foreign or host country where the parent company is opening operation refers to _______.

ANS: host country nationals PTS: 1 DIF: Difficulty: Moderate REF: p. 274 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 5. ______ refers to employees from a new parent or host country who are being employed in a given foreign country.

ANS: Third country nationals PTS: 1 DIF: Difficulty: Moderate REF: p. 274 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

6. _______ are employees who are working in countries other than their native countries.

ANS: Expatriates PTS: 1 DIF: Difficulty: Easy REF: p. 274 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 7. ______ occurs when an expatriate does not complete his or her full expatriate assignment.

ANS: Expatriate failure PTS: 1 DIF: Difficulty: Easy REF: p. 274 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 8. Providing employees with skills specific to the job they are going to be doing refers to ______.

ANS: training PTS: 1 DIF: Difficulty: Easy REF: p. 275 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 9. ______ involves preparing employees for new future assignments or higher level positions.

ANS: Development PTS: 1 DIF: Difficulty: Easy REF: p. 275 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 10. ______ involves preparing employees for new future assignments or higher level positions.

ANS: Development PTS: 1 DIF: Difficulty: Easy REF: p. 275 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 11. ______ refers to the process of assessing employee performance.

ANS: Performance appraisal PTS: 1 DIF: Difficulty: Easy REF: p. 277 OBJ: LO: 11-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

12. Keeping an employee on the home country’s salary structure and also providing additional allowances refers to the ______.

ANS: balance sheet approach PTS: 1 DIF: Difficulty: Moderate REF: p. 279 OBJ: LO: 11-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 13. A _______ is a formal organization representing a group or groups of employees.

ANS: labor union PTS: 1 DIF: Difficulty: Easy REF: p. 281 OBJ: LO: 11-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 14. A contract comprehensively setting forth employee terms and conditions of employment at a given workplace or group of workplaces refers to a _________.

ANS: collective bargaining agreement PTS: 1 DIF: Difficulty: Moderate REF: p. 281 OBJ: LO: 11-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 15. ________ are negotiations in which a number of employers jointly bargain with a given labor union.

ANS: Multi-employer bargaining PTS: 1 DIF: Difficulty: Moderate REF: p. 282 OBJ: LO: 11-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 16. The employee representation on corporate boards in Germany refers to ______.

ANS: co-determination PTS: 1 DIF: Difficulty: Moderate REF: p. 282 OBJ: LO: 11-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge ESSAY 1. Briefly describe the five cultural dimensions identified by Geert Hofstede as they apply to human resource management.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 270-271 OBJ: LO: 11-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 2. Differentiate between outsourcing and offshoring. Analyze the pros and cons of these practices.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 272-273 OBJ: LO: 11-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. Discuss expatriate issues as they affect staffing for global businesses.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 274-275 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 4. Differentiate between training and development and describe the different types of training and development that a company can offer.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 275-276 OBJ: LO: 11-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 5. “Culture does not have any impact on performance appriasal.” Do you agree with this statement? Defend your position.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 277-279 OBJ: LO: 11-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. Discuss the role labor union play in global human resource management. Does the impact unions have vary in different countries? Explain.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 279-282 OBJ: LO: 11-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Evaluation CASE Scenario – Symon Enterprises Symon Enterprises is an international construction company with global offices in twenty foreign markets around the world. Symon currently has over 15,000 employees around the world. The company has an excellent record as being an employer of choice. It recently was voted the number three company to work for in the world by Forbes Magazine.

Symon Enterprises has become very adept at effectively handling its human resources even though there are vast differences in the various countries it services. The company attributes its HR success to the expertise of its HR directors. Symon’s practice has always been to hire human resource managers and directors from the country where they will be working. It has found this seems to give the company a competitive edge over the competition.

1. When Symon Enterprises has work to be performed within a country where workers prefer clear rules and guidelines to follow, it can be stated that the company is most likely working within which one of the following Hofstede’s cultural dimensions? a.

Individualism b.

Power distance c.

Uncertainty avoidance d.

Short-term orientation e.

Masculine dimension ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 270 OBJ: LO: 11-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. Symon Enterprises sends approximately 20% of its workers on overseas assignments. All of the following are considered advantages to be gained by the company from sending expatriates on foreign assignments except which one? a.

Expatriate failure rate is extremely low if they serve ten-years or more on one assignment. b.

It helps parent company with control related to structure. c.

Workers from the parent country will help to impose the values of the organization on the foreign workplace. d.

Expatriates serve to supply the labor market if there are not enough qualified

e.

workers available to fill the company’s needs.

Expatriates can impart the cultural norms of the company to the foreign workers.

ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 274-275 OBJ: LO: 11-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. Employee compensation, performance appraisals, and benefits vary greatly from culture to culture. Which one of the following would not be considered a challenge facing Symon Enterprises when it comes to global compensation and performance management? a.

Some countries evaluate the group rather than the individual. b.

The idea of taxation and tax levels may vary greatly from county to country. c.

Foreign compensation packages need to be compatible with the home country’s compensation level. d.

Some cultures require strict hierarchies to be maintained during the evaluation process. e.

A country’s culture may greatly affect the way feedback should be presented to an employee.

ANS: c PTS: 1 DIF: Difficulty: Challenging REF: p. 268-279 OBJ: LO: 11-01| LO: 11-02| LO: 11-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation Scenario – The Campbell Corporation The Campbell Corporation is a multinational business, which currently operates in five foreign markets. It manufactures stuffed toys for children around the world and is very pleased with the quality of its products. At present, this company has about 900 employees split equally between the five markets it serves. Fifty percent of its employees are host country nationals and this balance seems to work effectively for contributing to the success of the Campbell Corporation.

The Campbell Corporation has faced many difficulties in gaining knowledge about human resource management in foreign marketplaces. Even though the challenges have been considerable, they have not weakened the desire of this company to succeed. The Campbell Company hopes to soon enter its sixth foreign market, Switzerland. Past experiences have taught the owners of this company that it must gain knowledge of the foreign country’s culture prior to entering its marketplace if it hopes to be successful.

4. Which one of the following would be least likely to be present if the Campbell Corporation found itself manufacturing its products within a foreign country that embraces unionization? a.

The International Labor Organization has established the right of workers to

b. c. d. e.

have the freedom of association.

The main goal of labor unions is to negotiate with employers to try and reach a collective bargaining agreement acceptable to both sides.

Employees may file grievances if they feel their rights under the contract are not maintained.

The host country will set the wage that all workers are to be paid regardless of union affiliation.

Bargaining agreements typically address rates of pay, vacation time, and seniority rights of employees.

ANS: d PTS: 1 DIF: Difficulty: Moderate REF: p. 279-283 OBJ: LO: 11-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. If the Campbell Corporation conducts its business within a country where workers prefer to be evaluated as part of a group, the cultural dimension of that nation most closely resembles which one of the following? a.

Short-term orientation b.

Collectivism c.

Power distance d.

Individualism e.

Femininity ANS: b PTS: 1 DIF: Difficulty: Moderate REF: p. 270 OBJ: LO: 11-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. If the Campbell Corporation wanted to subcontract one of its production processes to a third party currently in Switzerland, this action would most likely be referred to as which one of the following? a.

Outsourcing b.

Co-determination c.

Multi-employer bargaining d.

Repatriation e.

Insourcing ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 272 OBJ: LO: 11-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation

Chapter 12: Global Marketing TRUE/FALSE 1. The three major markets within each foreign market that purchase products and services are: consumer markets, the industrial market, and the business market.

ANS: F PTS: 1 REF: p. 290 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. A market that includes companies that purchase products and services such as equipment and machinery, supplies, lubricants, consulting services, cleaning services, advertising, marketing research, raw materials, semi-finished products, and so on is referred to as a consumer market.

ANS: F PTS: 1 REF: p. 290 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

3. The total number of units of a product that could possibly be sold by all companies doing business in a specific international market is referred to as sales potential.

ANS: F PTS: 1 REF: p. 290 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

4. A study analyzing why households have stopped purchasing a company’s product would be an example of marketing research.

ANS: T PTS: 1 REF: p. 292 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

5. When developing an international product mix, companies have four options to consider in marketing their products overseas: modify their products for different countries and regions, develop new products for foreign markets, incorporate all product differences into one design and develop a global product, or sell the same domestic product overseas.

ANS: T PTS: 1 REF: p. 294-295 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

6. The step in the new product development process in which projections of potential revenues and profits for a potential new product are made is referred to as concept testing.

ANS: F REF: p. 295

PTS: 1 OBJ: LO: 12-03

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity

STA: DISC: Environmental Influence

KEY: Bloom's: Evaluation

7. Products that have not achieved company- established goals of sales, profit, and market share are primary candidates for reintroduction into the market place.

ANS: F PTS: 1 REF: p. 296 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

8. Increasingly, companies are finding that products originally developed for emerging markets cannot be ever sold in developed markets.

ANS: F PTS: 1 REF: p. 297 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

9. International marketing managers have four main methods of promoting products and services in international markets: advertising, personal selling, sales promotion, and distribution.

ANS: F PTS: 1 REF: p. 298 OBJ: LO: 12-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

10. Agents for companies shipping products overseas who are chiefly involved with physical distribution activities and documentation are called freight forwarders.

ANS: T PTS: 1 REF: p. 302 OBJ: LO: 12-05 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

11. A company’s international pricing mix involves consideration of four major objectives: performance objectives, prevention objectives, maintenance objectives, and survival objectives.

ANS: T PTS: 1 REF: p. 303 OBJ: LO: 12-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

12. The practice of setting a price in a foreign market that undercuts the prices of competitive companies is referred to as dumping.

ANS: T PTS: 1 REF: p. 304 OBJ: LO: 12-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. Unauthorized importers reselling a manufacturer’s product in the manufacturer’s domestic market at a price less than what the manufacturer charges in that domestic market is referred to as blue marketing.

ANS: F PTS: 1 REF: p. 304 OBJ: LO: 12-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

14. Two pricing strategies that will often trigger allegations of dumping is if the home-country firm sets a price in the foreign market below what it charges the domestic market or if the price is above what it domestically charges, but below the marginal cost to ship it overseas and sell it there.

ANS: T PTS: 1 REF: p. 305 OBJ: LO: 12-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

MULTIPLE CHOICE 1. _____ potential refers to the total number of units of a product that could possibly be sold by all companies doing business in a specific international market. a. Market b. Sales c. Vertical d. Horizontal e. Environmental ANS: A PTS: 1 REF: p. 290 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. There are three major markets within each foreign market that can purchase products and services and needs to be analyzed: consumer markets, the industrial market, and _____ markets. a. sales b. environmental c. government d. gray e. reverse ANS: C PTS: 1 REF: p. 290 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

3. The _____ market includes companies that purchase products and services such as equipment and machinery, supplies, lubricants, consulting services, cleaning services, advertising, and so on. a. industrial b. environmental c. government d. gray e. consumer

ANS: A PTS: 1 REF: p. 290 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

4. The _____ market is likely to emphasize major infrastructure projects as well as health care services and military operations. a. industrial b. environmental c. government d. gray e. consumer ANS: C PTS: 1 REF: p. 290 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

5. In 2010, _____ had the world’s highest GDP. a. Mexico b. the United States c. India d. France e. Brazil ANS: B PTS: 1 REF: p. 290 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

6. _____ is frequently used as an overall measure of a nation’s income; it represents the total purchasing power of a nation. a. GDP b. NLRB c. PPP d. PEP e. CAB ANS: A PTS: 1 REF: p. 290 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

7. _____ collects information at one specific time in order to help marketers make better decisions about their overseas markets. a. Business analysis b. A concept test c. Marketing research d. A marketing intelligence system e. A global product system ANS: C PTS: 1 REF: p. 292 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

8. Executives at Mary Kay Cosmetics’ European operations are conducting a study analyzing why households have stopped purchasing certain products. These executives are engaging in _____. a. business analysis b. a concept test c. marketing research d. a marketing intelligence system e. a global product system ANS: C PTS: 1 REF: p. 292 OBJ: LO: 12-01 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

9. The marketing strategy which involves pursuing a standardization strategy in foreign markets when possible and an adaptation one when necessary is called_____. a. standardization b. adaptation c. glocalization d. marketing research e. a global product system ANS: C PTS: 1 REF: p. 294 OBJ: LO: 12-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

10. Brazilians use doughnuts as a snack item whereas Americans tend to associate doughnuts with breakfast; electrical voltages differ in many countries than those that exist in the United States. In these instances, a firm would pursue a(n) _____ strategy. a. standardization b. adaptation c. glocalization d. marketing research e. a global product system ANS: B PTS: 1 REF: p. 294 OBJ: LO: 12-02 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

11. Of the following, which is NOT an option for companies to consider when marketing their products overseas? a. Selling the same domestic product overseas b. Modifying products for different countries and regions c. Developing new products for foreign markets d. Aligning with international companies and selling their products e. Incorporating all product differences into one design and developing a global product ANS: D PTS: 1 REF: p. 294 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

12. The step in the new-product development process in which the new product idea is presented to a small sample of the international market to gauge its reaction is called _____. a. a global product b. concept testing c. business analysis d. product development e. vertical publication ANS: B PTS: 1 REF: p. 295 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. The step in the new-product development process in which projections of potential revenues and profits for a potential new product are made is called _____. a. a global product b. concept testing c. business analysis d. product development e. vertical publication ANS: C PTS: 1 REF: p. 295 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

14. What is the last step in the new-product development process? a. A global product b. Concept testing c. Business analysis d. Market testing e. Commercialization ANS: E PTS: 1 REF: p. 296 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

15. In the _____ stage of the product life cycle, sales gradually increase, as do profits, which often are losses in the early part of this stage. a. maturity b. growth c. decline d. introduction e. commercialization ANS: D PTS: 1 REF: p. 296 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

16. In the _____ stage of the product life cycle, sales and profits rapidly increase and profits reach a maximum during the latter part of this stage. a. maturity b. growth

c. decline d. introduction e. commercialization ANS: B PTS: 1 REF: p. 296 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

17. Of the following, which is NOT an advantage of locating R&D facilities in foreign countries? a. The MNC can use the intelligence of foreign scientists and engineers. b. New products developed overseas are more likely to be attuned to the company’s overseas markets. c. Often, the technology developed overseas can be transferred back to the home country. d. It costs more to build R&D facilities overseas. e. Products originally developed for emerging markets can be successfully sold in developed markets.

ANS: D PTS: 1 REF: p. 296-297 OBJ: LO: 12-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

18. Development of a new product first for emerging markets then selling it to developed markets is known as a(n) _____ strategy. a. vertical b. horizontal c. backward d. forward e. reverse ANS: E PTS: 1 REF: p. 296-297 OBJ: LO: 12-03 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

19. Nestle had success with its Maggi noodles in South Asia; subsequently they were introduced in Australia. Nestle is using a(n) _____ strategy. a. vertical b. horizontal c. backward d. forward e. reverse ANS: E PTS: 1 REF: p. 296-297 OBJ: LO: 12-03 STA: DISC: Strategy

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

20. Of the following, which is NOT one of the major methods that can be used to promote products and services in international markets? a. Personal selling b. Advertising

c. Sales promotion d. Publicity e. Distribution ANS: E PTS: 1 REF: p. 298 OBJ: LO: 12-04 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

21. The international marketing manage has _____ major methods that can be used to promote products and services in international markets. a. two b. three c. four d. five e. six ANS: C PTS: 1 REF: p. 298 OBJ: LO: 12-04 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

22. Contests and sweepstakes, coupons, end-aisle displays in stores, sponsorships, and trade shows are all examples of _____. a. personal selling b. advertising c. sales promotion d. publicity e. distribution ANS: C PTS: 1 REF: p. 298 OBJ: LO: 12-04 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

23. A(n)_____ strategy refers to the use of channels of distribution to market products and services to international markets. a. indirect b. direct c. agent d. public e. distributor ANS: A PTS: 1 REF: p. 300 OBJ: LO: 12-05 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

24. An advantage of the _____strategy include is that it does not require an up-front investment. a. indirect b. direct c. agent d. public e. distributor

ANS: A PTS: 1 REF: p. 301 OBJ: LO: 12-05 STA: DISC: Strategy

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

25. A channel of distribution that purchases products from a company doing business in a foreign market and then resells them to other buyers is called a(n) _____. a. freight back-warder b. freight forwarder c. agent d. public channel e. distributor ANS: E PTS: 1 REF: p. 301 OBJ: LO: 12-05 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

26. Storage and transportation operations that are used in moving products to a foreign market are called _____. a. a freight back-warder b. a freight forwarder c. an agent d. a public channel e. physical distribution ANS: E PTS: 1 REF: p. 301 OBJ: LO: 12-05 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

27. Agents for companies shipping products overseas who are chiefly involved with physical distribution activities and documentation are called _____. a. freight back-warders b. freight forwarders c. agents d. public channels e. physical distributors ANS: B PTS: 1 REF: p. 302 OBJ: LO: 12-05 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

28. Shipping products to overseas markets in trailer-sized containers are called _____. a. freight back-warders b. freight forwarders c. containerization d. public channels e. physical distributors ANS: C PTS: 1 REF: p. 302 OBJ: LO: 12-05 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

29. International shipments using different modes of transportation are called _____. a. freight back-warders b. freight forwarders c. containerization d. public channels e. international transporters ANS: E PTS: 1 REF: p. 302 OBJ: LO: 12-05 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

30. _____ objectives for international products and services include bottom-line goals such as net profit, return on investment, market share, and penetration. a. Performance b. Prevention c. Maintenance d. Survival e. Growth ANS: A PTS: 1 REF: p. 303 OBJ: LO: 12-06 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

31. _____ objectives include deterring scrutiny by home and host-country governments and deterring competition. a. Performance b. Prevention c. Maintenance d. Survival e. Growth ANS: B PTS: 1 REF: p. 303 OBJ: LO: 12-06 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

32. _____ refers to a price in a foreign market that undercuts the prices of companies competing there. a. Performance price b. Product elimination c. Containerization d. Dumping e. Gray marketing ANS: D PTS: 1 REF: p. 304 OBJ: LO: 12-06 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

33. _____ refers to unauthorized importers reselling a manufacturer’s product in the manufacturer’s domestic market at a price less than what the manufacturer charges in that domestic market. a. Performance price

b. c. d. e.

Product elimination Containerization Dumping Gray marketing

ANS: E PTS: 1 REF: p. 304 OBJ: LO: 12-06 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

34. _____ refers to the percentage of purchases in a category a buyer gives to one vendor. a. Performance price b. Share of wallet c. Containerization d. Dumping e. Gray marketing ANS: B PTS: 1 REF: p. 307 OBJ: LO: 12-07 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

35. _____ refers to performance of various aspects of customer service that meets customer expectations. a. Reliability b. Share of wallet c. Containerization d. Dumping e. Gray marketing ANS: A PTS: 1 REF: p. 307 OBJ: LO: 12-07 STA: DISC: Strategy

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

COMPLETION 1.

_____ is the total number of units of a product that could possibly be sold by all companies doing business in a specific international market.

ANS: Market potential PTS: 1 DIF: Difficulty: Easy REF: p. 290 OBJ: LO: 12-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

2. The percentage of a market potential that a specific company expects to sell in a specific international market refers to ______.

ANS: sales potential PTS: 1 OBJ: LO: 12-01

DIF: Difficulty: Easy NAT: BUSPROG: Diversity

REF: p. 290

STA: DISC: Environmental Influence

KEY: Bloom's: Knowledge

3. _____ refers to information collected at one particular time.

ANS: Marketing research PTS: 1 DIF: Difficulty: Easy REF: p. 292 OBJ: LO: 12-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 4. ______ refers to information collected regularly over time ANS: Marketing intelligence system PTS: 1 DIF: Difficulty: Easy REF: p. 292 OBJ: LO: 12-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 5. Marketing strategies used in international markets by a company that are the same as those used in its domestic market refers to ______.

ANS: standardization PTS: 1 DIF: Difficulty: Moderate REF: p. 294 OBJ: LO: 12-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 6. Marketing strategies used in international markets by a company that are different from those used in its domestic market refers to ______.

ANS: adaptation PTS: 1 DIF: Difficulty: Moderate REF: p. 294 OBJ: LO: 12-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 7. The marketing strategy which involves pursuing a standardization strategy in foreign markets when possible and an adaptation one when necessary refers to ______.

ANS: glocalization PTS: 1 DIF: Difficulty: Moderate REF: p. 294 OBJ: LO: 12-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 8.

A product that can be sold in most world markets is a _____.

ANS: global product

PTS: 1 DIF: Difficulty: Easy REF: p. 295 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 9. ______ is the step in the new-product development process in which the new product idea is presented to a small sample of the international market to gauge their reaction.

ANS: Concept testing PTS: 1 DIF: Difficulty: Moderate REF: p. 295 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 10. _____ is the step in the new product development process in which projections of potential revenues and profits for a potential new product are made.

ANS: Business analysis PTS: 1 DIF: Difficulty: Moderate REF: p. 295 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 11. _____ is the step in the new-product development process in which a company will develop the marketing mix for a new product.

ANS: Market testing PTS: 1 DIF: Difficulty: Moderate REF: p. 296 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 12. ______ is the last step in the new-product development process in which the new product is manufactured, the marketing mix is finalized, and the product is introduced to the foreign market.

ANS: Commercialization PTS: 1 DIF: Difficulty: Moderate REF: p. 296 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 13. A depiction of the sales and profits for a new product over its life time is called the ______.

ANS: product life cycle PTS: 1 DIF: Difficulty: Easy REF: p. 296 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

14. _______ is a formal, written procedure to determine which of a company’s products should be dropped.

ANS: Product elimination PTS: 1 DIF: Difficulty: Moderate REF: p. 296 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 15. The development of a new product first for emerging markets then selling it to developed markets refers to _____.

ANS: reverse strategy PTS: 1 DIF: Difficulty: Moderate REF: p. 297 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 16. _____ are magazines that target specific industries.

ANS: Vertical publications PTS: 1 DIF: Difficulty: Moderate REF: p. 298 OBJ: LO: 12-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 17. _____ are magazines that target a specific job in various industries.

ANS: Horizontal publications PTS: 1 DIF: Difficulty: Moderate REF: p. 298 OBJ: LO: 12-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 18. The use of channels of distribution to market products and services to international markets refers to _______.

ANS: indirect strategy PTS: 1 DIF: Difficulty: Moderate REF: p. 300 OBJ: LO: 12-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 19. Bypassing channels of distribution by using marketing and sales offices located in foreign countries refers to _______.

ANS: direct strategy PTS:

1

DIF:

Difficulty: Moderate

REF: p. 300

OBJ: LO: 12-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 20. A channel of distribution that represents a company in a foreign market and is paid by commission refers to a(n) _______.

ANS: agent PTS: 1 DIF: Difficulty: Easy REF: p. 301 OBJ: LO: 12-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 21. A channel of distribution that purchases products from a company doing business in a foreign market and then resells them to other buyers refers to a(n) _______.

ANS: distributor PTS: 1 DIF: Difficulty: Easy REF: p. 301 OBJ: LO: 12-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 22. Storage and transportation operations that are used in moving products to a foreign market refers to _____.

ANS: physical distribution PTS: 1 DIF: Difficulty: Moderate REF: p. 301 OBJ: LO: 12-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 23. Agents for companies shipping products overseas that are primarily involved with physical distribution activities and documentation, are _____.

ANS: freight forwarder PTS: 1 DIF: Difficulty: Moderate REF: p. 302 OBJ: LO: 12-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 24. Shipping products to overseas markets in various-sized trailers is called _____.

ANS: containerization PTS: 1 DIF: Difficulty: Easy REF: p. 302 OBJ: LO: 12-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 25. International shipments using different modes of transportation refers to _____.

ANS: intermodal transportation PTS: 1 DIF: Difficulty: Easy REF: p. 302 OBJ: LO: 12-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 26. _______ refers to unauthorized importers reselling a manufacturer’s product in the manufacturer’s domestic market at a price less than what the manufacturer charges in that domestic market.

ANS: Gray Marketing PTS: 1 DIF: Difficulty: Moderate REF: p. 304 OBJ: LO: 12-06 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 27. _______ refers to a price in a foreign market that undercuts the prices of companies competing there.

ANS: Dumping PTS: 1 DIF: Difficulty: Moderate REF: p. 304 OBJ: LO: 12-06 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 28. _______ is the price a company charges its overseas subsidiaries.

ANS: Transfer price PTS: 1 DIF: Difficulty: Moderate REF: p. 305 OBJ: LO: 12-06 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 29. _______ is the price that an overseas market is willing to pay.

ANS: Arms length price PTS: 1 DIF: Difficulty: Moderate REF: p. 305 OBJ: LO: 12-06 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 30. The percentage of purchases in a category a buyer gives to one vendor is called ______.

ANS: share of wallet PTS: 1 DIF: Difficulty: Moderate REF: p. 307 OBJ: LO: 12-07 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

31.

______ is the performance of various aspects of customer service that meets customer expectations.

ANS: Reliability PTS: 1 DIF: Difficulty: Moderate REF: p. 307 OBJ: LO: 12-07 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

32.

______ refers to aspect of customer service that allows employees to take care of customer problems immediately without having to consult superiors.

ANS: Empowerment PTS: 1 DIF: Difficulty: Moderate REF: p. 307 OBJ: LO: 12-07 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

ESSAY 1. Describe the three major markets within each foreign market that can purchase products using examples for each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 290 OBJ: LO: 12-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 2. Differentiate between marketing research and marketing intelligence systems.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 292 OBJ: LO: 12-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. Differentiate between standardization, adaptation, and glocalization. Provide an example of each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 294 OBJ: LO: 12-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis

4. Describe how new products are developed for international markets.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 295-296 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 5. Describe the product life cycle as a useful tool for managing products after they have been introduced to foreign markets.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 296 OBJ: LO: 12-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 6. Describe the advantages and disadvantages of different methods of promoting products in international markets.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 298-300 OBJ: LO: 12-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 7. “Channels of distribution have no role in international markets.” Do you agree with this statement? Defend your position.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 300- 301 OBJ: LO: 12-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 8. Explain the objectives that are applicable to international pricing decisions.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 303- 304 OBJ: LO: 12-06 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension CASE

Scenario – Atlantic Camera & Film Company The Atlantic Camera & Film Company has been in operation since the early 1970s. Since its inception in Detroit, Michigan, this company has risen to hold the 35th spot in the industry. Its reputation for excellent service and exemplary products has gained this company international recognition. Atlantic currently sells over two hundred product per week to customers from foreign nations.

Atlantic’s organizational leaders recently decided to begin more intense promotion of the company’s products within the international marketplace. They realize this is a golden opportunity to move the company upward in ranking within the industry. While the company will maintain production within the boundaries of the United States, it plans to establish four distribution centers located around the world for its products. The plans include building a distribution site in South America, Europe, Asia, and the Middle East.

1. Operations in foreign markets are new to the Atlantic Camera & Film Company. While they have made sales within these markets before, the company has never had distribution points located within foreign borders. Which one of the following is least likely to be of high concern to the company as it begins this new endeavor? a.

Conducting an international demographic survey b.

Analyzing the international marketplace c.

Deciding what types of markets to sell its product to d.

Studying the income levels of the individuals within the company’s market area e.

Discussing the endeavor with the World Trade Organization ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 289-293 OBJ: LO: 12-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. The Atlantic Camera & Film Company realizes it has many challenges to face while undertaking its international plan for growth. Which one of the following would be least likely to require the company to adapt to differences in the foreign market arena? a.

Most foreign countries use the metric system of measurement b.

Items are often used differently or for different purposes by foreigners than by U.S. citizens c.

The U.S. maintains an English system of measurement d.

A standardization strategy to be used by the company e.

Electrical voltages and systems differ in foreign nations ANS: d PTS: 1 DIF: Difficulty: Challenging REF: p. 294 OBJ: LO: 12-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis

3. Atlantic is striving to be as successful as possible within the foreign marketplace. All of the following are options for the company to use in making product sales except which one? a.

Sell the same domestic products in the foreign market b.

Wait for the market to adapt to the products offered c.

The product can be modified for different countries d.

New products can be specially designed for foreign markets e.

A new globally suited product can be designed ANS: b PTS: 1 DIF: Difficulty: Moderate REF: p. 294-295 OBJ: LO: 12-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation Scenario – Bridgemont Industries Bridgemont Industries has operated on a global basis for over fifty years. It is one of the world’s top rated producers of batteries and is renowned for having excellent products and outstanding customer service. In fact, the company is to receive a global award for its products and customer service expertise in the coming year.

Bridgemont is very proud of its employees and acknowledges that without their experience the company would not be rated at the top. The top management has a special reward planned for each customer service representative that will be presented at the global award ceremony in June. Bridgemont feels it is only fair to share a portion of its profits with the ones who helped generate it.

4. Bridgemont is well versed in conducting operations in the foreign marketplace. All of the following except which one represent methods the company could use to market its products in the foreign market arena? a.

Advertising b.

Trade shows c.

Create negative company publicity d.

Hold contests or sweepstakes e.

Use face-to-face contact with buyers ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 298-300 OBJ: LO: 12-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. Distribution of its products has never been a problem for Bridgemont Industries. Which one of the following is a distribution method that is least likely to be used by Bridgemont? a.

Use of an indirect strategy of distribution b.

Use distribution channels already in place in the foreign marketplace

c. d. e.

Use an agent Enlist the services of a foreign distributor Use local government distribution systems

ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 300-303 OBJ: LO: 12-05 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. When Bridgemont is selling its products in foreign markets, it must decide how to price them. Which of the following is least likely to be a factor for consideration when it comes to pricing of products being sold in foreign markets? a.

Associated costs b.

Attractiveness of competitive products c.

How high the demand is for the product d.

Competitive product prices e.

Price of product in the U.S. ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 303-305 OBJ: LO: 12-06 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 7. Bridgemont takes great pride in the expertise of its customer service staff. Which one of the following is least likely to be an attribute demonstrated by this company’s customer service department? a.

Arranging for on-time deliveries b.

Avoid call-back when problems arise c.

Warranty explanation d.

Honest and reliable installation and service e.

Accurate shipments ANS: b PTS: 1 DIF: Difficulty: Easy REF: p. 306-308 OBJ: LO: 12-07 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis

Chapter 13: Global Operations and Supply-Chain Management TRUE/FALSE 1. When the goods dominate the value of a product, it is typically called a manufacturing system.

ANS: T PTS: 1 REF: p. 316 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

2. Inputs such as aluminum, titanium, glass, engines, machines, engineers, and workers are all examples of raw materials.

ANS: F PTS: 1 REF: p. 317 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

3. The activities in operations management can be grouped into four business functions: procurement, production, logistics, and research and development.

ANS: T PTS: 1 REF: p. 318 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

4. In operations management, the acquisition of goods and services is referred to as logistics.

ANS: F PTS: 1 REF: p. 318 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

5. Boeing buying from thousands of suppliers in more than 100 countries, but only having production facilities in the U.S. is an example of global procurement and domestic production.

ANS: T PTS: 1 REF: p. 318 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

6. One advantage of global procurement is that the firm can maximize its flexibility by allocating its orders among suppliers in a dynamic way and the firm has access to more suppliers that can generally provide lower costs than domestic suppliers.

ANS: T PTS: 1 REF: p. 320 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

7. When a firm has been making goods and services in-house, and then decides to buy these goods and services from suppliers is referred to as insourcing.

ANS: F PTS: 1 REF: p. 321 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

8. Some advantages of making components and raw materials in-house are: cost, control over quality, more control over deliveries, secure the supply source, and is not required to honor protections of intellectual property.

ANS: F PTS: 1 REF: p. 325 OBJ: LO: 13-03 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

9. The practice of producing the components and raw materials in-house and from suppliers is referred to as supply-chain malfunction.

ANS: F PTS: 1 REF: p. 325 OBJ: LO: 13-03 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

10. When the demand is equal or lower than the minimum efficient scale, multiple production facility locations are preferred.

ANS: F PTS: 1 REF: p. 326 OBJ: LO: 13-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

11. When considering the one-versus-many location for production facilities for components and raw materials some of the most important considerations are: fixed costs, minimum efficient scale and its comparison to demand, and the value-to-weight ratio.

ANS: T PTS: 1 REF: p. 326 OBJ: LO: 13-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

12. The three major considerations for deciding the location of production facilities for products are: does the product serve the needs of all customers around the world, proximity to market and proximity to suppliers, and the effect on product’s image being produced in that location.

ANS: T PTS: 1 REF: p. 327 OBJ: LO: 13-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

13. All activities performed typically by business organizations such as suppliers, manufacturers, distributors, and retailer that involve the flow and transformation of goods and services is referred to as a supply chain.

ANS: T PTS: 1 REF: p. 329 OBJ: LO: 13-05 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

14. Software packages designed to integrate the majority of a firm’s business processes, execute all transactions related to the firm’s business processes being integrated, store each piece of data only once in an enterprise-wide database, allow access to data and information in real time, and operate in a client-server environment, traditional or web-based are called enterprise resource planning systems.

ANS: T PTS: 1 REF: p. 330 OBJ: LO: 13-05 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Technology KEY: Bloom's: Knowledge

15. The property of ERP systems to handle the accounting standards of multiple countries is called the multi- currency property.

ANS: F PTS: 1 REF: p. 332 OBJ: LO: 13-05 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Technology KEY: Bloom's: Knowledge

MULTIPLE CHOICE 1. A production system in which services dominate the value of the product is known as a(n) _____ system. a. production b. manufacturing c. service d. component e. raw ANS: C PTS: 1 REF: p. 316 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

2. The production systems of Honda Motor Company, the Boeing Company, and Toshiba Corporation, would be called _____ systems. a. production b. manufacturing c. service d. component e. raw ANS: B PTS: 1 REF: p. 316 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Application

3. The production systems of the Fred Hutchinson Cancer Research Center, the Walt Disney Company, and the consulting firm Accenture, would be called _____ systems. a. production b. manufacturing c. service d. component e. raw ANS: C PTS: 1 REF: p. 316 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Application

4. In the production system model, _____ represent the desired goods and services. a. inputs b. outputs c. raw materials d. components e. factors of production ANS: B PTS: 1 REF: p. 316 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

5. Goods and services that integrate a product are called _____. a. production process b. production facilities c. raw materials d. components e. factors of production ANS: D PTS: 1 REF: p. 317 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

6. Steps in the production process are called _____. a. production stages b. production facilities c. raw materials d. components e. factors of production ANS: A PTS: 1 REF: p. 318 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

7. Most of the activities in operations management can be grouped into ____ business functions. a. two b. three c. four d. five

e. six ANS: C PTS: 1 REF: p. 318 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

8. Most of the activities in operations management can be grouped into the following business functions EXCEPT: a. procurement b. logistics c. production d. research and development e. selling ANS: E PTS: 1 REF: p. 318 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

9. Determining which components and raw materials should be produced in-house and which components and raw materials should be acquired from suppliers is known as the _____ decision. a. sale-or-keep b. manufacture-or-sale c. sink-or-swim d. make-or-buy e. build-or-break ANS: D PTS: 1 REF: p. 319 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

10. Of the following, which is NOT an advantage of global procurement? a. The firm does not need to invest the money that is associated with making. b. The firm can focus upon the production stages and components with the most value added. c. The firm can maximize its flexibility by allocating its orders among the suppliers in a dynamic way. d. If global suppliers are selling to many companies in the same industry but in different countries, these suppliers can achieve economies of scale and lower costs. e. The firm does not rely upon suppliers on important dimensions such as quality, delivery, and cost.

ANS: E PTS: 1 REF: p. 320 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

11. Of the following, which is NOT a disadvantage of global procurement? a. The firm has to invest the money that is associated with making products. b. The firm may need to compete for the attention of suppliers. c. The profits that the company could earn by producing the goods and services in-house now go to the suppliers.

d. Buying from suppliers could unintentionally lead suppliers becoming competitors. e. The firm relies upon suppliers on important dimensions such as quality, delivery, and cost.

ANS: A PTS: 1 REF: p. 320-321 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

12. When a firm has been making goods and services in-house, and then decides to buy these goods and services from suppliers, it is called _____. a. outsourcing b. domestic manufacturing c. global farming d. offshoring e. insourcing ANS: A PTS: 1 REF: p. 321 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

13. When a firm outsources to a supplier located in a different country, it is called _____. a. dual sourcing b. domestic outsourcing c. border outsourcing d. offshoring e. insourcing ANS: D PTS: 1 REF: p. 321 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

14. When the firm has been buying goods and services from suppliers, and then decides to make these goods and services in-house, it is called _____. a. dual outsourcing b. domestic outsourcing c. global outsourcing d. offshoring e. insourcing ANS: E PTS: 1 REF: p. 322 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

15. Of the following, which is NOT an advantage of making? a. Knowledge of the product may provide efficiency advantages over potential suppliers. b. The firm has more control over quality. c. People producing the component or raw material have the incentive to improve their product. d. The firm has more control over deliveries. e. It secures the supply source.

ANS: C PTS: 1 REF: p. 324 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

16. Of the following, which is NOT a disadvantage of making? a. The firm has less control over quality. b. It requires the company to have expertise in the production of the component or raw materials what will be made. c. The people producing the component or raw material do not have the incentive to improve their product. d. The firm may not be able to gain the economies of scale that can be gained by a supplier that is able to pool the activity of a large number of firms. e. The firm would incur both fixed and variable costs.

ANS: A PTS: 1 REF: p. 325 OBJ: LO: 13-03 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

17. Of the following, which is NOT a consideration for the one-versus-many production facilities decision? a. Fixed costs b. The notion of the minimum efficient scale and its comparison to demand c. The local culture d. The value-to-weight ratio e. The infrastructure that the company offers ANS: C PTS: 1 REF: p. 326 OBJ: LO: 13-04 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

18. The management of all activities in the supply chain, in order to minimize the total cost of the supply chain, and to maximize the value of the product to the end user is known as _____. a. a telecommunication network b. internetworking c. enterprise resource planning d. supply chain e. supply-chain management ANS: E PTS: 1 REF: p. 329 OBJ: LO: 13-05 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

19. The supply chains of global businesses such as Boeing, Ford, United Airlines, and the pharmaceutical companies Merck and Pfizer are known as _____ supply chains. a. environmental b. global c. enterprise d. telecommunication e. multi-national

ANS: B PTS: 1 REF: p. 329 OBJ: LO: 13-05 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Application

20. Collections of computer hardware and software arranged to transmit information from one place to another are known as _____. a. telecommunication networks b. global networks c. enterprise networks d. internetworking networks e. multi-national networks ANS: A PTS: 1 REF: p. 330 OBJ: LO: 13-05 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

21. Software packages designed to integrate the majority of a firm’s business processes, execute all transactions related to the firm’s business processes being integrated, store each piece of data only once in an enterprise-wide database, allow access to data and information in real time, and operate in a client-server environment are called_____. a. telecommunication networks b. global networks c. enterprise resource planning systems d. internetworking networks e. multi-national networks ANS: C PTS: 1 REF: p. 330 OBJ: LO: 13-05 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

22. _____ refers to the property of ERP systems to simultaneously operate in multiple languages. a. Multi-language b. Multi-national c. Multi-currency d. Multi-enterprise e. Multi-culture ANS: A PTS: 1 REF: p. 332 OBJ: LO: 13-05 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

23. World Talk is a company that sells an ERP system which can simultaneously operate in more than 18 languages. When the user launches the ERP system, he or she has the option of selecting the language in which he or she will interact with the system. This ERP system is _____. a. multi-language b. multi-national c. multi-currency d. multi-enterprise

e. multi-culture ANS: A PTS: 1 REF: p. 332 OBJ: LO: 13-05 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

24. Ford’s ERP system follows the American accounting standards in its U.S. subsidiaries, and follows the Mexican accounting standards in its Mexico subsidiaries. This ERP system is _____. a. multi-language b. multi-national c. multi-currency d. multi-enterprise e. multi-culture ANS: B PTS: 1 REF: p. 332 OBJ: LO: 13-05 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Application

25. The production process may consist of one or more transformations which could be all of the following EXCEPT: a. physical b. locational c. psychological d. esteem e. physiological ANS: D PTS: 1 REF: p. 316-317 OBJ: LO: 13-01 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

26. ______ is responsible for the acquisition of goods and services in the production process. a. Procurement b. Logistics c. Production d. Research and development e. Selling ANS: A PTS: 1 REF: p. 318 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

27. Which of these is responsible for the transformations required by the production process? a. Procurement b. Logistics c. Production d. Research and development e. Selling ANS: C REF: p. 318

PTS: 1 OBJ: LO: 13-02

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

STA: DISC: Operations Management

KEY: Bloom's: Knowledge

28. Which of these is responsible for the movement of materials in the production process? a. Procurement b. Logistics c. Production d. Research and development e. Selling ANS: B PTS: 1 REF: p. 318 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

29. ______ is responsible for the design of new products in the production process. a. Procurement b. Logistics c. Production d. Research and development e. Selling ANS: D PTS: 1 REF: p. 318 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

30. ______ refers to the management of the direct resources that are involved in the production system of a business organization. a. Procurement management b. Operations management c. Logistics management d. Research and development e. Marketing management ANS: B PTS: 1 REF: p. 318 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

31. Toddler Toys operates a massive research and development facility in Missouri, USA. The company designs its toys in the United States but outsources all other production process functions. Toddler Toys can be described as a a. dual outsourcing company. b. hollow corporation. c. global manufacturer. d. offshored powerhouse. e. None of these.

ANS: E PTS: 1 REF: p. 322 OBJ: LO: 13-02 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Reflective Thinking KEY: Bloom's: Application

32. Microchips and jewelry are examples of goods with a. low fixed costs.

b. c. d. e.

no minimum efficient scale. low value-to-weight ratio. highly wasted fixed costs in location decision. high value-to-weight ratio.

ANS: E PTS: 1 REF: p. 326 OBJ: LO: 13-04 STA: DISC: Operations Management

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

COMPLETION 1. A ______ is a system that businesses use to create the goods and services, or to produce the products.

ANS: production system PTS: 1 DIF: Difficulty: Easy REF: p. 316 OBJ: LO: 13-01 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 2. When the goods dominate the value of the product, the production system is typically called a ________.

ANS: manufacturing system PTS: 1 DIF: Difficulty: Easy REF: p. 316 OBJ: LO: 13-01 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 3. When the services dominate the value of the product, the production system is commonly called a __________.

ANS: service system PTS: 1 DIF: Difficulty: Easy REF: p. 316 OBJ: LO: 13-01 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 4. The sites where production takes place are called __________.

ANS: production facilities PTS: 1 DIF: Difficulty: Easy REF: p. 317 OBJ: LO: 13-01 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 5. Products can be conceptualized as being integrated by several goods and services called __________.

ANS: components PTS: 1 DIF: Difficulty: Moderate REF: p. 317 OBJ: LO: 13-01 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 6. Materials used to produce components are called __________.

ANS: raw materials PTS: 1 DIF: Difficulty: Easy REF: p. 317 OBJ: LO: 13-01 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 7. Steps in the production process are called __________.

ANS: production stages PTS: 1 DIF: Difficulty: Easy REF: p. 318 OBJ: LO: 13-01 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 8.

__________ refers to the management of the direct resources that are involved in the production system of a business organization.

ANS: Operations management PTS: 1 DIF: Difficulty: Moderate REF: p. 318 OBJ: LO: 13-01 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge

9. Determining in the production system which components and raw materials should be produced in-house, and which components and raw materials should be acquired from suppliers; also called the sourcing decision is referred to as __________.

ANS: make-or-buy decision PTS: 1 DIF: Difficulty: Moderate REF: p. 319 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 10. __________ occurs when a firm buys components and raw materials globally.

ANS: Global procurement PTS: 1 DIF: Difficulty: Easy REF: p. 319 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge

11. __________ occurs when a firm has production facilities in more than one country.

ANS: Global production PTS: 1 DIF: Difficulty: Easy REF: p. 319 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 12. __________ occurs when a firm has been making goods and services in-house, and then decides to buy these goods and services from suppliers.

ANS: Outsourcing PTS: 1 DIF: Difficulty: Easy REF: p. 321 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 13. __________ occurs when the firm doing the outsourcing and the supplier that will provide the outsourced goods and services are located in the same country.

ANS: Domestic outsourcing PTS: 1 DIF: Difficulty: Moderate REF: p. 321 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 14. __________ occurs when the firm doing the outsourcing and the supplier that will provide the outsourced goods and services are located in different countries; also called offshoring.

ANS: Global outsourcing PTS: 1 DIF: Difficulty: Easy REF: p. 321 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 15. __________ occurs when a firm is outsourcing to a supplier located in a different country.

ANS: Offshoring PTS: 1 DIF: Difficulty: Easy REF: p. 321 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 16. __________ occurs when the firm has been buying goods and services from suppliers, and then decides to make these goods and services in-house.

ANS: Insourcing PTS:

1

DIF:

Difficulty: Easy

REF: p. 322

OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 17. A company that only completes product design and outsources all other production process functions is called a __________.

ANS: hollow corporation PTS: 1 DIF: Difficulty: Easy REF: p. 322 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 18. __________ occurs when components and raw materials are produced in-house and purchased from suppliers.

ANS: Dual sourcing PTS: 1 DIF: Difficulty: Moderate REF: p. 325 OBJ: LO: 13-03 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 19. Determining if products made in-house will be produced in one or more facilities, and if these facilities should be located in one or more countries is called __________.

ANS: location decision PTS: 1 DIF: Difficulty: Moderate REF: p. 326 OBJ: LO: 13-04 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 20. __________ refers to all activities associated with the flow and transformation of goods and services from the raw material stage to the end user, together with the corresponding flows of monetary funds and information.

ANS: Supply chain PTS: 1 DIF: Difficulty: Moderate REF: p. 329 OBJ: LO: 13-05 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 21. __________ refers to the management of all activities in the supply chain, in order to minimize the total cost of the supply chain, and to maximize the value of the product to the end user.

ANS: Supply-chain management PTS: 1 DIF: Difficulty: Easy REF: p. 329 OBJ: LO: 13-05 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge

22. __________ refers to collections of computer hardware and software arranged to transmit information from one place to another.

ANS: telecommunication networks PTS: 1 DIF: Difficulty: Easy REF: p. 330 OBJ: LO: 13-05 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 23. __________ refers to the linking of separate networks into an interconnected network, where each network retains its own identity.

ANS: Internetworking PTS: 1 DIF: Difficulty: Easy REF: p. 330 OBJ: LO: 13-05 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 24. __________ refers to software packages designed to integrate the majority of a firm’s business processes, execute all transactions related to the firm’s business processes being integrated, store each piece of data only once in an enterprise-wide database, allow access to data and information in real time, and operate in a client-server environment, traditional or web-based.

ANS: Enterprise resource planning (ERP) systems Enterprise resource planning systems ERP systems PTS: 1 DIF: Difficulty: Moderate REF: p. 330 OBJ: LO: 13-05 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 25. __________ refers to a property of ERP systems to simultaneously operate in multiple languages.

ANS: Multi-language PTS: 1 DIF: Difficulty: Easy REF: p. 332 OBJ: LO: 13-05 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 26. __________ refers to a property of ERP systems to handle the accounting standards of multiple countries.

ANS: Multi-national PTS:

1

DIF:

Difficulty: Easy

REF: p. 332

OBJ: LO: 13-05 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 27. __________ refers to a property of ERP systems to handle multiple currencies.

ANS: Multi-currency PTS: 1 DIF: Difficulty: Easy REF: p. 332 OBJ: LO: 13-05 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge ESSAY 1. Differentiate between manufacturing and service system. Describe a typical production system using a company.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 316-317 OBJ: LO: 13-01 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Comprehension 2. Describe the advantages and disadvantages of global procurement.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 319-321 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Comprehension 3. Differentiate between outsourcing and insourcing using a company example.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 321-322 OBJ: LO: 13-02 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Comprehension 4. Identify the advantages and disadvantages of making components and raw materials in-house.

ANS: Student answers will vary.

PTS: 1 OBJ: LO: 13-03

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

REF: p. 324-325

STA: DISC: Operations Management

KEY: Bloom's: Knowledge

5. Discuss the considerations for the location of production facilities for making components and raw materials.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 326-327 OBJ: LO: 13-04 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Knowledge 6. “Fortunately, ERP does not affect global supply chain management.” Do you agree with this statement. Defend your position.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 330-333 OBJ: LO: 13-05 NAT: BUSPROG: Analytic STA: DISC: Operations Management KEY: Bloom's: Analysis CASE Scenario – Ardella Enterprises Twenty years ago two people from New Jersey, USA had a dream of building a superior company that would have global operations with an unparalleled supply chain. The idea took root and Ardella Enterprises was born. This company conducts operations across four continents. It has earned a reputation for prompt deliveries, accurate shipments, and exemplary customer service. This partnership is quickly taking the lead in the industry and is contemplating further expansion. Ardella Enterprises grossed over $11 billion last year.

Its plan for additional expansion and growing Internet influence is projected to increase sales by two billion dollars within the first year.

1. Ardella Enterprises is renowned for its operations management otherwise described as the management of the direct resources involved in the production system of the company.

Which one of the following would not be considered a business function associated with the activities of operations management? a. Production b. Logistics c. Procurement d. Dual sourcing e. Research and development ANS: d PTS:

1

DIF:

Difficulty: Easy

REF: p. 318

OBJ: LO: 13-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Operations Management KEY: Bloom's: Evaluation 2. Ardella Enterprises acknowledges the importance of its supply chain. It knows that the company’s operations would not be as successful if the supply chain was less effective.

Which one of the following is not related to a company’s supply chain and its functions? a. The activities of the supply chain are associated with the transformation of goods from raw material to end user. b. Effective supply chain management will minimize total costs. c. Supply chain management involves maximizing the value of the product to the final user. d. Management of the supply chain requires adherence to stiff environmental standards. e. A company’s supply chain encompasses all activities associated with the flows of monies and information.

ANS: d PTS: 1 DIF: Difficulty: Moderate REF: p. 329 OBJ: LO: 13-05 NAT: BUSPROG: Reflective Thinking STA: DISC: Operations Management KEY: Bloom's: Analysis 3. Which one of the following would describe Ardella Enterprises if it would decide to only complete the product’s design and outsource all the other production process functions? a. A hollow corporation b. An insourcing firm c. An international development association d. An outsourcing corporation e. A production system ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 322 OBJ: LO: 13-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Operations Management KEY: Bloom's: Evaluation Scenario – Jenkins and Jones Corporation Michael Jenkins and Emma Jones started the Jenkins and Jones Corporation in 1976 in Kansas, USA. The initial goal of this company was to serve customers throughout the United States. Since the company’s inception it has grown at an outstanding rate. It now serves online customers as well as customers in ten foreign nations. Jenkins and Jones is now looked at as the industry’s benchmark company due to its superior supply chain management skills. Its practices and techniques are used by many other organizations in the industry to improve their own supply chain management skills.

4. As the Jenkins and Jones Corporation continues to grow, it will face the need to make more and more strategic decisions. Which one of the following best describes the corporation if it decides to make purchase globally versus domestically? a. Global proliferation b. Global procurement c. Domestic outsourcing d. Global production e. Enterprise resource planning ANS: b PTS: 1 DIF: Difficulty: Moderate REF: p. 319 OBJ: LO: 13-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Operations Management KEY: Bloom's: Analysis 5. If Jenkins and Jones would decide to maintain its product production on a domestic basis, there would be certain advantages the company could expect from making this decision.

Which one of the following would not be considered an advantage of domestic production? a. Better control over costs b. Better control over quality c. Do not have to face competition d. Better control over deliveries e. Knowledge of the product provides efficiency advantages ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 324-325 OBJ: LO: 13-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Operations Management KEY: Bloom's: Evaluation 6. As the Jenkins and Jones Corporation continues to grow and expand, one of the strategic decisions it must face is that of location of its facilities. Which one of the following does not relate to the problem of location? a. Minimum efficient scale in comparison to demand b. Value-to-weight ratio c. Fixed costs d. Factor endowments of countries e. Number of Internet users ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 326 OBJ: LO: 13-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Operations Management KEY: Bloom's: Evaluation

Chapter 14: Global Financial Management TRUE/FALSE 1. The two types of short-term effects on currency movements are transactions risk and transformational risk.

ANS: F PTS: 1 REF: p. 340 OBJ: LO: 14-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. Consolidated accounting statements consist of income statements and balance sheets of multinational corporations including all subsidiaries abroad and are due to the IMF’s special drawing right.

ANS: F PTS: 1 REF: p. 341 OBJ: LO: 14-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

3. Marked-to-market involves the trading of futures contracts in major currencies and offering price transparency and efficiency in addition to elimination of counterparty risk due to guaranteed payments on contract.

ANS: F PTS: 1 REF: p. 342 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

4. Marked-to-market refers to futures contracts in which gains are earned in cash at the end of each trading day.

ANS: T PTS: 1 REF: p. 342 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

5. If losses occur causing a market participant’s balance to fall below the maintenance margin at the end of the trading day, a margin premium occurs that requires the bank to replenish the investor’s trading account.

ANS: F PTS: 1 REF: p. 343 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

6. Currency swaps allow firms to exchange currencies at a previously agreed exchange rate as a way to hedge exchange rate movements.

ANS: T PTS: 1 REF: p. 345 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

7. An interest rate swap, often combined with a currency swap when the interest being swapped is in different currencies, is called a syndicate swap.

ANS: F PTS: 1 REF: p. 346 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

8. Clearing House Interbank Payment System (CHIPS) is an organization that provides secure communication for contracts, invoices, and other trade documents that normally accompany cash payments.

ANS: F PTS: 1 REF: p. 347 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

9. Moody’s and Standard and Poor’s provide bond ratings which are important in assuring the credit quality to foreign investors.

ANS: T PTS: 1 REF: p. 348 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

10. A group of banks that collectively make a loan to a firm is called a hedge.

ANS: F PTS: 1 REF: p. 348 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

11. Bonds that are sold in any country outside the home country, but in the home country’s currency, are called government bonds.

ANS: F PTS: 1 REF: p. 349 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

12. On October 19, 1987 (Black Monday) stock prices in Hong Kong began collapsing and spread throughout the day into the Europe and then North America. This is an example of contagion.

ANS: T PTS: 1 REF: p. 352 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

13. Bank and government loans used by exporters to finance working capital are called trade financing.

ANS: T REF: p. 355

PTS: 1 OBJ: LO: 14-03

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity

STA: DISC: Environmental Influence

KEY: Bloom's: Comprehension

14. The cost of equity is required rate of return by stockholders in a firm and is estimated by means of the Capital Asset Pricing Model (CAPM).

ANS: T PTS: 1 REF: p. 358 OBJ: LO: 14-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

15. The sensitivity of a stock to market risk affected by currency movements is called the weighted average cost of capital.

ANS: F PTS: 1 REF: p. 361 OBJ: LO: 14-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

MULTIPLE CHOICE 1. The impact of random change in the value of one currency with respect to other currencies is called the _____. a. transactions risk b. exchange rate risk c. economic risk d. consolidated risk e. accounting risk ANS: B PTS: 1 REF: p. 340 OBJ: LO: 14-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

2. Two kinds of short-term effects of currency movements are _____ risk and _____ risk. a. transactions; translation b. transactions; exchange rate c. economic; translation d. consolidated; economic e. accounting; translation ANS: A PTS: 1 REF: p. 340 OBJ: LO: 14-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

3. _____ risk arises from the import and export of goods and services. a. Transactions b. Translation c. Economic d. Consolidated e. Accounting ANS: A REF: p. 341

PTS: 1 OBJ: LO: 14-01

DIF: Difficulty: Easy NAT: BUSPROG: Diversity

STA: DISC: Environmental Influence

KEY: Bloom's: Knowledge

4. _____ risk refers to the ways in which long-term exchange rate movements affect firms. a. Transactions b. Translation c. Economic d. Consolidated e. Accounting ANS: C PTS: 1 REF: p. 341 OBJ: LO: 14-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

5. A basket of currencies consisting of dollars, euros, pounds, and yen created by the International Monetary Fund is known as the _____. a. Trade Right b. Value Factor Right c. Currency Right d. Export-Import Right e. Special Drawing Right ANS: E PTS: 1 REF: p. 341 OBJ: LO: 14-01 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

6. Using currency derivatives to reduce potential transaction, translation, and economic risks of currency movements that could lead to losses for a firm or investor is called_____. a. hedging b. speculating c. a short position d. an organized exchange position e. a marked-to-market position ANS: A PTS: 1 REF: p. 342 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

7. Buying a currency in a currency futures contract and profiting on an increase in the value of the currency over time is called _____. a. hedging b. syndicating c. a short position d. a long position e. marked-to-market ANS: D PTS: 1 REF: p. 342 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

8. Selling a currency in a currency futures contract and profiting on a decrease in the value of the currency over time is called _____.

a. b. c. d. e.

hedging syndicating a short position a long position marked-to-market exchange position

ANS: C PTS: 1 REF: p. 342 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

9. A small commitment fee needed to purchase a futures contract is called a _____. a. margin b. speculator c. short position d. long position e. marked-to-market ANS: A PTS: 1 REF: p. 343 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

10. Losses that are incurred and that cause the participant’s balance to fall below the maintenance margin at the end of the trading day is called a _____. a. margin sell b. margin call c. short position d. long position e. marked-to-market ANS: B PTS: 1 REF: p. 343 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

11. Futures contracts available in currencies of emerging-market countries by large banks in the OTC market are called _____. a. margin contracts b. margin call contracts c. currency forward contracts d. organized exchanges e. marked-to-market exchanges ANS: C PTS: 1 REF: p. 344 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

12. A derivatives market run by large banks is called a(n) _____. a. margin contract b. over-the-counter market c. currency forward contracts d. organized exchanges e. marked-to-market

ANS: B PTS: 1 REF: p. 344 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

13. The price paid by the buyer to the seller for an option contract is called a(n) _____. a. call option b. put option c. premium d. currency swap e. marked-to-market ANS: C PTS: 1 REF: p. 345 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

14. _____ allow firms to exchange currencies at a previously agreed exchange rate as a way to hedge exchange rate movements. a. Call options b. Put options c. Premiums d. Currency swaps e. Marked-to-market ANS: D PTS: 1 REF: p. 345 OBJ: LO: 14-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Comprehension

15. Of the following, which is NOT true about international banking and payments? a. Payment in advance is the safest method. b. Payment in advance does not expose the importer to some risk concerning delivery of the goods. c. A commercial letter of credit offers payment protection to both parties. d. A commercial letter of credit is usually irrevocable. e. An open account is a simple agreement wherein the exporter sends an invoice with the goods and the exporter pays upon the receipt.

ANS: B PTS: 1 REF: p. 348 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

16. The safest method available to an exporter, but that which exposes the importer to some risk related to delivery of goods, is called _____. a. payment in advance b. a commercial letter of credit c. a banker’s acceptance d. a syndicate e. a bond rating ANS: A REF: p. 348

PTS: 1 OBJ: LO: 14-03

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity

STA: DISC: Environmental Influence

KEY: Bloom's: Knowledge

17. _____ offers payment protection to both exporters and importers, as the importer’s bank writes a guarantee of payment. a. Payment in advance b. A commercial letter of credit c. A banker’s acceptance d. A syndicate e. A bond rating ANS: B PTS: 1 REF: p. 348 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

18. When a bank sells a LC into the financial marketplace as a money market instrument, it is called a(n) _____. a. payment in advance b. commercial letter of credit c. banker’s acceptance d. syndicate e. bond rating ANS: C PTS: 1 REF: p. 348 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

19. A simple agreement wherein the exporter sends an invoice with the goods and the exporter pays upon the receipt is called a(n) _____. a. open account b. commercial letter of credit c. banker’s acceptance d. syndicate e. bond rating ANS: A PTS: 1 REF: p. 348 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

20. Debt contracts sold by firms domiciled in a country in the home currency are called _____. a. open account b. commercial letter of credit c. banker’s acceptance d. domestic bonds e. bond rating ANS: D PTS: 1 REF: p. 348 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

21. Bonds that are issued by foreign firms in another country in the home currency of that country are called _____.

a. b. c. d. e.

open account commercial letter of credit foreign bonds domestic bonds bond ratings

ANS: C PTS: 1 REF: p. 348 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

22. Bonds that are sold in any country outside the home country, but in the home country’s currency, are called _____. a. closed b. foreign c. domestic d. Eurobond e. syndicate ANS: D PTS: 1 REF: p. 349 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

23. Buying securities in a portfolio with price patterns over time that are different from one another, which reduces the volatility of the portfolio, is called _____. a. diversification b. sensitivity c. domestication d. speculation e. syndication ANS: A PTS: 1 REF: p. 351 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

24. On October 19, 1987, stock prices in Hong Kong began collapsing and spread throughout the day into Europe and then North America as their stock markets opened for trading.

Within one week, Hong Kong fell 46 percent, Australia 42 percent, the U.S. 23 percent, and Canada 23 percent. This is an example of an event called _____. a. diversification b. sensitivity c. domestication d. speculation e. contagion ANS: E PTS: 1 REF: p. 352 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Application

25. Of the following, which is NOT true about the IMF and World Bank? a. They were established in 1890. b. Their purposes are to promote international monetary stability and international

trade. c. The IMF provides short-term loans to countries in financial crises. d. More than 180 countries participate as members of the IMF. e. The World Bank focuses upon long-term loans to developing countries seeking financing for economic reform purposes intended to raise the standard of living.

ANS: A PTS: 1 REF: p. 353 OBJ: LO: 14-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

26. The required rate of return demanded by stock and bond investors and used in net present value capital budgeting analyses as the discount rate is called the _____. a. net present value b. cost of debt c. cost of equity d. cost of capital e. exchange risk beta ANS: D PTS: 1 REF: p. 358 OBJ: LO: 14-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

27. The weighted average of different interest rates paid on long-term borrowings is called the _____. a. net present value b. cost of debt c. cost of equity d. cost of capital e. exchange risk beta ANS: B PTS: 1 REF: p. 358 OBJ: LO: 14-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

28. Whether a firm has growth or value and how this firm characteristic affects an estimate of the cost of equity is called the _____. a. net present value b. value factor c. cost of equity d. cost of capital e. beta risk ANS: B PTS: 1 REF: p. 359 OBJ: LO: 14-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

29. A stock value measured with the coefficient obtained by regressing the stock’s return on a currency’s return over time is known as the _____. a. net present value b. value factor c. exchange rate sensitivity

d. cost of capital e. beta risk ANS: C PTS: 1 REF: p. 361 OBJ: LO: 14-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

30. The sensitivity of a stock to market risk affected by currency movements is known as the _____. a. net present value b. value factor c. exchange rate sensitivity d. cost of capital e. exchange risk beta ANS: E PTS: 1 REF: p. 361 OBJ: LO: 14-05 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

COMPLETION 1. How short-term changes in exchange rates can affect operating costs and revenues of firms engaged in international business activities is referred to as ________ risks.

ANS: transactions PTS: 1 DIF: Difficulty: Moderate REF: p. 341 OBJ: LO: 14-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 2. The _____ risk refers to the impact of random change in the value of one currency with respect to other currencies.

ANS: exchange rate PTS: 1 DIF: Difficulty: Moderate REF: p. 340 OBJ: LO: 14-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 3. The short- term effects of currency movements on the consolidated accounting statements of a firm represents a ______ risk.

ANS: translation PTS: 1 DIF: Difficulty: Moderate REF: p. 341 OBJ: LO: 14-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

4. _______ accounting statements are the income statements and balance sheets of multinational corporations and of all subsidiaries abroad due to home tax requirements.

ANS: Consolidated PTS: 1 DIF: Difficulty: Moderate REF: p. 341 OBJ: LO: 14-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 5. _______ risks are the ways in which long-term exchange rate movements impact firms.

ANS: Economic PTS: 1 DIF: Difficulty: Moderate REF: p. 341 OBJ: LO: 14-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 6. __________ refers to a basket of currencies consisting of dollars, euros, pounds, and yen created by the International Monetary Fund (IMF).

ANS: Special drawing right (SDR) Special drawing right SDR PTS: 1 DIF: Difficulty: Moderate REF: p. 341 OBJ: LO: 14-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 7. ________ is the practice of using currency derivatives to reduce potential transaction, translation, and economic risks of currency movements that could lead to losses for a firm or investor.

ANS: Hedging PTS: 1 DIF: Difficulty: Moderate REF: p. 342 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 8. Attempts in currencies and currency derivatives to earn profits from trading them and help to make prices efficient are referred to as _______.

ANS: speculators PTS: 1 DIF: Difficulty: Moderate REF: p. 342 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

9. Standardized agreements to buy or sell a specified amount of currency at a date in the future at a pre-determined price are called _________.

ANS: currency future contracts PTS: 1 DIF: Difficulty: Moderate REF: p. 342 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 10. The buying of a currency in a currency futures contract and profiting on an increase in the value of the currency over time is called taking a _______.

ANS: long position PTS: 1 DIF: Difficulty: Moderate REF: p. 342 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 11. _______ refers to selling a currency in a currency futures contract and profiting on a decrease in the value of the currency over time ANS: Short position PTS: 1 DIF: Difficulty: Moderate REF: p. 342 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 12. The trading of futures contracts in major currencies and offering price transparency and efficiency in addition to elimination of counterparty risk due to guaranteed payments on contacts is called _______.

ANS: organized exchanges PTS: 1 DIF: Difficulty: Moderate REF: p. 342 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 13. ______ refers to futures contracts in which gains or losses are earned in cash at the end of each trading day.

ANS: Marked-to-market PTS: 1 DIF: Difficulty: Moderate REF: p. 342 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 14. The small commitment fee needed to purchase a futures contract is a ______.

ANS: margin

PTS: 1 DIF: Difficulty: Moderate REF: p. 343 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 15. ______ refers to losses that are incurred and that cause the participant’s balance to fall below the maintenance margin at the end of the trading day.

ANS: Margin call PTS: 1 DIF: Difficulty: Moderate REF: p. 343 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 16. Futures contracts available in currencies of emerging-market countries by large banks in the OTC market refers to _____.

ANS: currency forward contracts PTS: 1 DIF: Difficulty: Moderate REF: p. 344 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 17. Derivatives market run by large banks refers to _____.

ANS: over-the-counter (OTC) market over-the-counter market OTC market PTS: 1 DIF: Difficulty: Moderate REF: p. 344 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 18. ______ refers to an investor’s right to buy an asset at a pre-determined price.

ANS: Call option PTS: 1 DIF: Difficulty: Moderate REF: p. 345 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 19. ______ refers to an investor’s right to sell an asset at a pre-determined price.

ANS: Put option PTS: 1 DIF: Difficulty: Moderate REF: p. 345 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

20. The price paid by the buyer to the seller for an option contract refers to the _____.

ANS: premium PTS: 1 DIF: Difficulty: Moderate REF: p. 345 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 21. ______ allow firms to exchange currencies at a previously agreed exchange rate as a way to hedge exchange rate movements.

ANS: Currency swaps PTS: 1 DIF: Difficulty: Moderate REF: p. 345 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 22. ______ refers to an interest rate swap, often combined with a currency swap, if the interest being swapped is in different currencies.

ANS: Plain vanilla currency swap PTS: 1 DIF: Difficulty: Moderate REF: p. 346 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 23. Large global banks are called _______ banks.

ANS: money center PTS: 1 DIF: Difficulty: Easy REF: p. 347 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 24. ______ is an organization in New York City that provides large, wholesale dollar payments services for businesses, banks, and governments.

ANS: CHIPS (Clearing House Interbank Payments System) CHIPS Clearing House Interbank Payments System PTS: 1 DIF: Difficulty: Moderate REF: p. 347 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 25. ______ is an organization that provides secure communications for contracts, invoices, and other trade documents that normally accompany cash payments.

ANS: SWIFT (Society of Worldwide Interbank Financial Telecommunications) SWIFT Society of Worldwide Interbank Financial Telecommunications PTS: 1 DIF: Difficulty: Moderate REF: p. 347 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 26. _______ is the safest method available to an exporter, but that which exposes the importer to some risk related to delivery of goods.

ANS: Payment in advance PTS: 1 DIF: Difficulty: Moderate REF: p. 348 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 27. Payment protection to both exporters and importers, as the importer’s bank writes a guarantee of payment refers to ______.

ANS: commercial letter of credit (LC) commercial letter of credit LC PTS: 1 DIF: Difficulty: Moderate REF: p. 348 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 28. When a bank sells a LC into the financial marketplace as a money market instrument, this is called ______.

ANS: banker’s acceptance PTS: 1 DIF: Difficulty: Moderate REF: p. 348 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 29. ______ is a simple agreement wherein the exporter sends an invoice with the goods and the exporter pays upon their receipt.

ANS: Open account PTS: 1 DIF: Difficulty: Moderate REF: p. 348 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

30. _____ refers to a group of banks that collectively make a loan to a firm.

ANS: Syndicate PTS: 1 DIF: Difficulty: Moderate REF: p. 348 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 31. Moody’s and Standard and Poor’s rating services, which are important in assuring foreign investors of the credit quality of bond issues, refers to _____.

ANS: bond ratings PTS: 1 DIF: Difficulty: Moderate REF: p. 348 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 32. ______ are debt contracts sold by firms domiciled in a country in the home currency.

ANS: Domestic bonds PTS: 1 DIF: Difficulty: Moderate REF: p. 348 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 33. ______ are bonds that are issued by foreign firms in another country in the home currency of that country.

ANS: Foreign bonds PTS: 1 DIF: Difficulty: Moderate REF: p. 348 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 34. ______ are bonds that are sold in any country outside the home country, but in the home country’s currency.

ANS: Eurobonds PTS: 1 DIF: Difficulty: Moderate REF: p. 349 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 35. Buying securities in a portfolio with price patterns over time that are different from one another, which reduces the volatility of the portfolio, refers to _____.

ANS: diversification PTS:

1

DIF:

Difficulty: Moderate

REF: p. 351

OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 36. ______ refers to investing most of retirement and other savings in one’s home country, which reduces diversification.

ANS: Home bias PTS: 1 DIF: Difficulty: Moderate REF: p. 351 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 37. ______ refers to when stock markets in many countries move down in concert with one another and thereby reduce international diversification benefits.

ANS: Contagion PTS: 1 DIF: Difficulty: Moderate REF: p. 352 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 38. ______ is a U.S. government export finance agency that supports U.S. firms competing against exports of other countries that are government supported.

ANS: Export-Import (Ex-Im) Bank Export-Import Bank Ex-Im Bank PTS: 1 DIF: Difficulty: Moderate REF: p. 355 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 39. Bank and government loans used by exporters to finance working capital refers to ______.

ANS: trade finance PTS: 1 DIF: Difficulty: Moderate REF: p. 355 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 40. Bank and government loans to importers to cover the cost of major purchases refers to _____.

ANS: term financing PTS: 1 DIF: Difficulty: Moderate REF: p. 355 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

41. ______ is a Japanese bank that supports exporters around the world that have at least 30 percent Japanese content.

ANS: Bank of International Cooperation (JBIC) Bank of International Cooperation JBIC PTS: 1 DIF: Difficulty: Moderate REF: p. 355 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 42. The _____ is the difference between present value of futures profits on an investment project minus the initial investment cost.

ANS: net present value PTS: 1 DIF: Difficulty: Moderate REF: p. 356 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 43. The uncertainty in predicting how a variety of different factors will affect an investment in a country, including political risk, economic risk, inflation risk, tax risk, etc., refers to ______.

ANS: country risk PTS: 1 DIF: Difficulty: Moderate REF: p. 357 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 44. ______ is an examination of optimistic, expected, and pessimistic scenarios to give a more complete picture of the risks and returns of investments abroad.

ANS: Sensitivity analysis PTS: 1 DIF: Difficulty: Moderate REF: p. 357 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 45. The ______ is the required rate of return demanded by stock and bond investors and is used in net present value capital budgeting analyses as the discount rate.

ANS: cost of capital PTS: 1 DIF: Difficulty: Moderate REF: p. 358 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge

46. The sum of the costs of equity and debt weighted by the amount of financing from these two capital sources is the ______.

ANS: weighted average cost of capital PTS: 1 DIF: Difficulty: Moderate REF: p. 358 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 47. The ______ is the weighted average of different interest rates paid on long-term borrowings.

ANS: cost of debt PTS: 1 DIF: Difficulty: Moderate REF: p. 358 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 48. _____ is the required rate of return by stockholders in a firm and is estimated by means of the Capital Asset Pricing Model (CAPM).

ANS: Cost of equity PTS: 1 DIF: Difficulty: Moderate REF: p. 358 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 49. _____ is a measurement of the general market risk of a stock in the Capital Asset Pricing Model (CAPM).

ANS: Beta risk PTS: 1 DIF: Difficulty: Moderate REF: p. 359 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 50. ______ is an asset pricing model that includes both domestic and global market factors to estimate the cost of equity or required rate of return on stocks.

ANS: International CAPM (ICAPM) International CAPM ICAPM PTS: 1 DIF: Difficulty: Moderate REF: p. 359 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 51. Whether a firm is small or large and how this size provides an estimate of the cost of equity refers to the ______.

ANS: size factor PTS: 1 DIF: Difficulty: Moderate REF: p. 359 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 52. Whether a firm has growth or value and how this firm characteristic provides an estimate of the cost of equity refers to the ______.

ANS: value factor PTS: 1 DIF: Difficulty: Moderate REF: p. 359 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 53. ______ is a coefficient obtained by regressing a stock’s return on a currency’s return over time.

ANS: Exchange rate sensitivity PTS: 1 DIF: Difficulty: Moderate REF: p. 361 OBJ: LO: 14-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge 54. ______ is the sensitivity of a stock to market risk affected by currency movements.

ANS: Exchange risk beta PTS: 1 DIF: Difficulty: Moderate REF: p. 361 OBJ: LO: 14-05 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Knowledge ESSAY 1. Differentiate between transaction and translation risks. Explain how these risks affect firms and investors.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 340-341 OBJ: LO: 14-01 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 2. Differentiate between futures contract and forward contract. Provide an example of each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 342-344 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. Describe the options and swaps contract in hedging the forex risks. Provide an example of each.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 345-346 OBJ: LO: 14-02 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Comprehension 4. Differentiate between the three types of bonds.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 348-351 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 5. Briefly discuss the sources of funds to finance international trade and investment.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 347-355 OBJ: LO: 14-03 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Analysis 6. Explain the domestic versus global cost of capital.

ANS: Student answers will vary.

PTS: 1 DIF: Difficulty: Challenging REF: p. 358-359 OBJ: LO: 14-04 NAT: BUSPROG: Diversity STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 7. Does exchange rate risk affect firms’ cash flows and its stock value? Explain.

ANS: Student answers will vary.

PTS: 1 OBJ: LO: 14-05

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity

REF: p. 360-362

STA: DISC: Environmental Influence

KEY: Bloom's: Evaluation

CASE Scenario – Aero, Inc. Aero, Inc. started from the idea of Brad Aerostle of Madison, South Dakota in 1992. Brad earned a financial degree from Harvard and had watched the financial markets for years.

Armed with college credentials and knowledge, he believed he could offer needed services to individuals and companies desiring to conduct business around the globe. From the minute Brad put his idea into motion, his brainchild – Aero, Inc. – proved quite profitable.

Aero, Inc. currently has over five thousand clients ranging from slightly wealthy individuals to very rich and thriving corporations around the world. Brad’s skill at what he does has made his company a sought out firm by those who want to prosper in the foreign marketplace.

1. Aero, Inc. likes to make its customers aware of what is taking place within the global financial world. One of the lessons it imparts to its clients is about the International Monetary Fund’s special drawing right. Which of the following best identifies what Aero, Inc. would be discussing with its clients? a.

The short-term effects of currency movements on the consolidated accounting statements of a firm b.

The ways in which long-term exchange rate movements affect firms c.

Buying a currency in a currency futures contract and profiting on an increase in the value of the currency over time d.

The Global Center for Financial Restructuring e.

A basket of currencies consisting of dollars, euros, pounds, and yen ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 341 OBJ: LO: 14-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 2. When Aero, Inc. recommends purchasing futures contracts to its clients, it always informs the clients of the rather small commitment fee that is needed to purchase a futures contract.

Which one of the following best identifies what this fee is called? a.

Weighted average cost of capital b.

Margin c.

Put option d.

Beta risk e.

Margin call ANS: b

PTS: 1 DIF: Difficulty: Moderate REF: p. 343 OBJ: LO: 14-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis 3. One of the prominent concerns the clients of Aero, Inc. express is that of currency fluctuations. The clients know fluctuations in currency can wind up costing them money.

Aero, Inc. alleviates its clients concern by suggesting the client enter into a situation where currencies can be exchanged at a previously agreed exchange rate as a way to hedge exchange rate movements. Which one of the following best identifies what Aero, Inc. is likely suggesting? a.

Currency swap b.

Call option c.

Sensitivity analysis d.

Speculation e.

Diversification ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 345 OBJ: LO: 14-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation Scenario – The Gayla Corporation The Gayla Corporation is a multinational business that conducts operations in twelve foreign markets. This multi-million dollar organization is very familiar with currency exchanges and has considerable understanding when it comes to the risks associated with operating in the global market arena. The Gayla Corporation claims it would not be as successful without the expertise of the financial wizards that work for it. The company has not lost money so far and plans to stay that way.

4. The financial experts of the Gayla Corporation are very much aware of the organization’s cost of debt. Which of the following best identifies what cost of debt means to the corporation? a.

Futures contracts in which gains are earned at the end of each trading day b.

Ways in which long-term exchange rate movements affect firms c.

Sum of the cost of capital and the cost of equity d.

The required rate of return by stockholders in a firm that is estimated by means of CAPM e.

Weighted average of different interest rates paid on long-term borrowings ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 358 OBJ: LO: 14-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Analysis

5. The Gayla Corporation must fully understand and effectively handle the short-term changes in exchange rates and how this can affect operating costs and revenues derived from its international business operations. Which of the following best identifies what this organization is facing in this situation? a.

Exchange risk beta b.

Beta risk c.

Transactions risk d.

Hedging e.

Translation risk ANS: c PTS: 1 DIF: Difficulty: Moderate REF: p. 341 OBJ: LO: 14-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation 6. When the Gayla Corporation conducts its operations in foreign markets, its customers often pay in different forms of currency. Many times there is a difference in the value of that currency received in comparison to the company’s U. S. currency. Which of the following best identifies what the Gayla Corporation is experiencing? a.

Translation risk b.

Economic risk c.

Short position d.

Exchange rate risk e.

Transactions risks ANS: d PTS: 1 DIF: Difficulty: Moderate REF: p. 340 OBJ: LO: 14-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Environmental Influence KEY: Bloom's: Evaluation

Chapter 15: Accounting and Taxation in Global Business TRUE/FALSE 1. The statement that shows the beginning balance for retained earnings, additions and reductions to retained earnings, and the ending balance of retained earnings is called the income statement.

ANS: F PTS: 1 REF: p. 370 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

2. A typical AIS has two principal objectives: (1) to provide all the financial information internally needed by management for business decision-making, known as management accounting; and (2) to provide financial information to various external users concerned with the financial activities of the organization, known as financial accounting.

ANS: T PTS: 1 REF: p. 372 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

3. The primary external users of accounting information are goverment units, lenders, vendors, credit-rating agencies, stockholders, customers, and employees.

ANS: T PTS: 1 REF: p. 373 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

4. Because differences in culture and business environments leads to differences in the GAAP of countires, in 1970 an international GAAP was developed and is used by all countries today.

ANS: F PTS: 1 REF: p. 375 OBJ: LO: 15-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Knowledge

5. A substantial difference between U.S. GAAP and IFRS concerns leases. Under U.S. GAAP, leases are classified as capital if one or more of the following criteria are met: title transfer, bargain purchase option, lease terms are equal to or greater than 90 percent of the asset’s economic life, and if the minimum lease payments are greater than or equal to 40 percent of the asset’s fair market value.

ANS: F PTS: 1 REF: p. 376 OBJ: LO: 15-02 STA: DISC: Creation of Value

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

6. The primary goal of the International Accounting Standards Board is to develop, in the public interest, a single set of high quality, understandable, and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements.

ANS: T PTS: 1 REF: p. 377 OBJ: LO: 15-03 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

7. Pressures for the IASB to harmonize it’s accounting standards is coming from cross-border mergers and rapid growth in international capital markets.

ANS: T PTS: 1 REF: p. 378 OBJ: LO: 15-03 STA: DISC: Environmental Influence

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

8. In the United States, external audits are usually conducted by independent Certified Public Accountants (CPAs). However, external audits can also be done by the company’s internal accountants.

ANS: F PTS: 1 REF: p. 379 OBJ: LO: 15-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

9. Internal auditors review all aspects of operations in search of improvement, as well as review the internal control structure to determine if they are opperating as expected.

ANS: T PTS: 1 REF: p. 380 OBJ: LO: 15-04 STA: DISC: Legal Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

10. Financial ratios are helpful in equalizing companies of different sizes for comparison of financial performance.

ANS: T PTS: 1 REF: p. 382 OBJ: LO: 15-05 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

11. Normally a lower current ratio indicates a better financial position, for it implies that that a company has adequate liquidity to carry out business operations.

ANS: F PTS: 1 REF: p. 382 OBJ: LO: 15-05 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

12. Given the fact that lenders make money in both direction, both positive and negative trends in financial preformace are good news for lenders.

ANS: F

PTS:

1

DIF:

Difficulty: Moderate

REF: p. 382 OBJ: LO: 15-05 STA: DISC: Environmental Influence

NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

13. Conducting business in a tax haven means that there are no taxes whatsoever.

ANS: F PTS: 1 REF: p. 383 OBJ: LO: 15-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

14. The highest corporate income taxes can be found in the United States and Japan.

ANS: T PTS: 1 REF: p. 383 OBJ: LO: 15-06 STA: DISC: Environmental Impact

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

15. Internal transfers typically consist of raw materials, semi-finished and finished goods, allocation of fixed costs, loans, fees, and royalties for use of trademarks and copyrights.

ANS: T PTS: 1 REF: p. 386 OBJ: LO: 15-06 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

MULTIPLE CHOICE 1. One of the world’s first cases of cybercrime occurred in _____. a. the Soviet Union b. New Zealand c. Papua New Guinea d. India e. Mexico ANS: B PTS: 1 REF: p. 369 OBJ: LO: 15-01 STA: DISC: Information Technology

DIF: Difficulty: Moderate NAT: BUSPROG: Technology KEY: Bloom's: Knowledge

2. A statement that lists the balances of the asset, liability, and owners’ equity accounts of a business on a specific date is known as a(n)_____. a. income statement b. balance sheet c. statement of retained earnings d. statement of cash flows e. statement of net value ANS: B PTS: 1 REF: p. 370 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

3. A statement that shows the beginning balance for retained earnings, additions and reductions to retained earnings, and the ending balance of retained earnings is known as a(n)_____. a. income statement b. balance sheet c. statement of retained earnings d. statement of cash flows e. statement of net value ANS: C PTS: 1 REF: p. 370 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

4. Of the following, which is NOT one of the four financial statements that represent a business in financial terms? a. Income statement b. Balance sheet c. Statement of retained earnings d. Statement of cash flows e. Statement of net value ANS: E PTS: 1 REF: p. 370 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

5. A(n) _____ answers the question: What is the firm’s financial position at a designated point in time? a. income statement b. balance sheet c. statement of retained earnings d. statement of cash flows e. statement of net value ANS: B PTS: 1 REF: p. 370 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

6. A(n) _____ answers the question: How much cash was taken in and paid out during the period? a. income statement b. balance sheet c. statement of retained earnings d. statement of cash flows e. statement of net value ANS: D PTS: 1 REF: p. 371 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

7. Which of the following external users would require financial statement information, specifically information concerning ability to meet financial obligations?

a. b. c. d. e.

Governmental units Lenders Vendors Employees Customers

ANS: B PTS: 1 REF: p. 373 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

8. _____ provide the procedures for dealing with specific accounting matters. a. GIIP b. ASEAN c. CPAP d. SFAS e. GAAP ANS: D PTS: 1 REF: p. 373 OBJ: LO: 15-02 STA: DISC: Legal Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

9. Of the following, which is NOT a LOWER level of authoritative accounting literature? a. Interpretations issued by the FASB b. APB Statements c. AICPA Issues Papers d. Minutes of the FASB Emerging Issues Task Force e. Guidelines published by SEC and other regulatory agencies ANS: A PTS: 1 REF: p. 374 OBJ: LO: 15-02 STA: DISC: Creation of Value

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Evaluation

10. All of the following are the highest level of the primary sources of authoritative accounting literature, EXCEPT: a. AICPA Accounting Interpretations b. Non-superseded sections of the Accounting Research Bullentins issued by the Committee on Accounting Procedures c. Statements of Financial Accounting Standards issued by FASB d. Interpretations issued by the FASB e. Statements and Interpretations of the Governmental Accounting Standards Board ANS: A PTS: 1 REF: p. 374 OBJ: LO: 15-01 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

11. ______ of how money is spent by government organizations is of paramount importance to citizens who pay the taxes that support government operations. a. Validity b. Reliability c. Accountability d. A balance sheet

e. The GAAP ANS: C PTS: 1 REF: p. 374 OBJ: LO: 15-02 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension

12. Accountants who work in the _____ accounting field need to be licensed by the state or states in which they work; the license is designated Certified Public Accountant (CPA). a. public b. AIS of a firm c. AIS of a government entity d. private e. certified ANS: A PTS: 1 REF: p. 375 OBJ: LO: 15-02 STA: DISC: Creation of Value

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

13. Differences between U.S. and International GAAP are influenced by all of the following EXCEPT: a. political and legal systems b. language used c. taxation d. sources of capital e. inflation ANS: B PTS: 1 REF: p. 376 OBJ: LO: 15-02 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

14. Which of the following statements is NOT true of the IASB? a. The IASB’s purpose is to create a single set of high quality, understandable, and enforceable global accounting standards. b. The publication of a Standard, Exposure Draft, or final SIC Interpretation requires approval by nine of the Board Members. c. The IASB is a set of international accounting standards that require transparent and comparable information in general purpose financial statements. d. The IASB represents accounting and financial organizations from more than 100 countries e. The IASB is independent and privately funded.

ANS: C PTS: 1 REF: p. 377 OBJ: LO: 15-03 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

15. _____ refers to an independent, privately funded accounting standard-setter based in London, U.K., that issues International Financial Reporting Standards. a. GAAP b. SFAS c. IASB d. IFRS

e. PAWS ANS: C PTS: 1 REF: p. 377 OBJ: LO: 15-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

16. Of the following, which is NOT true about international financial reporting standards? a. Board members of the IASB come from 25 countries. b. The IASB is committed to developing, in the public interest, a single set of high quality, understandable, and enforceable global accounting standards. c. The IASB represents more than 100 worldwide accounting and financial organizations. d. Most projects require a minimum of three years from formation to standard issuance. e. Each IASB Member has one vote on technical and other matters.

ANS: A PTS: 1 REF: p. 377 OBJ: LO: 15-03 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Moderate NAT: BUSPROG: Ethics KEY: Bloom's: Analysis

17. Those who rely on financial statements are very concerned about the ____ of the reports they receive. a. latitude b. readability c. validity d. format e. length ANS: C PTS: 1 REF: p. 378 OBJ: LO: 15-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

18. There are two major categories of auditing: _____ auditing and _____ auditing. a. small; large b. domestic; international c. transactional; transformational d. descriptive; evaluative e. external; internal ANS: E PTS: 1 REF: p. 379 OBJ: LO: 15-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

19. The first step of an audit typically is to _____. a. communicate audit results b. arrive at audit opinion c. plan the audit d. obtain and evaluate evidence e. brainstorm ideas for the audit ANS: C

PTS:

1

DIF:

Difficulty: Easy

REF: p. 379 OBJ: LO: 15-04 STA: DISC: Ethical Responsibilities

NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

20. The last step of an audit typically is to _____. a. communicate audit results b. arrive at audit opinion c. plan the audit d. obtain and evaluate evidence e. brainstorm ideas for the audit ANS: A PTS: 1 REF: p. 379 OBJ: LO: 15-04 STA: DISC: Ethical Responsibilities

DIF: Difficulty: Easy NAT: BUSPROG: Ethics KEY: Bloom's: Knowledge

21. Internal audits are also called _____ audits. a. human resource b. management c. transactional d. competitive e. federal ANS: B PTS: 1 REF: p. 379 OBJ: LO: 15-04 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

22. Types of taxes include all of the following EXCEPT: a. payroll b. sales c. service d. value-added e. labor ANS: E PTS: 1 REF: p. 379 OBJ: LO: 15-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

23. When members of a corporate family are located in different countries, _________. a. taxes are avoided altogether b. taxes are handled under international law c. transfer pricing affects taxes owed and company profits d. transfer pricing does not affect taxes owed but does affect profits e. transfer pricing does affect taxes owed but does not affect company profits ANS: C PTS: 1 REF: p. 379 OBJ: LO: 15-06 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

24. An evaluation of a company’s financial statements in order to identify significant trends or relationships among the items is called a(n) _____ analysis. a. relative b. financial statement

c. domestic d. management accounting e. accounting ANS: B PTS: 1 REF: p. 381 OBJ: LO: 15-05 STA: DISC: Creation of Value

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

25. The relationship of a number on the financial statements to another number is called a _____. a. financial ratio b. financial statement c. domestic term d. management accounting marker e. financial deposit ANS: A PTS: 1 REF: p. 381 OBJ: LO: 15-05 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

26. Complete the following equation: Debt Ratio = __? __ / Total Assets. a. Losses b. Net Profit c. Total Liabilities d. Total Assets e. Cash Flows ANS: C PTS: 1 REF: p. 381 OBJ: LO: 15-05 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

27. Complete the following equation: Current Ratio = Current Assets /__? __ . a. Losses b. Net Profit c. Total Liabilities d. Current Liablities e. Current Cash Flows ANS: D PTS: 1 REF: p. 382 OBJ: LO: 15-05 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

28. Of the following statements about financial ratios, which is NOT true? a. Financial ratios are designed to assess different aspects of the firm’s financial situation. b. Financial ratios enable meaningful comparisons among companies of different sizes to assess which companies are performing better and which are performing worse. c. The Debt Ratio = Total Liabilities/Current Assets d. A rule of thumb is that companies should have a current ratio between 1 and 2. e. The current ratio is often important in debt covenants.

ANS: C PTS: 1 REF: p. 381-382 OBJ: LO: 15-05 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

29. A rule of thumb for a “good” current ratio is that companies should have a current ratio between _____ and _____. a. 1; 2 b. 1; 5 c. 5; 10 d. 50; 75 e. 75; 100 ANS: A PTS: 1 REF: p. 382 OBJ: LO: 15-05 STA: DISC: Creation of Value

DIF: Difficulty: Moderate NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

30. Of the following statements about tax rates in selected countries, which is NOT true? a. Only developed nations impose a corporate income tax. b. Tax rates and other business-related information can be obtained from the OECD. c. Most OECD countries are high-income economies. d. Corporate income taxes range from high levels, for example, 35 percent in the U.S. to low levels, for example, 12.5 percent in Ireland. e. Countries that have little or no corporate income tax are known as tax havens.

ANS: A PTS: 1 REF: p. 383 OBJ: LO: 15-06 STA: DISC: Environmental Influence

DIF: Difficulty: Challenging NAT: BUSPROG: Diversity KEY: Bloom's: Analysis

31. _____ has the highest federal corporate income tax rate. a. The United States b. Australia c. Greece d. Ireland e. Finland ANS: A PTS: 1 REF: p. 384 OBJ: LO: 15-06 STA: DISC: Environmental Influence

DIF: Difficulty: Moderate NAT: BUSPROG: Diversity KEY: Bloom's: Evaluation

32. _____ pricing refers to the pricing of goods and services that are transferred (bought and sold) internally between members of a corporate family. a. Environmental b. Tax c. Value d. Economic e. Transfer ANS: E PTS: 1 REF: p. 385 OBJ: LO: 15-06 STA: DISC: Creation of Value

DIF: Difficulty: Easy NAT: BUSPROG: Analytic KEY: Bloom's: Knowledge

33. Which of the following statements is NOT true about corporate income tax rates and economic activity? a. The income tax is the primary sources of revenues for national governments around the world. b. Before the Great Depression, state and local government expenditures in the U.S. were much lower than federal expenditures. c. Since 1939, state and local government expenditures have been much lower than federal expenditures. d. The great majority of U.S. government expenditures are on nondefense items such as health, economic support, and education. e. From 2005-2008, the average gross savings rate of OECD countries increased.

ANS: B PTS: 1 REF: p. 385 OBJ: LO: 15-06 STA: DISC: Creation of Value

DIF: Difficulty: Challenging NAT: BUSPROG: Analytic KEY: Bloom's: Analysis

COMPLETION 1. ______ is the recording, summarizing, and reporting of the economic activities and events of an organization.

ANS: Accounting PTS: 1 DIF: Difficulty: Easy REF: p. 370 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 2. Statement that summarizes the revenues earned and the expenses incurred by a business over a period of time is called the ______.

ANS: income statement PTS: 1 DIF: Difficulty: Moderate REF: p. 370 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 3. ______ refers to a statement that shows the beginning balance for retained earnings, additions and reductions to retained earnings, and the ending balance of retained earnings.

ANS: Statement of retained earnings PTS: 1 DIF: Difficulty: Easy REF: p. 370 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 4. The ______ refers to the record that lists the balances of the asset, liability, and owners’ equity accounts of a business on a specific date

ANS: balance sheet PTS: 1 DIF: Difficulty: Moderate REF: p. 370 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 5. The ______ refers to the Statement showing the company’s inflows and outflows of cash.

ANS: statement of cash flows PTS: 1 DIF: Difficulty: Easy REF: p. 371 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 6. The ______ refers to a system which has two principal objectives: (1) to provide all the financial information needed internally by management for business decision making, known as management accounting, and (2) to provide financial information to various external users concerned with the financial activities of the organization, known as financial accounting.

ANS: accounting information system (AIS) accounting information system AIS PTS: 1 DIF: Difficulty: Moderate REF: p. 372 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 7. _______ refers to the component of the accounting information system that provides financial information needed by external users such as investors and lenders.

ANS: Financial accounting PTS: 1 DIF: Difficulty: Moderate REF: p. 372 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 8. _______ refers to the component of the accounting information system that provides the financial information needed internally by business managers for efficient (timely) and effective (correct) decision-making.

ANS: Management accounting PTS: 1 DIF: Difficulty: Moderate REF: p. 372 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 9. _______ refers to the principles by which financial statements are prepared.

ANS: Generally accepted accounting principles (GAAP) Generally accepted accounting principles GAAP PTS: 1 DIF: Difficulty: Moderate REF: p. 373 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 10. _______ is part of the highest level of the United States’ generally accepted accounting principles (GAAP), issued by the Financial Accounting Standards Board (FASB).

ANS: Statements of Financial Accounting Standards (SFAS) Statements of Financial Accounting Standards SFAS PTS: 1 DIF: Difficulty: Moderate REF: p. 374 OBJ: LO: 15-02 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 11. _______ is an independent, privately funded accounting standard-setter based in London, U.K., that issues International Financial Reporting Standards.

ANS: International Accounting Standards Board (IASB) International Accounting Standards Board IASB PTS: 1 DIF: Difficulty: Moderate REF: p. 377 OBJ: LO: 15-03 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 12. _______ is a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements.

ANS: International Financial Reporting Standards (IFRS) International Financial Reporting Standards IFRS PTS: 1 DIF: Difficulty: Moderate REF: p. 377 OBJ: LO: 15-03 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 13. _______ is an evaluation of a company’s financial statements in order to identify significant trends or relationships among the items.

ANS: Financial statement analysis PTS: 1 DIF: Difficulty: Moderate REF: p. 381 OBJ: LO: 15-05 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge 14. _______ is the relationship of a number on the financial statements to another number.

ANS: Financial ratio PTS: 1 DIF: Difficulty: Moderate REF: p. 381 OBJ: LO: 15-05 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Knowledge ESSAY 1. Briefly describe the most important reports produced by the accounting information system.

ANS: Student responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 370-371 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Comprehension 2. Describe the two parts of the accounting information system.

ANS: Student responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 372-373 OBJ: LO: 15-01 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Comprehension 3. Describe and differentiate between the US GAAP and the International GAAP. ANS: Student responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 373-376 OBJ: LO: 15-02 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Analysis 4. Are International Financial Reporting Standards important to global business operations?

Explain.

ANS:

Student responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 377-378 OBJ: LO: 15-03 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Comprehension 5. “Unfortunately, auditing is not necessary for effective financial reporting.” Do you agree with this statement? Defend your position.

ANS: Student responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 378-381 OBJ: LO: 15-04 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Analysis 6. Briefly explain how financial statement analysis can be used to evaluate a company’s financial situation.

ANS: Student responses will vary.

PTS: 1 DIF: Difficulty: Moderate REF: p. 381-382 OBJ: LO: 15-05 NAT: BUSPROG: Analytic STA: DISC: Creation of Value KEY: Bloom's: Evaluation CASE Scenario – Brininger Enterprises Rapid City, South Dakota has been home to Brininger Enterprises since 1984. This company is recognized around the world for its superior cutlery and currently ranks as number three within the industry. In 2011, Brininger Enterprises recorded gross sales of over sixteen million dollars. From its gross sales, the company claimed net profits of four million dollars. Brininger Enterprises is quite proud of its performance. It realizes the company’s financial records truly show this organization is doing something right.

1. Brininger Enterprises maintains accurate and thorough accounting records. Which piece of the company’s accounting records would be needed to identify what cash monies were received and what cash was paid out by the company? a.

Statement of cash flows b.

Income statement c.

Balance sheet d.

Retained earnings statement e.

Petty cash fund ANS: a

PTS: 1 DIF: Difficulty: Moderate REF: p. 371 OBJ: LO: 15-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Creation of Value KEY: Bloom's: Evaluation 2. Brininger Enterprises conducts international business. It realizes there are sometimes different accounting guidelines that need to be followed when dealing on an international level. In essence, there are differences between U. S. and international generally accepted accounting principles. Which one of the following is not a factor that would influence the development of accounting and financial reporting? a.

Numbering system b.

Sources of capital c.

Inflation d.

Culture e.

Legal systems ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 375-376 OBJ: LO: 15-02 NAT: BUSPROG: Reflective Thinking STA: DISC: Creation of Value KEY: Bloom's: Analysis 3. Brininger Enterprises conducts extensive internal audits to insure the reliability and accuracy of its accounting records. Which one of the following is least likely a step in its internal auditing process? a.

Communicate the results b.

Obtain and evaluate evidence c.

Arrive at an audit opinion d.

Plan the audit e.

Publicize its results in the financial news ANS: e PTS: 1 DIF: Difficulty: Moderate REF: p. 379 OBJ: LO: 15-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Creation of Value KEY: Bloom's: Evaluation Scenario – The Williams Company Based in South Dakota, USA, the Williams Company has been in operation since 1967. It has five branches located in China, Europe, South America, Mexico, and Canada. Its exquisite product line of fine custom-made jewelry is highly desired throughout the world.

This company has maintained a very healthy balance sheet.

The Williams Company is known within the industry for integrity and fair business practices. This company maintains an accounting system that is open for any stakeholder to view. It prides itself on being honest and trustworthy. The company feels it is this honesty in business practice that has led it to be a billion dollar organization.

4. The Williams Company places a high value on maintaining integrity in its operations. Part of ensuring this integrity is maintained involves having frequent audits of the company’s accounting records performed. Which one of the following would not be considered an objective of a financial statement audit? a.

Ensure dividends are allocated for stakeholders b.

Ensure all items are properly presented on the financial statements c.

Ensure there is proper valuation of assets d.

Ensure expenses are not overstated e.

Ensure financial statements are complete ANS: a PTS: 1 DIF: Difficulty: Moderate REF: p. 379 OBJ: LO: 15-04 NAT: BUSPROG: Reflective Thinking STA: DISC: Creation of Value KEY: Bloom's: Analysis 5. If the company’s stakeholders requested to be shown a financial statement that would identify the Williams Company’s assets, liabilities, and equity for a given period of time, which one of the following statements would they most likely be requesting? a.

Income statement b.

Cash flow statement c.

Retained earnings statement d.

Balance sheet e.

Trial balance sheet ANS: d PTS: 1 DIF: Difficulty: Easy REF: p. 370 OBJ: LO: 15-01 NAT: BUSPROG: Reflective Thinking STA: DISC: Creation of Value KEY: Bloom's: Evaluation 6. Which one of the following would the Williams Company expect to establish a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements? a.

GAAP b.

AIS c.

SFAS d.

IFRS e.

NAACP ANS: d

PTS: 1 DIF: Difficulty: Moderate REF: p. 377 OBJ: LO: 15-03 NAT: BUSPROG: Reflective Thinking STA: DISC: Creation of Value KEY: Bloom's: Evaluation