Introduction To Global Business Understanding The International Environment And Global Business Func

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Chapter 01: The Rise of Globalization 1. With business becoming increasingly global, its success, fortunately, depends only on the domestic environment. a. True b. False ANSWER: False 2. Key aspects of globalization include the elimination of barriers to trade and information technology. a. True b. False ANSWER: True 3. The world economy is quickly shifting away from countries with emerging economies. a. True b. False ANSWER: False 4. The “soft” qualities essential to globalization include openness, protectionism, accountability, connectivity, democracy, and centralization. a. True b. False ANSWER: False 5. 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. a. True b. False ANSWER: True 6. The openness and proliferation of globalization and free trade rules can best be attributed to the interwar period between World War I and II. a. True b. False ANSWER: False

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Chapter 01: The Rise of Globalization 7. 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. a. True b. False ANSWER: True 8. For the World Trade Organization, increasing trade barriers has been one of the most simple ways to encourage trade and globalization. a. True b. False ANSWER: False 9. The foundations of the globalized business world are political—and so are the biggest threats to the system. a. True b. False ANSWER: True 10. Countries that have successfully adapted to globalization realize that they cannot succeed without high-quality government management at home. a. True b. False ANSWER: True 11. 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. a. True b. False ANSWER: True 12. Globalized economies like New Zealand and Singapore rank at the top in index for absence of corruption by Transparency International. a. True b. False ANSWER: True

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Chapter 01: The Rise of Globalization 13. Text messaging will likely be an unimportant component of emerging economies' mobile phone usage because most people in these countries cannot read or write. a. True b. False ANSWER: False 14. 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. a. True b. False ANSWER: False 15. There appears to be a clear connection between economic freedom and political freedom. a. True b. False ANSWER: True 16. 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.

ANSWER: d 17. Which of the following is NOT a key aspect of globalization? a. The elimination of barriers to trade b. Investment c. Financial independence d. Culture e. Information technology ANSWER: c

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Chapter 01: The Rise of Globalization 18. 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 economies ANSWER: e 19. Increasingly, emerging economies are a. innovative and technologically advanced. b. sources of inexpensive labor. c. largely agricultural. d. simply copying the technologies used in more advanced economies. e. being left behind in the global economy.

ANSWER: a 20. A sustainable decoupling process would eventually lead to _____. a. a multi-polar world b. globalization c. outsourcing d. transparency e. income inequity ANSWER: a 21. 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(n) __________. a. interdependent world b. industrialized world c. globalized economy d. multi-polar world e. diverse world ANSWER: d

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Chapter 01: The Rise of Globalization 22. 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 economies. 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.

ANSWER: a 23. 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 ANSWER: e 24. What was the initial primary role of the World Bank? a. To aide in the reconstruction of Europe after World War II b. To provide low-interest mortgage loans to minorities 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 ANSWER: a 25. 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 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 ANSWER: c

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Chapter 01: The Rise of Globalization 26. 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 ANSWER: d 27. The International Finance Corporation (IFC) 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 ANSWER: b 28. Which of the following is NOT an objective of the WTO? a. Reviewing national trade policies b. Acting as a forum for trade negotiations c. Naming commissioners to local trade organizations d. Settling trade disputes e. Administering trade agreements ANSWER: c

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Chapter 01: The Rise of Globalization 29. 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. establishment of "most favored nation" status ANSWER: b 30. 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. Transparent organizations b. Antitrust corporations c. Adaptive institutions d. Emerging markets e. Capital markets ANSWER: c 31. To sustain globalization, nations must build institutions that support all of the following EXCEPT a. democratic systems of government. b. free markets. c. command economies. d. independent judiciaries. e. a free press.

ANSWER: c 32. T ​ he most recent devices that enable the greatest ease in portability and accessibility of information are ______. a. m ​ agazines b. n​ ewspapers c. a​ dvertisements d. s​ mart phones e. c​ omputers ANSWER: d

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Chapter 01: The Rise of Globalization 33. 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 ANSWER: d 34. Which of the following is NOT true regarding competitive markets? a. Successfully globalized economies strive to attain competitive markets at home. b. Governments try to minimize the role of state-owned enterprises in market economies. c. Regulations that promote free domestic markets also tend to promote globalization. d. Antitrust laws must be eliminated if competitive markets re to be sustained. e. Antitrust laws interfere with the natural growth of successful businesses.

ANSWER: d 35. 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.

ANSWER: a 36. 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. bandwith b. digital server c. digital divide d. gigabytes e. Y2K ANSWER: a

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Chapter 01: The Rise of Globalization 37. The rapid fall in prices of digital IT equipment and services may a. reduce the importance of IT in the global economy. b. spell the end of the digital era. c. make digital divide a myth. d. reduce the availability of bandwidth in developed economies. e. localize the production of goods and services.

ANSWER: c 38. 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 ANSWER: a 39. All of the following are arguments against globalization EXCEPT: a. it may lead to an increase in the appearance 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.

ANSWER: a 40. 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.

ANSWER: d

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Chapter 01: The Rise of Globalization 41. An office uses printer paper made primarily of recycled paper. This is an example of a ______ policy. a. future sourcing b. global warming c. next-generation consumer hook d. digital divide e. sustainable development ANSWER: e 42. 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.

ANSWER: c 43. 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 ANSWER: e 44. 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.

ANSWER: a

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Chapter 01: The Rise of Globalization 45. All of the following countries can be considered globalization “winners” EXCEPT: a. China b. North Korea c. India d. Brazil e. South Africa ANSWER: b 46. _______ 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.

ANSWER: Decoupling 47. 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 ______.

ANSWER: multi-polar world 48. The World Bank was conceived at the ________ Conference in 1944.

ANSWER: Bretton Woods 49. A stock exchange where long-term financial instruments such as stocks and bonds can be bought and sold refers to _______.

ANSWER: capital markets 50. The rules, enforcement mechanisms, and organizations that support market transactions are called ______.

ANSWER: institutions 51. A system of responsibility in which an authority, such as the government, is answerable for its actions refers to ________.

ANSWER: accountability 52. National laws aimed at maintaining competition in all sectors of the economy and preventing monopolistic behavior of firms are called _______.

ANSWER: antitrust laws 53. The period of transformation that adjusts lifestyles to make the Internet and wireless technologies a part of everyday life refers to the ______.

ANSWER: digital era Copyright Cengage Learning. Powered by Cognero.

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Chapter 01: The Rise of Globalization 54. The _______ is a system of interlinked documents contained and accessed via the Internet.

ANSWER: web 55. 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 ______.

ANSWER: sustainable development 56. Differentiate between the International Monetary Fund and the World Bank as institutions facilitating globalization.

ANSWER: Student answers will vary.

57. Analyze the impact of transparency on globalization.

ANSWER: Student answers will vary.

58. Identify and describe any two key policy measures that make globalization sustainable.

ANSWER: Student answers will vary.

59. 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.

ANSWER: Student answers will vary.

60. What are the best ways industrialized countries can support globalization's "losers"? Support your position using examples.

ANSWER: Student answers will vary.

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Chapter 01: The Rise of Globalization 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.

61. 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 ANSWER: a 62. 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 ANSWER: c

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Chapter 01: The Rise of Globalization 63. 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 ANSWER: b 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.

64. 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 ANSWER: e

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Chapter 01: The Rise of Globalization 65. 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 ANSWER: c 66. 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.

Vietnam b.

Kenya c.

India d.

Germany e.

Nigeria ANSWER: d 67. 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?

Societal hierarchies have grown in number to better accommodate information a. 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.

ANSWER: a

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Chapter 01: The Rise of Globalization 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.

68. 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.

Global expansion often leads to greater integration and interdependence among d. economies and societies, which can bring about injustices.

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

ANSWER: b 69. 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?

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

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

Globalization contributes to faster economic growth for the nations involved.

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

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

ANSWER: e Copyright Cengage Learning. Powered by Cognero.

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Chapter 01: The Rise of Globalization 70. 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 ANSWER: a

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Chapter 02: The Evolution of International Business 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. a. True b. False ANSWER: True 2. One way international trade benefits consumers is by providing lower living standards. a. True b. False ANSWER: False 3. It is estimated that for every billion dollars worth of exports from the United States, 100,000 domestic jobs are created. a. True b. False ANSWER: False 4. Foreign direct investment (FDI) in a country brings funds and business culture from abroad, creates new wellpaying jobs, introduces innovative technologies, and enhances the skills of domestic workers. a. True b. False ANSWER: True 5. The decoupling of world economic order and the move to a multipolar world helps explain why China is now the world's largest recipient of FDI. a. True b. False ANSWER: True 6. Singapore, a regional center for global companies, continues to attract sizable amounts of foreign investment given its strategic location, world-class infrastructure, and productive workforce. a. True b. False ANSWER: True

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Chapter 02: The Evolution of International Business 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. a. True b. False ANSWER: True 8. Factor price equalization theory, states that when factors are allowed to move freely among trading nations, efficiency increases, which leads to superior allocation of production of goods and services among countries. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 12. A specific tariff describes a tax on imports levied as a constant percentage of the monetary value of one unit of the imported good. a. True b. False ANSWER: False

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Chapter 02: The Evolution of International Business 13. Under a preferential duties system, goods imported from a country outside the preferred group are subject to a higher tariff. a. True b. False ANSWER: True 14. The infant industry argument is part of the socio-economic category of managed trade. a. True b. False ANSWER: True 15. Developed countries often resort to managed trade for reasons of unethical labor practices and violation of basic human rights. a. True b. False ANSWER: True 16. 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 ANSWER: a 17. As of 2013, was the world’s largest economy, followed by _____ and _____. a. India; the United States and China b. the United States; China and India c. Japan; China and Mexico d. India; Japan and Canada e. the United States; Mexico and Canada ANSWER: b

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Chapter 02: The Evolution of International Business 18. 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 ANSWER: a 19. The sale and purchase of goods and services across national borders is known as _____. a. exporting b. entrepreneurship c. angel investing d. importing e. trade ANSWER: e 20. 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.

ANSWER: d 21. 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 ANSWER: b

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Chapter 02: The Evolution of International Business 22. Which of the following was NOT one of the top exporting nations in 2012? a. China b. Germany c. Japan d. the United Kingdom e. Hong Kong ANSWER: d 23. 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 ANSWER: a 24. 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.

ANSWER: d 25. Which of the following would NOT be considered a factor of production? a. labor b. capital c. technology d. trade e. land ANSWER: d

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Chapter 02: The Evolution of International Business 26. The oldest form of trade theory is called _____. a. mercantilism b. factor equalization c. Machiavellianism d. absolute advantage e. comparative advantage ANSWER: a 27. Which would a mercantilist value the MOST? a. labor b. a trade surplus c. absolute advantage d. a trade deficit e. factor endowments ANSWER: b 28. 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.

ANSWER: c 29. 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 ANSWER: c

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Chapter 02: The Evolution of International Business 30. Assume that because of soil and climatic conditions, Brazil is more efficient in the production of coffee than the United States. At the same time, the United States is more efficient in the production of apples than Brazil. 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 ANSWER: a 31. 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. opportunity cost b. comparative advantage c. factor price d. factor endowment e. advantage of specialization ANSWER: b 32. The key assumptions for the H-O theory to work are: (1) perfect immobility of factors of production among countries; and (2) _____. a. perfect competition in the workplace 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 ANSWER: a 33. 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 ANSWER: a

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Chapter 02: The Evolution of International Business 34. Both the theory of comparative advantage in production and the H-O theory provide ______ as a basis for international trade. a. factor endowments b. trade surplus theory c. foreign direct investment d. managed trade theory e. trade deficit theory ANSWER: a 35. 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.

ANSWER: a 36. According to Porter's "diamond" model, the success or competitive advantage of a nation at the global stage depends upon the interaction of all of the following EXCEPT a. firm strategy, structure, and rivalry. b. related and supporting industries. c. demand conditions. d. a conservative political structure. e. factor conditions.

ANSWER: d 37. 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 ANSWER: c

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Chapter 02: The Evolution of International Business 38. 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 ANSWER: a 39. 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 ANSWER: d 40. 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 ANSWER: e 41. _____ 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 ANSWER: c

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Chapter 02: The Evolution of International Business 42. Suppose the United States exports automobiles to Saudi Arabia and agrees to import a corresponding value of oil from Saudi Arabia. This is an example of a. a trade deficit. b. the infant industry argument. c. countertrade. d. a domestic content provision. e. an export cartel.

ANSWER: c 43. Someone who believes in the infant industry argument would be MOST likely to support ______ for a new industry. a. high tariffs b. illegal trade c. an export cartel d. an embargo e. domestic content provisions ANSWER: a 44. 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 ANSWER: a 45. The United States, the European Union, and Australia imposed various trade sanctions on _____ because of that country's annexation of Crimea and military actin in east Ukraine. a. Poland b. Bulgaria c. Turkey d. Uzbekistan e. Russia ANSWER: e 46. The two-way flow of exports and imports of goods is called ______.

ANSWER: trade Copyright Cengage Learning. Powered by Cognero.

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Chapter 02: The Evolution of International Business 47. Mercantilism refers to a theory of international trade that supports the premise that a nation could only gain from trade if it had a trade ______.

ANSWER: surplus 48. When the value of ______ exceeds the value of ______, this refers to trade surplus.

ANSWER: exports; imports 49. 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 ______.

ANSWER: comparative advantage 50. ______ refers to an external shock or development that could drastically change or hasten the course of economic development.

ANSWER: Chance 51. ______ refers to a negative tariff or tax aimed at boosting exports.

ANSWER: Export subsidy 52. _______ refers to regulations that limit the amount or number of units of products that can be imported to a country.

ANSWER: Import quotas 53. Regulations requiring that a certain percentage of the value of import be sourced domestically refers to _______.

ANSWER: domestic content provisions 54. 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 ______.

ANSWER: countertrade 55. The _______ objective is to sacrifice some economic efficiency for the greater good of the country in terms of national security, protection of critical industries, and international commerce.

ANSWER: geopolitical 56. Defend the following statement: Trade and foreign investment are good for society.

ANSWER: Student answers will vary.

57. Explain why mercantilism fell out of favor as a theory of international trade.

ANSWER: Student answers will vary.

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Chapter 02: The Evolution of International Business 58. Differentiate between H-O theory and factor price equalization theory.

ANSWER: Student answers will vary.

59. Explain Porter’s “Diamond” model of national competitive advantage.

ANSWER: Student answers will vary.

60. Defend the infant industry argument, using specific examples.

ANSWER: Student answers will vary.

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.

61. 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?

Consumer choices may be limited by government restrictions on the operational a. 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 ANSWER: a

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Chapter 02: The Evolution of International Business 62. 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 ANSWER: c 63. 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 ANSWER: e 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. 64. 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 ANSWER: b

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Chapter 02: The Evolution of International Business 65. 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 ANSWER: e 66. The clients of the Audrey Firm use various techniques to restrict imports to their countries. Which one of the following assigns a fixed amount of tax for every physical unit imported? a.

Import quota b.

Voluntary export restraint c.

Ad valorem tariff d.

Specific tariff e.

Domestic content provision ANSWER: d

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Chapter 03: Regional Economic Integration 1. One could argue that regional and global integration are not complements, but substitutes to economic development of a particular region. a. True b. False ANSWER: False 2. Both common markets and economic unions abolish restrictions on factor movements. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True 5. Generally, countries within trading blocs that have significantly lowered trade barriers have done better economically than others. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True

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Chapter 03: Regional Economic Integration 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. a. True b. False ANSWER: True 8. The origins of the European Union (EU) can be traced to the creation of the North Atlantic Treaty Organization (NATO) in 1949. a. True b. False ANSWER: False 9. Through various treaties (e.g, the Treaty of Rome, Maastricht Treaty, Copenhagen Treaty, Treaty of Nice, the Lisbon Treaty), the EU is deepening and strengthening its institutional linkages; it is hoped that this will enable the EU to act as one country that will effectively compete with the U.S. a. True b. False ANSWER: True 10. All 28 EU countries are permitted to use the euro as their currency. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 12. ASEAN, headquartered in New Delhi, India, was established in August 1967 by five founding members: India, Malaysia, the Philippines, Singapore, and Thailand. a. True b. False ANSWER: False

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Chapter 03: Regional Economic Integration 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 16. _____ 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 ANSWER: b 17. 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 ANSWER: e Copyright Cengage Learning. Powered by Cognero.

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Chapter 03: Regional Economic Integration 18. According to the text, which of the following is the second 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 ANSWER: a 19. A group of states with convergent social, economic, and monetary policies is called a(n) _____. a. customs union b. economic union c. free trade area d. common market e. political union ANSWER: b 20. 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 ANSWER: e 21. NAFTA is in which stage of the economic integration process? a. First stage (free trade area) b. Second stage (customs union) c. Third stage (common market) d. Fourth stage (economic union) e. Fifth stage (political union) ANSWER: a

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Chapter 03: Regional Economic Integration 22. Of the following, which is NOT a cost of regional integration? a. Moving away from most-favored-nation status rule b. Disregarding cultural and social differences c. Losing some national sovereignty d. Reducing the powers of the national government e. Enhancing the flow of capital, labor, and technology ANSWER: e 23. The World Bank’s (2009) World Development Report concludes that successful regional integration depends on positive changes within a. comparative and absolute advantage. b. market size, location, and openness to trade. c. government control over the economy. d. the relationship between employers and employees. e. regional integration blocs.

ANSWER: b 24. 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.

ANSWER: a 25. 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 ANSWER: d

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Chapter 03: Regional Economic Integration 26. 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. Vietnam ANSWER: c 27. 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.

ANSWER: d 28. The members of the Maghreb Union a. all have similar political and economic systems. b. hope to form an economic and political union in North Africa. c. all suffer under enormous amounts of debt. d. are losing their competitiveness against EU countries. e. have been unable to attract much foreign investment.

ANSWER: b 29. 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 ANSWER: e

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Chapter 03: Regional Economic Integration 30. In which country is the EU headquartered? a. Belgium b. France c. Germany d. Italy e. Turkey ANSWER: a 31. 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.

ANSWER: c 32. The newest member of the EU is _____. a. Bulgaria b. Malta c. Russia d. Turkey e. Croatia ANSWER: e 33. 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. The euro was introduced on January 1, 1999. c. Eighteen of the 28 EU countries are permitted to use the euro 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.

ANSWER: a

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Chapter 03: Regional Economic Integration 34. 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 ANSWER: d 35. In which country is ASEAN headquartered? a. Indonesia b. Vietnam c. Canada d. Japan e. India ANSWER: a 36. ASEAN’s current membership stands at how many countries? a. 5 b. 10 c. 2 d. 25 e. 30 ANSWER: b 37. What is the goal of the ASEAN Security Community (ASC)? a. To ensure that countries in the region live in peace with one another b. To come to the aid of member nations in time of war c. To ensure that the ASEAN workforce is prepared to benefit from economic integration d. To oversee the construction of roads and railways between member nations e. To use the military to ensure the free flow of goods across borders ANSWER: a

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Chapter 03: Regional Economic Integration 38. 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 ANSWER: b 39. How does ASEAN differ from the EU? a. It does not call for the free movement of labor across member states. b. It maintains both tariff and non-tariff barriers among member states. c. It calls for the establishment of a single market. d. It calls for the establishment of a production base. e. It refuses to do business with non-member states.

ANSWER: a 40. Investments in basic and higher education are made through the ASEAN ______ community. a. s​ ociocultural b. s​ ecurity c. e​ ducational d. l​ iteracy e. e​ conomic ANSWER: a 41. 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.

ANSWER: c

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Chapter 03: Regional Economic Integration 42. The Treaty of Montevideo created _____. a. the EU b. ASEAN c. LAFTA d. NAFTA e. MERCOSUR ANSWER: c 43. 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 ANSWER: c 44. Venezuela became a member of MERCOSUR in July 2012 and is considered a key member because of its a. low tax rates and absence of tariffs. b. large population of educated, highly skilled workers. c. vast energy resources and significant domestic market. d. high-tech economy, the most advanced in South America. e. long history of political and economic stability.

ANSWER: c 45. A ​ s a means to push NAFTA south of Mexico, the Bush administration began free-trade talks with all of the following countries EXCEPT a. C ​ osta Rica. b. H ​ onduras. c. t​ he Dominican Republic. d. H ​ aiti. e. N ​ icaragua.

ANSWER: d 46. Implementation of a multitude of economic and/or political steps by member states to increase their global competitiveness, including preferential trade access refers to _______.

ANSWER: regional integration Copyright Cengage Learning. Powered by Cognero.

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Chapter 03: Regional Economic Integration 47. The process of allowing efficient geographic distribution of business activities within and among countries refers to _______.

ANSWER: spatial transformations 48. A(n) ________ 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.

ANSWER: free-trade area 49. A group of free trade member countries that have adopted a common external tariff with nonmember countries refers to ______.

ANSWER: customs union 50. A ______ (or single) market is formed when member countries of a customs union remove all barriers to allow the movement of capital and labor within the customs union.

ANSWER: common 51. A(n) ________ is 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.

ANSWER: economic and monetary union 52. A(n) ________ union is 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.

ANSWER: political 53. The study of principles that govern the efficient spatial allocation of economic resources and the resulting consequences refers to _____.

ANSWER: economic geography 54. The Treaty of ______ in 1957 established the European Economic Community (EEC).

ANSWER: Rome 55. NAFTA is a free-trade agreement among Canada, the United States, and _____.

ANSWER: Mexico 56. Describe briefly the form and stages of regional integration.

ANSWER: Student answers will vary.

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Chapter 03: Regional Economic Integration 57. Explain the pros and cons of regional integration.

ANSWER: Student answers will vary.

58. 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.

ANSWER: Student answers will vary.

59. Compare and contrast EU and NAFTA as regional integration blocs.

ANSWER: Student answers will vary.

60. Some argue that Asia may become the most important free trade region for this century. Do you agree? Explain.

ANSWER: Student answers will vary.

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.

61. 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 ANSWER: a

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Chapter 03: Regional Economic Integration 62. 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 ANSWER: c 63. 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 ANSWER: b 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.

64. 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 ANSWER: e

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Chapter 03: Regional Economic Integration 65. The regional bloc affecting Lynette a. has abolished tariffs and quotas among members. b. uses a common currency among members. c. allows for the free movement of labor among members. d. uses a common language for trade among members. e. has not eliminated nontariff barriers among members.

ANSWER: a 66. 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 ANSWER: d 67. 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 ANSWER: a

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Chapter 04: The International Flow of Funds and Exchange Rates 1. One factor affecting change in currency values is different price levels in different countries for the same goods and services. a. True b. False ANSWER: True 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). a. True b. False ANSWER: False 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. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 5. Security investments have little impact on the BOP's financial account. a. True b. False ANSWER: False 6. The forex market consists of spot, forward, and discount markets. a. True b. False ANSWER: False

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Chapter 04: The International Flow of Funds and Exchange Rates 7. Indirect quotes give the number of dollars per one unit of foreign currency. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 12. Together, the dollar, euro, and yen account for around 60 percent of the world economy. a. True b. False ANSWER: True

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Chapter 04: The International Flow of Funds and Exchange Rates 13. According to the law of one price, identical goods should sell for the same price in different countries according to the local currencies. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 15. One forecasting approach is to use a multiple regression model to estimate the relationship between changes in spot rates and fundamental factors. a. True b. False ANSWER: True 16. 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. British pound c. Chinese yuan d. Japanese yen e. Euro ANSWER: a 17. 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 ANSWER: e

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Chapter 04: The International Flow of Funds and Exchange Rates 18. 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 ANSWER: b 19. 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 ANSWER: d 20. The net of services exports and imports is called the ______. a. trade balance b. services balance c. income balance d. services deficit e. services transfer ratio ANSWER: b 21. Which of the following represents the top trading partner of the United States? a. Mexico b. Canada c. Germany d. Japan e. France ANSWER: b

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Chapter 04: The International Flow of Funds and Exchange Rates 22. 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 ANSWER: e 23. 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 ANSWER: c 24. The net of investment income from abroad and investment payments to foreigners is called the _____. a. services balance b. income balance c. trade balance d. balance of transfers e. financial account ANSWER: b 25. 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.

ANSWER: c

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Chapter 04: The International Flow of Funds and Exchange Rates 26. 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 ANSWER: b 27. 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 ANSWER: e 28. _____ refers to the added return required by investors for risk associated with a security or asset. a. Foreign direct investment b. A current balance account c. A risk premium d. A balance of transfers e. Net financial derivatives ANSWER: c 29. 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 ANSWER: a

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Chapter 04: The International Flow of Funds and Exchange Rates 30. 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 ANSWER: b 31. According to the text, _____ countries’ exports are growing the fastest. a. North American b. South American c. Asian d. African e. European ANSWER: c 32. The three largest foreign exchange markets are in London, New York, and _____. a. Singapore b. Sydney c. Paris d. Tokyo e. San Francisco ANSWER: d 33. In this system, a currency's value depends partly upon active government intervention in the foreign exchange market. a. i​ ndependent floating exchange rate system b. W ​ TO exchange rate system c. f​ ixed exchange rate system d. m ​ anaged floating exchange rate system e. g​ overnment exchange rate system ANSWER: d

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Chapter 04: The International Flow of Funds and Exchange Rates 34. 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 ANSWER: b 35. The forex market consists of spot, forward, and _____ markets. a. exchange b. futures c. independent d. balance e. foreign ANSWER: b 36. The _____ market is an informal OTC market run by banks. a. f​ orward b. s​ pot c. f​ utures d. i​ ndependent e. b​ alance ANSWER: a 37. 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 ANSWER: e

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Chapter 04: The International Flow of Funds and Exchange Rates 38. 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 ANSWER: b 39. In the forward market, the selling of a currency at a spot rate that is more than the forward rate is called _____. a. gaming the exchange rate b. cheating the bid-ask spread c. forward rate speculation d. selling at a premium e. selling at a discount ANSWER: d 40. 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.

ANSWER: a 41. 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.

ANSWER: e

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Chapter 04: The International Flow of Funds and Exchange Rates 42. What is dollarization? a. U ​ sing the dollar or some other foreign currency together with or instead of a domestic currency. b. P ​ egging the value of a foreign currency against the U.S. dollar. c. P ​ egging the value of a domestic currency against the market value of gold. d. I​ ncreasing the price of goods based on the supply of money. e. M ​ aintaining an acceptable exchange rate based on government intervention.

ANSWER: a 43. 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. ANSWER: e 44. 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 ANSWER: a 45. 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 balance of ______.

ANSWER: payments 46. The ______ is the net of merchandise exports and merchandise imports.

ANSWER: trade balance 47. A _______ occurs when merchandise imports exceed merchandise exports for a country.

ANSWER: trade deficit

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Chapter 04: The International Flow of Funds and Exchange Rates 48. The ________ consists of domestic-country-owned assets abroad, foreign-owned assets in the domestic country, and net financial derivatives.

ANSWER: financial account 49. 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) ________ floating exchange rate system.

ANSWER: independent 50. Insurance that reduces future risk is referred to as a(n) _______.

ANSWER: hedge 51. 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 ______.

ANSWER: inflation 52. ____ float currency is a monetary system with minimal government intervention; largely market determined.

ANSWER: Clean 53. The law of one price is the underlying principle of the ______ theory.

ANSWER: purchasing power parity PPP 54. Buying goods in a lower priced market and selling them in a higher priced market to make profits is referred to as ______.

ANSWER: arbitrage 55. Identify the four subaccounts of the current account and give specific examples of each.

ANSWER: Student answers will vary.

56. Describe the different components of a forex market.

ANSWER: Student answers will vary.

57. Explain why the United States abandoned the gold system.

ANSWER: Student answers will vary.

58. Differentiate between hard and soft currencies. Provide an example of each.

ANSWER: Student answers will vary.

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Chapter 04: The International Flow of Funds and Exchange Rates 59. Differentiate between purchasing power parity and interest rate parity.

ANSWER: Student answers will vary.

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.

60. 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 ANSWER: d 61. 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 ANSWER: a

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Chapter 04: The International Flow of Funds and Exchange Rates 62. 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 ANSWER: b 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.

63. 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.

Varying economic prospects of differing countries d. Price imbalances caused by mispricing of goods and services in differing countries e.

Stable economic and pricing conditions between differing nations ANSWER: e 64. 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 Buy goods in a lower priced market and sell them in a higher priced market in order to b. 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 ANSWER: b

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Chapter 04: The International Flow of Funds and Exchange Rates 65. 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 ANSWER: d 66. Many investors seeking assistance from the Whoppler Firm wish to use the forward market to lock in future exchange rates and ensure against uncertain future currency movements Which of the following best identifies what these investors are seeking? a.

A hedge b.

A discount c.

A spot rate d.

A bid-ask spread e.

An indirect quote ANSWER: a 67. Of the following, which is NOT an example of a foreign direct investment?​ a. A ​ cquisition of a foreign company b. C ​ reation of new manufacturing facilities abroad c. C ​ reation of new research facilities abroad d. E ​ xpansion of an existing plant in a foreign country e. F ​ inancial capital flows between countries ANSWER: a

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Chapter 05: The Cultural Environment 1. Research studies find that culture is not learned; rather it is inherited. a. True b. False ANSWER: False 2. The ability of a firm to adjust to a culture different from its own is called acculturation. a. True b. False ANSWER: True 3. The primary reason why language mistakes occur in global business is that organizations tend to use backward translation. a. True b. False ANSWER: False 4. Because Turkey is a Muslim country, the consumption of alcoholic beverages is prohibited there. a. True b. False ANSWER: False 5. In Arab countries, business executives will often digress from the primary purpose of the meeting, then eventually return to the topic initially discussed. a. True b. False ANSWER: True 6. Latin American 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. a. True b. False ANSWER: False 7. The level of education held by people in foreign countries must be such that high-tech products can be accepted because the market knows how to use them. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero.

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Chapter 05: The Cultural Environment 8. Power distance examines the extent to which societies tolerate risk or are risk averse. a. True b. False ANSWER: False 9. 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). a. True b. False ANSWER: True 10. According to the GLOBE Project, the lowest level of institutional collectivism existed for the Anglo group. a. True b. False ANSWER: False 11. Ironically, studies have shown that people who have lived and worked abroad are not particularly good sources of informatin about the cultures of various countries. a. True b. False ANSWER: False 12. When doing business in Japan, it is appropriate to look directly into the eyes of your hosts. a. True b. False ANSWER: False 13. 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. a. True b. False ANSWER: True 14. Latin Americans are not as conscious about time as are North Americans. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero.

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Chapter 05: The Cultural Environment 15. The use of jargon is especially useful when conducting business meetings with foreign personnel. a. True b. False ANSWER: False 16. Of the following, which is NOT a characteristic 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, chiefly 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.

ANSWER: e 17. 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 cultural variables determining from which supplier they purchased. This example of which of the four characteristics of culture which is important for global companies to recognize? a. Culture is learned, 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.

ANSWER: c 18. ______ 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 ANSWER: b

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Chapter 05: The Cultural Environment 19. 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 ANSWER: d 20. _____ refers to the way a society does things. a. Values b. Attitudes c. Manners and customs d. Stances e. Outlooks ANSWER: c 21. In some countries, a high premium is placed upon foreigners and foreign items, as they are associated with sophistication –Belgian chocolate, 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. social institution c. custom d. stance e. outlook ANSWER: a 22. Feelings or opinions are called a. values. b. attitudes. c. manners. d. customs. e. aesthetics.

ANSWER: b

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Chapter 05: The Cultural Environment 23. 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 cultural _____. a. aesthetics b. attitudes c. manners and customs d. social institutions e. outlooks ANSWER: c 24. 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 examples of cultural_____. a. value b. attitude c. manners and customs d. stance e. outlook ANSWER: c 25. _____ infrastructure refers to housing, medical services, and educational institutions. a. Material b. Technological c. Social d. Financial e. Economic ANSWER: c 26. 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 ANSWER: b

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Chapter 05: The Cultural Environment 27. _____ 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 ANSWER: c 28. According to Hofstede, the United States is considered a(n) a. authoritarian country. b. collectivist country. c. high power distance country. d. feminine country. e. highly individualistic country.

ANSWER: e 29. According to Hofstede, which of the following countries is best described as a highly feminine culture? a. Mexico b. Belgium c. Greece d. Norway e. Japan ANSWER: d 30. 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 ANSWER: b

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Chapter 05: The Cultural Environment 31. 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. Denmark has been described as a highly feminine culture. 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.

ANSWER: b 32. Which of the following is NOT one of the nine cultural variables researched by the GLOBE Project? a. Power distance b. Uncertainty avoidance c. Humane orientation d. Performance orientation e. Emotionality ANSWER: e 33. 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 ANSWER: b 34. 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 ANSWER: a

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Chapter 05: The Cultural Environment 35. 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 ANSWER: e 36. 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.

ANSWER: b 37. In Arab countries, it is crucial for a visitor to a. use the left hand to exchange greetings. b. avoid sitting so that the sole of one’s shoe is shown. c. praise his or her hosts effusively. d. insist on staying on-topic at all times. e. ask about the hosts' wives and children.

ANSWER: b 38. When doing business in China, it is important to remember that a. exchanges are often uneven, working to the advantage of weaker members in the relationship. b. persons of low rank never have any influence or power in a relationship. c. an emotional appeal to superiors will almost always be successful. d. one must never give in to any demands of the Chinese hosts. e. obtaining the favor of subordinates will be seen as a sign of weakness.

ANSWER: a

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Chapter 05: The Cultural Environment 39. In ______, teachers are so revered that walking in their shadows is viewed as impolite. a. Mexico b. Korea c. Russia d. Saudi Arabia e. India ANSWER: b 40. _____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 ANSWER: b 41. 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 ANSWER: d 42. In which country might an American businesswoman find her hosts especially reluctant to work with her? a. Germany b. Mexico c. Saudi Arabia d. Canada e. South Africa ANSWER: c

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Chapter 05: The Cultural Environment 43. 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.

ANSWER: a 44. A management style that stresses competition among workers and among companies would likely not work well in a. China. b. Germany. c. Canada. d. the United States. e. Russia.

ANSWER: a 45. Which of these expressions should an American businessperson avoid in a meeting with foreign business representatives? a. "Today we will be discussing the new contract." b. "It is my pleasure to meet with you today." c. "Let's run this idea up the flagpole." d. "I look forward to working with you." e. "Let's discuss this idea further."

ANSWER: c 46. ________ refers to learned behavior; a way of life for one group of people living in a single, related and independent community.

ANSWER: Culture 47. Uncertainty avoidance examines the extent to which societies tolerate ________.

ANSWER: risk 48. Power distance is the cultural dimension that refers to ______ (equality) versus authority.

ANSWER: egalitarianism 49. Time _______is the extent to which a society emphasizes short-run or long-run time horizons.

ANSWER: orientation Copyright Cengage Learning. Powered by Cognero.

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Chapter 05: The Cultural Environment 50. ________ is Trompenaars’s cultural variable that refers to the importance of rules versus relationships.

ANSWER: Universalism vs. particularism 51. The extent to which a society expresses itself emotionally is defined by Trompenaars as ________variable.

ANSWER: neutral vs. emotional 52. The ______ variable refers to the degree to which a society compartmentalizes roles.

ANSWER: specific vs. diffuse 53. The _________ variable refers to how rewards in a society are handed out.

ANSWER: achievement vs. ascription 54. The Chinese philosophy that denotes friendship among unequals involving unlimited exchanges of favors; thus, it is not based upon sentiment is referred to as “_____”.

ANSWER: “guanxi” guanxi 55. The Chinese philosophy that denotes friendship among unequals and unlimited exchanges of favors is referred to as _____.

ANSWER: guanxi 56. Briefly describe the four characteristics of culture important for global companies.

ANSWER: Student answers will vary.

57. Briefly describe any four elements of culture. Provide an example of each.

ANSWER: Student answers will vary.

58. Would you characterize the United States as a "masculine" or "feminine" country? Defend your answer.

ANSWER: Student answers will vary.

59. Differentiate between the cultural dimensions of doing business in Latin America and Arab countries.

ANSWER: Student answers will vary.

60. Based on what you have learned about culture, which management styles do you think would work best when working with clients from the Middle East? Explain your answer.

ANSWER: Student answers will vary.

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Chapter 05: The Cultural Environment 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.

61. 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 ANSWER: a 62. 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.

A company’s marketing and management must adjust and adapt to the culture of the b. foreign marketplace. c.

Culture is not dynamic and changes slowly over a long period of time.

Companies have the responsibility to understand what is valued and accepted in the d. foreign marketplace. e.

Culture is inherited from others living within the society.

ANSWER: e

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Chapter 05: The Cultural Environment 63. 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 Dinner meetings are considered a time to get to know those who would be doing e. business together ANSWER: b 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.

64. 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 ANSWER: c 65. 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.

ANSWER: e

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Chapter 05: The Cultural Environment 66. 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 ANSWER: d

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Chapter 06: The Legal and Political Environment of Global Business 1. Totalitarian government refers to a form of government in which total (all) citizenry have the right to vote. a. True b. False ANSWER: False 2. The openness of democratic countries, 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. a. True b. False ANSWER: True 3. Singapore historically has had a highly anti-business political system in a parliamentary model context, with one ruling party, in power since 1959. a. True b. False ANSWER: False 4. Under Communist economic ideology, collectivistic rights give way in the extreme to individual rights. a. True b. False ANSWER: False 5. Very little role for government exists in a purely capitalistic or “free market” economic system. a. True b. False ANSWER: True 6. China, with its strong individualistic, entrepreneurial, free-market spirit, historically has been viewed as the leading economically capitalistic economy in the world. a. True b. False ANSWER: False 7. Restrictions on the transfer or exchange of a given foreign country's currency is an example of an economic risk. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero.

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Chapter 06: The Legal and Political Environment of Global Business 8. Fortunately for global businesses, economic risks are independent of political risks. a. True b. False ANSWER: False 9. Prolonged civil war in a politically unstable country is an example of a macropolitical risk. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True 11. The rise of ISIS has increased the political risk of Middle Eastern countries doing business with the United States. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True 13. Tax law is the body of law governing legally enforceable agreements between parties to engage in economic exchange. a. True b. False ANSWER: False

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Chapter 06: The Legal and Political Environment of Global Business 14. In the United States, companies generally operate under a regime of caveat emptor, or "buyer beware." a. True b. False ANSWER: False 15. Patent rights generally remain enforcable for 5-20 years, depending on the invention and the country. a. True b. False ANSWER: True 16. In this form of government, all citizens vote directly on matters affecting the community a. Athenian democracy b. Totalitarianism c. Representative democracy d. Egalitarian e. Communism ANSWER: a 17. Most, if not all, democracies today are what are known as _____ democracies. a. athenian b. totalitarianism c. representative d. egalitarian e. communism ANSWER: c 18. 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. ANSWER: b

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Chapter 06: The Legal and Political Environment of Global Business 19. Of the following statements, which is NOT true about totalitarian governments? a. Totalitarian governments always have weak economies. b. A country run by a military dictatorship would be an example of a totalitarian government. c. Totalitarian governments rule without the support or consent of the citizens. d. An absolute monarchy is an example of a totalitarian government. e. The dictatorships that prevailed in Eastern Europe during the Cold War were examples of totalitarian governments.

ANSWER: a 20. Which is the largest nation in the world with a communist economic ideology? a. China b. Russia c. Vietnam d. India e. South Africa ANSWER: a 21. _____ 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 ANSWER: e 22. 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.

ANSWER: b

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Chapter 06: The Legal and Political Environment of Global Business 23. 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. Passage of the Patient Protection and Affordable Care Act marked the United States' movement away from capitalism.

ANSWER: e 24. 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 ANSWER: d 25. _____ 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 ANSWER: a 26. A country’s potential nationalization of companies in the automobile industry would represent a(n) _____ risk. a. marketing b. environmental c. individual d. macropolitical e. micropolitical ANSWER: e

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Chapter 06: The Legal and Political Environment of Global Business 27. Unlawful acts of violence threatening the physical safety of others is called _____. a. blackmail b. extortion c. economic risk d. terrorism e. corruption ANSWER: d 28. 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 ANSWER: c 29. 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 ANSWER: b 30. Which of the following is an example of corruption? a. Paying a bribe to a company executive in order to be awarded a contract. b. Damaging equipment in a factory to protest treatment of workers. c. Lobbying a congresswoman to vote for a tax cut for business. d. Urging union workers to go on strike in order to gain concessions. e. Raising the price on a product in order to make a profit ANSWER: a

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Chapter 06: The Legal and Political Environment of Global Business 31. _____ corruption is business corruption involving other private businesses, individuals, or groups. a. Public b. Private c. Open d. Closed e. External ANSWER: b 32. A recent survey found this nation to be the most dangerous in the world. a. Croatia b. Saudi Arabia c. China d. North Korea e. Somalia ANSWER: e 33. 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 ANSWER: b 34. A 2013 survey asked individuals whether they or someone in their household had paid a bribe in the past 12 months. The survey found the bribery rate in the United States was between ______. a. 1 and 4.9 percent b. 5 and 9.9 percent c. 10 and 14.9 percent d. 15 and 19.9 percent e. 20 and 24.9 percent ANSWER: b

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Chapter 06: The Legal and Political Environment of Global Business 35. According to the text regarding a study of corporate bribery in developed countries conducted by Transparency International, which of the following nations had the most corporate bribery? a. Russia b. the United States c. Hong Kong d. Japan e. Singapore ANSWER: a 36. 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 ANSWER: a 37. 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 ANSWER: a 38. In a civil law country, the real power lies with a. labor unions and public works employees. b. the legislative branch of government. c. the judiciary. d. corporations and banks. e. the executive branch of government.

ANSWER: b

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Chapter 06: The Legal and Political Environment of Global Business 39. 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 ANSWER: a 40. 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 ANSWER: b 41. Of the following statements about common law legal systems, which is NOT true? a. They originated in China under the Ming Dynasty. b. A key advantage of common law systems 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 judges can often interpret the law as they see fit. 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.

ANSWER: a 42. 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 ANSWER: c Copyright Cengage Learning. Powered by Cognero.

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Chapter 06: The Legal and Political Environment of Global Business 43. Laws to promote “fair competition” among businesses are known as _____ laws. a. tax b. common c. contract d. theocratic e. antitrust ANSWER: e 44. “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 ANSWER: c 45. The words “aspirin,” “escalator,” and “zipper” are examples of _____. a. intellectual property b. patents c. trademarks d. generalized trademarks e. contracts ANSWER: d 46. ________ ; Greek for “rule by the people”; is a form of government in which all citizens have the right to vote.

ANSWER: Democracy 47. _______ is an economic ideology where by the government owns and controls all major factors of production, and is philosophically an economically classless society.

ANSWER: Communism 48. A political risk that only affects a certain industry or set of firms in a given country is called a ______ risk.

ANSWER: micropolitical 49. Countries with little or no tax ______ are known as tax haven countries.

ANSWER: transparency

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Chapter 06: The Legal and Political Environment of Global Business 50. Antitrust laws are designed to promote "fair ______" among businesses.

ANSWER: competition 51. The practice of companies acting in a manner which secretly thwarts competition amongst themselves is known as _______.

ANSWER: collusion 52. 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(n) _______.

ANSWER: monopoly 53. Caveat venditor, or “______ beware,” involves placing the burden of product safety on manufacturers rather than on consumers.

ANSWER: seller 54. A(n) ________ 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.

ANSWER: trademark 55. A(n) _______ 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.

ANSWER: copyright 56. Differentiate between communism, capitalism, and socialism as economic ideologies affecting global businesses.

ANSWER: Student answers will vary.

57. Describe the economic and political risks faced by companies doing business in global arena.

ANSWER: Student answers will vary.

58. Explain the three primary kinds of legal systems.

ANSWER: Student answers will vary.

59. What is dispute settlement law? Name and describe the two basic types of dispute resolution processes.

ANSWER: Student answers will vary.

60. Describe how patents, trademarks, and copyrights help protect intellectual properties in today's global business environment. Give specific examples.

ANSWER: Student answers will vary.

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Chapter 06: The Legal and Political Environment of Global Business 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. 61. 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.

China is considered a communist country in which the government owns or controls b. most of the factors of production.

There is the possibility of the Chinese government confiscating the assets (the products) c. of Britton Manufacturing.

For the most part, the government of China continues to maintain control of the unions d. within China.

The market of China provides enormous opportunity for foreign companies because it e. has been emerging as one of the most economically powerful nations in the world in recent years.

ANSWER: a 62. 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?

The potential for the company’s executives to be kidnapped and held for ransom while a. on foreign soil b.

The constant fluctuation of foreign currencies in relation to the U.S. dollar The economic downturn in the United States resulting in many experienced workers c. 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 ANSWER: c

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Chapter 06: The Legal and Political Environment of Global Business 63. 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 ANSWER: b 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.

64. 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 ANSWER: e 65. 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.

Lack of consumer interest in the company's products b. The devaluation of foreign currency c.

Confiscation of a company shipping vessel by pirates d. Currency conversion restrictions e.

Potential for hyper-inflation to occur ANSWER: c

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Chapter 06: The Legal and Political Environment of Global Business 66. 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 Patent rights remain enforceable for 5-20 years depending upon the invention and the b. country involved c.

Patents have an expiration date set some time in the future depending on the invention Modifications to the product by others are allowed after one year and with government d. consent e.

Patents offer inventors limited legal monopoly rights ANSWER: d

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Chapter 07: Corruption and Ethics in Global Business 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 3. Corruption is unknown in countries with low CPI scores. a. True b. False ANSWER: False 4. Corporate social responsibility refers only to the company’s obligations to its stockholders and investors. a. True b. False ANSWER: False 5. Well-designed corporate ethics codes guarantee that employees will always make the ethical choice. a. True b. False ANSWER: False 6. The Sarbanes-Oxley Act of 2002 set “green” standards for companies. a. True b. False ANSWER: False 7. Enron Corporation is a perfect example of effective social and ethical responsibility in the financial sector. a. True b. False ANSWER: False

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Chapter 07: Corruption and Ethics in Global Business 8. In 2005, Bernie Ebbers of WorldCom was recognized by the Better Business Bureau for his company being a leader in social responsibility. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True 11. The global slave trade that exists today is referred to as human trafficking. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True 13. Under the terms of the Foreign Corrupt Practices Act, it is illegal to give a bribe to a foreign official or foreign political party, but permissible to give a bribe to a businessperson if bribery is considered "an integral part of doing business in the country's environment." a. True b. False ANSWER: False

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Chapter 07: Corruption and Ethics in Global Business 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. a. True b. False ANSWER: True 15. Production quality control and internal auditing are example of feedback controls. a. True b. False ANSWER: True 16. 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 ANSWER: a 17. 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.

ANSWER: c

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Chapter 07: Corruption and Ethics in Global Business 18. 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 ANSWER: c 19. The FIRST basic step in ethical decision-making is to a. identify who will be affected by the situation. b. determine how the decision will benefit you. c. define all the facts and circumstances. d. identify alternate decisions and consequences. e. carry out the decision.

ANSWER: c 20. Do what produces the greatest good. This statement refers to the _____ principle. a. essence b. governance c. imperative d. utilitarian e. generalization ANSWER: d 21. 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. libertarian b. religious c. universal d. ethical e. generalization ANSWER: e

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Chapter 07: Corruption and Ethics in Global Business 22. 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 ANSWER: d 23. 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 ANSWER: a 24. The FINAL 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 ANSWER: b 25. Which of the following is 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 ANSWER: a

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Chapter 07: Corruption and Ethics in Global Business 26. The _____ is a report published each year by Transparency International, providing metrics to the potential corruption risk for 174 countries. a. Corruption Perceptions Index b. Social Responsibility Report c. Ponzi Scheme d. Integrity Perceptions Report e. Ethical Violations Index ANSWER: a 27. A company’s obligations to society, including the welfare of people and places affected by company activities is called _____. a. utilitarianism b. corporate social responsibility c. ethics d. integrity e. the moral imperative ANSWER: b 28. 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 ANSWER: c 29. Asking oneself “Would I want others to treat me this way?” is an application of the principle of _____. a. consistency b. utilitarianism c. justice d. fairness e. respect ANSWER: e

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Chapter 07: Corruption and Ethics in Global Business 30. You can make an ethical choice by asking yourself all of the following questions EXCEPT a. "What's in it for me?" b. "What does the law say about this?" c. "What are company policies on this issue?" d. "Would I want my children to know I did this?" e. "Does the situation 'smell bad'?"

ANSWER: a 31. _____ 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 ANSWER: b 32. 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. The scandal surprised no one because Enron 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.

ANSWER: b 33. 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.

ANSWER: c

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Chapter 07: Corruption and Ethics in Global Business 34. Which financial scandal was associated with the presidency of Warren G. Harding? a. the Edison Power scandal b. the Teapot Dome scandal c. the Vivendi scandal d. the Parmalat scandal e. the Enron scandal ANSWER: b 35. He perpetrated a financial scandal in the 1920s by using money received from later investors to provide early investors with returns on their investment. a. Warren G. Harding b. Kenneth Lay c. Charles Ponzi d. Bernard Madoff e. Albert Fall ANSWER: c 36. To prepare business leaders for the 21st century, the Association to Advance Collegiate Schools of Business suggests all but which of the following fundamentals of ethics education? a. Personal integrity b. Objectivist theory c. Ethical leadership d. Corporate governance e. Responsibility of business in society ANSWER: b 37. _____ 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 ANSWER: a

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Chapter 07: Corruption and Ethics in Global Business 38. Internal control procedures fit into _____ categories. a. two b. three c. four d. five e. six ANSWER: a 39. Which is NOT an example of a preventive control? a. providing for the physical security of assets b. keeping adequate records c. following written policies and procedures d. hiring competent and ethical employees e. production quality control ANSWER: e 40. Internal auditing is an example of a(n) _____ control. a. feedforward b. feedback c. vertical d. horizontal e. identical ANSWER: b 41. 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.

ANSWER: a

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Chapter 07: Corruption and Ethics in Global Business 42. The Sarbanes-Oxley Act increased the potential prison sentence for fraud to _____ years. a. 5 b. 10 c. 15 d. 25 e. 50 ANSWER: d 43. The average computer crime has been estimated to cost almost a. $250. b. $2,500. c. $25,000. d. $200,000. e. $2,500,000.

ANSWER: d 44. Which causes MOST problems associated with computer security? a. natural disasters b. government spying c. dishonest employees d. accidental errors e. disgruntled employees ANSWER: d 45. Computer crime became commonplace with the development of the world wide web in the a. 1950s. b. 1960s. c. 1970s. d. 1980s. e. 1990s.

ANSWER: e 46. If you act according to absolute moral rules, you are following the ______ principle.

ANSWER: imperative

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Chapter 07: Corruption and Ethics in Global Business 47. ______ 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.

ANSWER: Ethics 48. Adherence to moral and ethical principles; soundness of moral character; and honesty demonstrates _________.

ANSWER: integrity 49. The Corruption ________ Index is a report published each year by Transparency International, providing metrics to the potential corruption risk for 174 countries.

ANSWER: Perceptions 50. ________ refers to a company’s obligations to society, including the welfare of people and places affected by company activities ANSWER: Corporate social responsibility 51. 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.

ANSWER: Ponzi 52. Accounting practices that update the value of an asset to its current market levels are referred to as ______ accounting.

ANSWER: mark to market 53. _________ are a system of rules and procedures within a business designed to ensure the accuracy and reliability of financial and accounting information ANSWER: Internal controls 54. The Foreign _______ Practices Act 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 ANSWER: Corrupt 55. Electronic ______ is the exchange of goods or services using an electronic infrastructure.

ANSWER: business 56. Briefly explain the relationship between ethics and integrity.

ANSWER: Student answers will vary.

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Chapter 07: Corruption and Ethics in Global Business 57. Discuss the various ways to resolve an ethical question.

ANSWER: Student answers will vary.

58. Briefly describe how a Ponzi scheme works.

ANSWER: Student answers will vary.

59. Do you believe ethics can be taught? Why or why not? Explain your answer with specific examples.

ANSWER: Student answers will vary.

60. Compare and contrast the two categories of internal control procedures.

ANSWER: Student answers will vary.

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.

61. 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 ANSWER: e

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Chapter 07: Corruption and Ethics in Global Business 62. 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?

All Bradley employees regardless of their position have a say in new human resource a. policies before they are implemented.

The Bradley Corporation is engaged with green technologies to eliminate potential b. environmental damage.

The Bradley Corporation makes certain a significant return on investment is provided c. to its stockholders regardless of what must be sacrificed. d.

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 e. financial and legal obligations.

ANSWER: c 63. 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 ANSWER: d

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Chapter 07: Corruption and Ethics in Global Business 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.

64. 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 ANSWER: a 65. 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? Making the offer to pay money to a foreign official for special privilege afforded to the a. company b. Establishing pay scales for employees of the company while working on foreign soil Offering a gift to the head of the foreign political party of the nation where work is being c. performed Making a promise of payment to government officials for directing business to the d. company Provision indicating access to assets is allowed only by management’s specific e. authorization ANSWER: b

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Chapter 07: Corruption and Ethics in Global Business 66. 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 All funds due the company and all checks for expenditures are handled by the same e. person ANSWER: e

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Chapter 08: Entry Strategies in Global Business 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. a. True b. False ANSWER: True 2. Interestingly, licensing and franchising typically leads to the penetration of international markets without significant capital investment abroad by the parent company. a. True b. False ANSWER: True 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 similar in every store. a. True b. False ANSWER: True 4. Strategic alliances are primarily aimed at enhancing goodwill. a. True b. False ANSWER: False 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. a. True b. False ANSWER: False 6. Subsidiaries require major marketing efforts to penetrate the international market because of cultural differences and because the entrant is new and relatively unknown. a. True b. False ANSWER: True

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Chapter 08: Entry Strategies in Global Business 7. Microsoft (United States), Toyota (Japan), Lenovo, (China), and Petrobras (Brazil) are just a few of the hundreds of large multinational enterprises that are based in one country but own and operate establishments in others. a. True b. False ANSWER: True 8. MNEs can never successfully enter foreign markets as traders, licensors, or franchisors. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 10. The only profitable way for foreign firms to enter trade-restricted markets is through FDI rather than through exports. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True

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Chapter 08: Entry Strategies in Global Business 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. a. True b. False ANSWER: False 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. a. True b. False ANSWER: False 15. The level of corruption in a country is usually a good indicator of the degree of good or poor governance in that country. a. True b. False ANSWER: True 16. 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 ANSWER: b 17. According to the text, which of the following entry strategies has the lowest degree of risk? a. Licensing b. Wholly-owned foreign subsidiary c. Foreign acquisition d. Joint venture e. Strategic alliance ANSWER: a

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Chapter 08: Entry Strategies in Global Business 18. 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.

ANSWER: a 19. 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 ANSWER: a 20. Which industry is especially well-known for franchising? a. agricultural industry b. mining industry c. airline industry d. automotive industry e. fast-food industry ANSWER: e

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Chapter 08: Entry Strategies in Global Business 21. 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 ANSWER: b 22. 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. Franchisees receive technical assistance from the parent company, along with customer-service training. 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.

ANSWER: c 23. 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 ANSWER: d 24. A challenge faced by strategic alliances is that a. they are illegal in most international markets. b. they involve the creation of a separate entity with joint ownership. c. environmental sustainability is difficult to achieve. d. any member could prematurely quit the alliance. e. they are not especially focused on enhancing revenues.

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Chapter 08: Entry Strategies in Global Business 25. 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 ANSWER: e 26. 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 ANSWER: d 27. Coca-Cola has built 43 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 ANSWER: e 28. The combination of medical treatment in a foreign country with rest and recreation is called _____. a. medical tourism b. a health-cation c. a medi-vac d. medical transport e. hospi-tality ANSWER: a

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Chapter 08: Entry Strategies in Global Business 29. 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 ANSWER: c 30. A new facility built and operated overseas that requires large investments of capital is an example of a _____. a. subsidiary b. multinational enterprise c. foreign acquisition d. strategic alliance e. divestiture ANSWER: a 31. 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.

ANSWER: c 32. General Electric, Microsoft, Sony, Toyota, and BMW are examples of _____. a. subsidiaries b. multinational enterprises c. foreign acquisitions d. strategic alliances e. acquisitions ANSWER: b

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Chapter 08: Entry Strategies in Global Business 33. Of the following, which is NOT an emerging-market? a. South Africa b. India c. Australia d. Brazil e. Russia ANSWER: c 34. 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 ANSWER: e 35. The so-called BRIC countries consist of: _____. a. Brazil, Russia, India, and China b. Belgium, Romania, Iran, and Canada c. Bulgaria, Russia, Iraq, and Cuba d. Brazil, Russia, Israel, and Chile e. Belarus, Romania, Indonesia, and Colombia ANSWER: a 36. 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 ANSWER: a

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Chapter 08: Entry Strategies in Global Business 37. 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 ANSWER: e 38. 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 ANSWER: b 39. The first stage of the product life cycle is _____. a. decline b. introduction c. growth d. maturity e. development ANSWER: b 40. The second stage of the product life cycle is _____. a. decline b. introduction c. growth d. maturity e. development ANSWER: c

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Chapter 08: Entry Strategies in Global Business 41. Typewriters are in the _____ stage of the product life cycle. a. decline b. introduction c. growth d. maturity e. development ANSWER: a 42. Who identified three key economic “advantages” that firms should have for FDI to occur? a. Hawthorne b. Maslow c. Dunning d. Ford e. Roosevelt ANSWER: c 43. _____ advantages refer to the mode of entry abroad. a. Ownership, or firm specific b. Locational, or country-specific c. Internalization d. Externalized e. Environmental ANSWER: c 44. 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 ANSWER: a

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Chapter 08: Entry Strategies in Global Business 45. Of the following, which is NOT a cost of foreign direct investment? a. Developing countries may be exploited by MNEs. b. Multinational 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.

ANSWER: e 46. ______ refers to the potential financial loss that entrepreneurs are willing to take in a business.

ANSWER: Risk profile 47. A relatively low-risk business operation that involves penetrating foreign markets (by exporting) or importing merchandise at competitive prices for domestic consumption refers to _______.

ANSWER: export-import business 48. _______ 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.

ANSWER: Licensing 49. McDonald's, Burger King, and Subway are all examples of businesses that operate as ______.

ANSWER: franchises 50. 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 _______.

ANSWER: strategic alliances 51. An ______ 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.

ANSWER: international joint venture 52. 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 _____.

ANSWER: subsidiaries 53. Multinational ______ 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.

ANSWER: enterprises Copyright Cengage Learning. Powered by Cognero.

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Chapter 08: Entry Strategies in Global Business 54. In a free enterprise system, the main objective of firms that invest abroad is to maximize _____ wealth.

ANSWER: shareholder 55. _______ 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.

ANSWER: Governance 56. ABC Manufacturing is exploring entering the global arena. Describe the three lowest risk entry strategies in global business for ABC. ANSWER: Student answers will vary.

57. Differentiate between strategic alliances and international joint ventures.

ANSWER: Student answers will vary.

58. Companies go global for three possible motives. Describe each of these three motives and the possible strategies available to companies under each motive.

ANSWER: Student answers will vary.

59. Briefly describe Dunning’s Eclectic Theory of Foreign Direct Investment.

ANSWER: Student answers will vary.

60. What are the benefits and costs of foreign direct investment from the host country’s perspective? Explain.

ANSWER: Student answers will vary.

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Chapter 08: Entry Strategies in Global Business 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.

61. 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 ANSWER: c 62. 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 A larger percent of the population is financially classed as below middle class in certain d. of these foreign markets These foreign markets are considered to have high profitability potential for companies e. such as Lewis Fabrication ANSWER: a 63. 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 ANSWER: b

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Chapter 08: Entry Strategies in Global Business 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 wellrecognized 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.

64. 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 ANSWER: e 65. 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?

This type of relationship is expected to last for years so there must be a high level of a. trust between the companies involved Boseman will be subjected to the least amount of risk with this type of entry into a b. foreign market Boseman is expected to provide the foreign partner with the process necessary to c. produce its highly desired suits Boseman’s partner is expected to pay an annual license fee to the company for the use d. of its production process and the ability to sell its products Boseman does not have to have financial resources to open new production facilities e. within the foreign country ANSWER: b

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Chapter 08: Entry Strategies in Global Business 66. Boseman 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.

Foreign direct investment can create new jobs and can generate tax revenues for b. governments A concern of the local governments in host countries is the lack of corporate social c. responsibility d. There is the potential for exploitation of human labor within certain countries e.

These investments may take the form of plants, buildings, or inventories ANSWER: a

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Chapter 09: Control of Global Business 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True 3. The plan for ABC International to build and open a textile manufacturing plant in China within the next two-andone-half years would be an example of an operational plan. a. True b. False ANSWER: False 4. Target Corporation is often accused of being a defender in terms of its market strategies and strategic implementation. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 6. When R&D discoveries in the United States operations of Anadarko Petroleum Corporation can easily be communicated to and accepted by its operations in Ghana, it is an example of Anadarko's absorptive capacity. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Control of Global Business 7. The president of a small company makes a point to touch base with every employee each day; this is an example of an interpersonal control. a. True b. False ANSWER: True 8. A financial budget is a perfect example of an output control. a. True b. False ANSWER: False 9. A key output metric for some global businesses is market share, or the percentage of the business in a certain market that is captured by a product or service the organization provides. a. True b. False ANSWER: True 10. For global companies that take more of a "shareholder" approach to strategy formation, corporate social responsibility (CSR) ir probably the most important output control of all. a. True b. False ANSWER: False 11. 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. a. True b. False ANSWER: True 12. Organizational change in a business is almost always most effective when pushed from the bottom by the company’s rank-and-file employees. a. True b. False ANSWER: False

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Chapter 09: Control of Global Business 13. CEOs who rise internally within the company, but who have followed a nontraditional path to the executive suite, (e.g.,, Nancy McKinstry, the CEO of Dutch publishing company Wolters Kluwer NV) are referred to as “outsideinsiders.” a. True b. False ANSWER: False 14. Tacit knowledge is easier to communicate than explicit knowledge. a. True b. False ANSWER: False 15. Smithfield Foods Company, the world’s largest pork producer, has set the clear organizational goal of getting 10 cents profit for each pound of its processed pork products that is sold. This is an example of an output control and measurement. a. True b. False ANSWER: True 16. In a(n) _______, a global business explains why it exists and what it plans to accomplish. a. strategy formulation b. mission statement c. annual budget d. prospectus e. code of ethics ANSWER: b 17. “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 ANSWER: b

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Chapter 09: Control of Global Business 18. A company following a shareholder model of strategy formulation would be MOST focused on its ______. a. customers b. executives c. suppliers d. employees e. owners ANSWER: e 19. Starbucks Corporation takes more of a _____ approach toward strategy formulation. a. customer-based b. stakeholder c. profit-oriented d. shareholder e. utilitarian ANSWER: b 20. 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 ANSWER: d 21. An operational plan is a. less than one year. b. one to three years. c. three to five years. d. five to seven years. e. seven to ten years.

ANSWER: a

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Chapter 09: Control of Global Business 22. 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 ANSWER: b 23. To make sure it has enough employees on hand during the busy holiday season, Target plans to hire thousands of temporary, seasonal help for the final three months of the calendar year. This is an example of a(n) _____ plan. a. intentional b. equipped c. strategic d. tactical e. operational ANSWER: e 24. A(n) _____ plan for Best Buy might be to build and open 50 new stores in the United States and Canada within the next two-and-one-half years. a. reactionary b. standing c. strategic d. tactical e. operational ANSWER: d 25. 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 ANSWER: b

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Chapter 09: Control of Global Business 26. 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 ANSWER: a 27. Companies that are _____ take a middle ground between being prospectors and defenders. a. neutrals b. maintainers c. reactors d. analyzers e. coordinators ANSWER: d 28. 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 ANSWER: d 29. Knowledge that is codifiable and easy to communicate or write down is called _____ knowledge. a. tacit b. explicit c. absorptive d. working e. stored ANSWER: b

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Chapter 09: Control of Global Business 30. A top salesperson "just knows how to sell" but has a difficult time communicating how she does it. Her ability to sell is an example of _____. a. tacit knowledge b. explicit knowledge c. absorptive capacity d. working capacity e. stored capacity ANSWER: a 31. A lamp manufacturing company has a written, ten-step process that describes how to put together its best-selling table lamp. This is an example of _____. a. tacit knowledge b. explicit knowledge c. absorptive capacity d. working capacity e. stored capacity ANSWER: b 32. 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.

ANSWER: e 33. 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 ANSWER: c

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Chapter 09: Control of Global Business 34. _____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 ANSWER: d 35. Former General Electric CEO Jack Welch was well known for regularly meeting one-on-one with all senior managers and business unit heads. Welch was practicing _____ control. a. interpersonal b. intrapersonal c. bureaucratic d. output e. input ANSWER: a 36. Las Vegas hotelier MGM Mirage recently spent $8.5 billion on a new resort that adds almost 5,000 new rooms to a market that some argue is already saturated. Which of the following output controls and measurement is MGM Mirage using? a. Profits b. Employee turnover c. Growth d. Productivity e. Market share ANSWER: c

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Chapter 09: Control of Global Business 37. 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 ANSWER: d 38. An organizational initiative that aims to limit defects or problems to 3.4 per million is a(n) a. absorptive capacity. b. bureaucratic control. c. growth measurement. d. interpersonal control. e. Six Sigma initiative.

ANSWER: e 39. 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 ANSWER: a 40. Organizational_____ involves implementation of a different business or cultural path for an organization. a. culture b. change c. rightsizing d. control e. downsizing ANSWER: b

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Chapter 09: Control of Global Business 41. 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 ANSWER: c 42. Determining whether to adopt a shareholder or stakeholder orientation is a major ______ for a business. a. strategic goal formulation b. operational plan c. bureaucratic control d. tactical plan e. Six Sigma initiative ANSWER: a 43. 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 ANSWER: a 44. If Dunkin Donuts (DD) were to follow the actions of Starbucks and copy all of their strategies and pricing, DD could be described as a(n) _____. a. defender b. prospector c. reactor d. analyzer e. coordinator ANSWER: c

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Chapter 09: Control of Global Business 45. 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 ANSWER: d 46. 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.

ANSWER: shareholder 47. _______ are one to three year plans formulated for implementing strategic goals.

ANSWER: Tactical plans 48. Organizations that have a basic strategic implementation involveing extending their success through global expansion, and finding new market opportunities are referred to as _______.

ANSWER: prospectors 49. _________ are organizations that have a strategic implementation involving responding to strategic actions initiated by competitors.

ANSWER: Reactors 50. Knowledge that is informal in nature and difficult to communicate is known as _____ knowledge.

ANSWER: tacit 51. ________ refers to the ability of organizations to recognize, assimilate and apply new knowledge.

ANSWER: Absorptive capacity 52. Systems of rules and regulations promulgated within a global business are called ______ controls.

ANSWER: bureaucratic 53. Goals relating to profits, growth, productivity, and market share are all types of ______ controls.

ANSWER: output 54. Corporate ______ responsibility is an important output control for many companies intent on "giving back" to their communities.

ANSWER: social Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Control of Global Business 55. _________ involves implementation of a different business or cultural path for an organization.

ANSWER: Organizational change 56. Differentiate between the shareholder and stakeholder model of strategy formulation.

ANSWER: Student answers will vary.

57. Describe Miles and Snow’s four basic types of longer-term strategic implementation for global businesses. Provide an example of each.

ANSWER: Student answers will vary.

58. Differentiate between explicit and tacit knowledge. Explain the role these play in the coordination of strategy implementation for global businesses.

ANSWER: Student answers will vary.

59. Describe how global companies can utilize the various types of control systems.

ANSWER: Student answers will vary.

60. Define organizational culture and explain the role it plays in controlling organizational activities.

ANSWER: Student answers will vary.

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Chapter 09: Control of Global Business 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.

61. 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 ANSWER: a 62. 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 ANSWER: c

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Chapter 09: Control of Global Business 63. 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.

Organizational culture c.

Organizational change d.

Government mandates e.

Organizational stakeholder’s credo ANSWER: b 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.

64. 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 At times organizational change is better accepted if initiated by an outsider of the c. company d.

Organizational change indicates a company is in serious financial distress Organizational change can involve both the business strategy and the culture of the e. company ANSWER: d 65. In meeting its strategic goals, Keegan Enterprises plans to buy trailer hitches manufactured in Croatia over the next six months. This business idea is best identified as which one of the following? a.

An operational plan b.

A business strategy c.

A demonstration of organizational change d.

A reactor formulation e.

A tactical plan ANSWER: a Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Control of Global Business 66. If Keegan Enterprises was characterized as an analyzer by Miles and Snow, which one of the following would not be true of this company?

Companies that use the analyzer strategy take steps to extend their markets while a. avoiding excessive risk Companies that use the analyzer strategy defend existing operations while taking steps b. to extend their markets Companies recognized as analyzers take a middle ground between being prospectors c. and defenders Companies using an analyzer strategy take extensive risks to expand into global d. markets Strategic implementation using an analyzer strategy can be impeded by legal, e. technological, and political challenges ANSWER: d

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Chapter 10: The Organization of Global Business 1. In the final stage of globalization, global companies produce goods in one country and export them to other countries. a. True b. False ANSWER: False 2. According to C.K. Prahalad, stateless corporations represent the third stage of globalization. a. True b. False ANSWER: False 3. North American Operations, GM Acceptance Corporation, International Operations, and Hughes Electronics are some of the subsidiaries of General Motors. a. True b. False ANSWER: False 4. According to Carol Bartz, former CEO of Yahoo!, organizational structure can sometimes get in the way of innovation. a. True b. False ANSWER: True 5. The first step a domestic firm takes when entering an international arena is usually to create an international division. a. True b. False ANSWER: False 6. An international division is advantageous because it allows global businesses to concentrate all international efforts and expertise in one location. a. True b. False ANSWER: True 7. Global businesses that use a functional structure usually have a narrow product line. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero.

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Chapter 10: The Organization of Global Business 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 organization's primary goal. a. True b. False ANSWER: True 9. The primary advantage of the divisional structure is that it has very low operating and managing costs. a. True b. False ANSWER: False 10. A market structure is a particular kind of divisional structure that groups products into separate divisions according to the needs of different customers. a. True b. False ANSWER: True 11. A market structure is also called area structure. a. True b. False ANSWER: False 12. Global businesses with a hybrid structure are said to be organized by more than one dimension at the top level. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True

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Chapter 10: The Organization of Global Business 14. The organizational structure that results from combining functional and divisional structures is called a geographic region structure. a. True b. False ANSWER: False 15. Under a matrix structure, the functional managers and the divisional managers have equal authority within the organization. a. True b. False ANSWER: True 16. 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 ANSWER: b 17. While many major corporations have a global presence, stateless corporations are different because they _____. a. have no board of directors b. are socially responsible c. are more concerned with human rights d. are usually more profitable e. attempt to transcend nationality altogether ANSWER: e 18. C.K. Prahalad postulates that stateless corporations represent the _____ stage of globalization. a. first b. second c. third d. fourth e. fifth ANSWER: d

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Chapter 10: The Organization of Global Business 19. 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 ANSWER: b 20. C.K. Prahalad would say that Chinese computer manufacturer Lenovo is in which stage of globalization? a. First b. Second c. Third d. Fourth e. Fifth ANSWER: d 21. 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 ANSWER: b 22. 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 ANSWER: d

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Chapter 10: The Organization of Global Business 23. According to C.K. Prahalad, a global firm is in the third stage of globalization when it _____. a. sets up operations in other countries b. produces goods in one country and exports them to other countries c. establishes a foreign subsidiary to handle the exports from its home country d. locates its core corporate functions and top executives in different countries e. is headquartered in its home country ANSWER: a 24. 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.

ANSWER: e 25. 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 ANSWER: b 26. A(n) ______ is a tool that people use to coordinate their actions to obtain something they seek or value. a. union b. subunit c. stateless corporation d. structure e. organization ANSWER: e

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Chapter 10: The Organization of Global Business 27. 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.

ANSWER: c 28. 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.

ANSWER: e 29. 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(n) _____ organizational structure. a. functional b. product c. geographical region d. matrix e. hybrid ANSWER: a 30. 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.

ANSWER: d

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Chapter 10: The Organization of Global Business 31. 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 ANSWER: b 32. 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 ANSWER: b 33. 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 ANSWER: b 34. A market structure is also sometimes called ______ structure. a. functional b. product c. geographical region d. customer e. hybrid ANSWER: d

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Chapter 10: The Organization of Global Business 35. CEMEX has three divisions: (1) North America; (2) South America and the Caribbean; and (3) Europe, Asia, and the Middle East. CEMEX has a _____ structure. a. continental b. geographical region c. global d. hybrid e. multinational ANSWER: b 36. 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 ANSWER: e 37. 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 ANSWER: c 38. All of the following are advantages of the matrix structure EXCEPT that it _____. a. a​ llows the company to meet multiple demands from the environment b. facilitates innovation and creativity c. p​ ermits the company to allocate resources flexibly d. r​ arely allows employees the chance to acquire functional skills e. f​ osters cooperation among employees with different functional expertise ANSWER: d

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Chapter 10: The Organization of Global Business 39. 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 ANSWER: d 40. There are typically _____ organizational structures for global business. a. two b. three c. four d. five e. six ANSWER: c 41. 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. global b. multinational c. geographical region d. continental e. hybrid ANSWER: c 42. 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.

ANSWER: d

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Chapter 10: The Organization of Global Business 43. An area 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.

ANSWER: c 44. A global business is organized into four groups: Manufacturing, Research and Development, Finance, and Sales.

This company uses a(n) ______ structure. a. geographic region b. functional c. area d. market e. product ANSWER: b 45. 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.

ANSWER: b 46. A(n) _______ 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.

ANSWER: stateless corporation 47. A(n) ______ is a tool that people use to coordinate their actions to obtain something they seek or value.

ANSWER: organization

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Chapter 10: The Organization of Global Business 48. 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 _______.

ANSWER: organizational structure 49. A(n) ______ is a business subunit that consists of a collection of functions or departments that share responsibility for producing a particular product or service.

ANSWER: division 50. _________ 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.

ANSWER: Functional structure 51. A(n) ________ refers to one type of organizational structure in which functions are grouped together to serve the needs of products, markets, or geographical regions.

ANSWER: divisional structure 52. ________ is a particular kind of divisional structure that groups products into separate divisions according to their similarities or differences.

ANSWER: Product structure 53. 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.

ANSWER: market structure 54. The geographic region structure is sometimes referred to as _________ structure.

ANSWER: area 55. ______ structures are used only by companies that depend upon rapid product development for their survival.

ANSWER: Matrix 56. “For a global business, organizational structure is not important.” Do you agree with this statement? Defend your position.

ANSWER: Student answers will vary.

57. Are export departments important for global businesses? How do they differ from international divisions? Explain.

ANSWER: Student answers will vary.

58. Differentiate between functional and divisional organizational structures. Provide an example of each.

ANSWER: Student answers will vary.

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Chapter 10: The Organization of Global Business 59. Explain the advantages and disadvantages of the divisional structure.

ANSWER: Student answers will vary.

60. How are hybrid structures different from matrix structures? Explain.

ANSWER: Student answers will vary.

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.

61. 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 divisional structure d. A stateless corporation e.

A geographical regional structure ANSWER: d 62. 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 ANSWER: a

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Chapter 10: The Organization of Global Business 63. 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.

Market structure e.

Geographical region structure ANSWER: b 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.”

64. 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 ANSWER: b 65. 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 Use of advanced marketing techniques for its products within its home country of South c.

Africa d. Adaptation of its products to better fit the needs of its customers e.

Development of an international division ANSWER: c

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Chapter 10: The Organization of Global Business 66. 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 ANSWER: e

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Chapter 11: Global Human Resource Management 1. Human resource management (HRM) is handled much the same way in all countries. a. True b. False ANSWER: False 2. The female participation in the workforce is highest in Muslim countries than anywhere else in the world. a. True b. False ANSWER: False 3. In highly collectivist countries such as South Korea and Japan, success tends to be measured by the success of the group rather than by individual achievements and performances. a. True b. False ANSWER: True 4. Reebok transferring the manufacturing of its sneakers to a third-party company in Thailand would be an example of both outsourcing and offshoring. a. True b. False ANSWER: True 5. 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. a. True b. False ANSWER: True 6. 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. a. True b. False ANSWER: True

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Chapter 11: Global Human Resource Management 7. A company that has identified an employee with future managerial potential and consequently sends that employee to a three-week university-sponsored program to help develop her leadership skills is an example of development. a. True b. False ANSWER: True 8. In the United States, training and development tends to focus on improving the group, with instruction addressed to small groups and testing focusing upon group questions and answers. a. True b. False ANSWER: False 9. In low power distance countries, strict hierarchies are maintained in the performance appraisal system, and managers simply evaluate subordinate employees. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 11. In the United States, companies have turned to executive pay strategies focused on tying pay to performance by using performance stock awards and bonuses based on meeting target goals. a. True b. False ANSWER: True

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Chapter 11: Global Human Resource Management 12. 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. a. True b. False ANSWER: True 13. The North American Free Trade Agreement (NAFTA) established free trade between the United States, Argentina, and Brazil. a. True b. False ANSWER: False 14. Contracts that typically establish work policies including rates of pay, amounts of vacation time, and seniority rights of employees are referred to as collective bargaining agreements. a. True b. False ANSWER: True 15. A situation in which a number of employers join together to bargain with a given labor union is called codetermination. a. True b. False ANSWER: False 16. 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, knowledge-based functions.

ANSWER: d

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Chapter 11: Global Human Resource Management 17. Why might Poland be a good country to open an operation for a business that needs a large available labor supply? a. The unemployment rate in Poland has been very high since the 2008 recession. b. The female labor force participation rate in Poland is extremely low. c. The cost of living in Poland is the lowest in the world. d. More than 15 percent of Poles work in agriculture. e. Most members of the Polish workforce work on a part-time basis.

ANSWER: a 18. In which of the following countries would the general expectation be that women will not be full-time participants in the workforce? a. Denmark b. Norway c. the United States d. Sweden e. Japan ANSWER: e 19. 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 ANSWER: d 20. 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 ANSWER: c

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Chapter 11: Global Human Resource Management 21. 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 ANSWER: d 22. 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 shortterm perspective.

ANSWER: b 23. 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 shortterm perspective.

ANSWER: e

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Chapter 11: Global Human Resource Management 24. With which statement would Hofstede agree? a. D ​ enmark and the Netherlands are high power distance cultures. b. M ​ exico and Japan are very masculine cultures. c. Germany and Austria rank low on uncertainty avoidance. d. C ​ hina and Japan have short-term orientations. e. T ​ he United States is a highly collectivist culture.

ANSWER: b 25. 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 shortterm perspective.

ANSWER: a 26. 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 shortterm perspective.

ANSWER: c

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Chapter 11: Global Human Resource Management 27. 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. President Obama recently signed an Executive Order allowing nearly 5 million immigrants to be eligible for work authorization in the United States. c. The United States has the least restrictive policies in the world with respect to foreign worker entry into its borders. d. Governmental regulations related to immigration and border security are among the most important in the field of international HRM e. Some countries, such as Singapore, have immigration policies that make it relatively easy for people from other countries to come and work there legally.

ANSWER: c 28. 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 ANSWER: a 29. A manager who makes occasional trips to a foreign office but who manages mainly through ongoing e-mails, videoconferences, and web-based collaboration can BEST be described as a(n) ______. a. offshore manager b. virtual expatriate c. parent country national d. downsized employee e. third country national ANSWER: b 30. 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 ANSWER: b Copyright Cengage Learning. Powered by Cognero.

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Chapter 11: Global Human Resource Management 31. 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 _____. a. host country national b. parent country national c. third country national d. trainer e. developer ANSWER: b 32. An expatriate is someone who a. considers himself or herself as a member of a group or collective. b. works in a country other than his or her native country. c. has become successful without anyone else's help. d. has renounced citizenship in his or her native country. e. wants clear rules, procedures, and structures in the workplace.

ANSWER: b 33. The rate of expatriate failure has traditionally been _____ percent or more. a. 15 b. 30 c. 45 d. 60 e. 75 ANSWER: b 34. 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 ANSWER: e

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Chapter 11: Global Human Resource Management 35. 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.

ANSWER: d 36. A U.S. company sending an employee to work for a few years in its Berlin office office would likely see to it that the employee learns to speak a bit of German and understands something about German cultural norms. This is an example of _____. a. co-determination b. development c. a needs assessment d. training e. repatriation ANSWER: d 37. In which country would it be inappropriate to mix upper and middle managers together in the same training or development program? a. Denmark b. the United States c. Saudi Arabia d. Norway e. Canada ANSWER: c 38. The process of assessing employee performance is called _____. a. performance appraisal b. development c. a needs assessment d. training e. repatriation ANSWER: a

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Chapter 11: Global Human Resource Management 39. Which statement about compensation is accurate? a. Year-end bonuses are almost unheard of outside of the United States. b. Cost of living is generally not a factor when companies make compensation decisions. c. The gap between executive and employee pay has been shrinking steadily over the past two decades. d. Housing allowances are part of the compensation package in many places. e. Expatriate employees typically receive no additional compensation over and beyond what they would be paid in their home countries.

ANSWER: d 40. 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.

ANSWER: c 41. _______ established free trade between the United States, Canada, and Mexico. a. NAFTA b. NAACP c. WTO d. World Bank e. NLRB ANSWER: a 42. 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 ANSWER: b

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Chapter 11: Global Human Resource Management 43. The primary goal of labor unions is to engage in negotiations with _____. a. employers b. suppliers c. customers d. expatriates e. other unions ANSWER: a 44. 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 ANSWER: d 45. Perhaps the most interesting labor relations system in the world exists in _____. a. Canada b. Great Britain c. Germany d. Australia e. Mexico ANSWER: c 46. _____ involves the process of transferring an organizational function to another country whether outsourced or not.

ANSWER: Offshoring 47. The _______ distance dimension deals with the degree of equality of authority distribution in a given society and its workplaces and employee expectations related to the same.

ANSWER: power 48. ______ refers to employees from a new parent or host country who are being employed in a given foreign country.

ANSWER: Third country nationals 49. _______ are employees who are working in countries other than their native countries.

ANSWER: Expatriates

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Chapter 11: Global Human Resource Management 50. Providing employees with skills specific to the job they are going to be doing refers to ______.

ANSWER: training 51. ______ involves preparing employees for new future assignments or positions.

ANSWER: Development 52. ______ refers to the process of assessing employee performance.

ANSWER: Performance appraisal 53. Keeping an employee on the home country’s salary structure and also providing additional allowances refers to the ______.

ANSWER: balance sheet approach 54. A contract comprehensively setting forth employee terms and conditions of employment at a given workplace or group of workplaces refers to a _________.

ANSWER: collective bargaining agreement 55. The employee representation on corporate boards in Germany refers to ______.

ANSWER: co-determination 56. Discuss immigration and border security issues regarding employment in the United States.

ANSWER: Student answers will vary.

57. Discuss expatriate issues as they affect staffing for global businesses.

ANSWER: Student answers will vary.

58. Differentiate between training and development and describe the different types of training and development that a company can offer.

ANSWER: Student answers will vary.

59. “Culture does not have any impact on performance appriasal.” Do you agree with this statement? Defend your position.

ANSWER: Student answers will vary.

60. Discuss the role labor unions play in global human resource management. Does the impact unions have vary in different countries? Explain.

ANSWER: Student answers will vary.

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Chapter 11: Global Human Resource Management 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.

61. When Symon Enterprises has work to be performed within a country where workers place a high value on things like competition, assertiveness, and achievement, it can be stated that the company is most likely working within which one of the following Hofstede’s cultural dimensions? a.

Collectivism b.

Power distance c.

Uncertainty avoidance d.

Short-term orientation e.

Masculine dimension ANSWER: e 62. 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?

Expatriate failure rate is extremely low if they serve ten-years or more on one a. assignment. b.

It helps parent company with control related to structure.

Workers from the parent country will help to impose the values of the organization on c. the foreign workplace.

Expatriates serve to supply the labor market if there are not enough qualified workers d. available to fill the company’s needs. e.

Expatriates can impart the cultural norms of the company to the foreign workers.

ANSWER: a

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Chapter 11: Global Human Resource Management 63. 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.

Foreign compensation packages need to be compatible with the home country’s c. compensation level.

Some cultures require strict hierarchies to be maintained during the evaluation d. process.

A country’s culture may greatly affect the way feedback should be presented to an e. employee.

ANSWER: c 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.

64. 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?

The International Labor Organization has established the right of workers to have the a. freedom of association.

The main goal of labor unions is to negotiate with employers to try and reach a b. collective bargaining agreement acceptable to both sides.

Employees may file grievances if they feel their rights under the contract are not c. maintained.

The host country will set the wage that all workers are to be paid regardless of union d. affiliation.

Bargaining agreements typically address rates of pay, vacation time, and seniority rights e. of employees.

ANSWER: d

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Chapter 11: Global Human Resource Management 65. 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.

Masculinity ANSWER: b 66. 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 ANSWER: a

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Chapter 12: Global Marketing 1. There are two major markets within each foreign market that purchase products and services: consumer markets and industrial markets. a. True b. False ANSWER: False 2. Goldman Sachs estimates that the world's middle class is shrinking worldwide. a. True b. False ANSWER: False 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. a. True b. False ANSWER: False 4. A study analyzing why households have stopped purchasing a company’s product would be an example of marketing research. a. True b. False ANSWER: True 5. An adaptation approach to foreign markets means that the marketing strategies a company uses in its international operations will be different than those used domestically. a. True b. False ANSWER: True 6. The increased demand for hair and skin care products with Argan oil illustrates how new product ideas can come from unexpected sources. a. True b. False ANSWER: True

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Chapter 12: Global Marketing 7. 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. a. True b. False ANSWER: False 8. As the case of Blockbuster indicates, products that have reached the decline stage in domestic markets are unsustainable in emerging markets as well. a. True b. False ANSWER: False 9. Product counterfeiting occurs when a company in a foreign country copies an American product as sells it as the "real thing" without the U.S. marketer receiving any compensation. a. True b. False ANSWER: True 10. International marketing managers have four main methods of promoting products and services in international markets: advertising, personal selling, sales promotion, and distribution. a. True b. False ANSWER: False 11. Agents for companies shipping products overseas who are chiefly involved with physical distribution activities and documentation are called freight forwarders. a. True b. False ANSWER: True 12. A company’s international pricing mix involves consideration of four major objectives: performance objectives, prevention objectives, maintenance objectives, and survival objectives. a. True b. False ANSWER: True

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Chapter 12: Global Marketing 13. The prices a company charges its overseas subsidiaries are known as transfer prices. a. True b. False ANSWER: True 14. Ironically, customer complaints can sometimes result in improved customer service. a. True b. False ANSWER: True 15. A diner complains to his server, Alyson, that his meal is not to his liking. Without consulting with her manager, Alyson immediately tells the customer that he will not need to pay for the meal, and offers to bring him a different entree at no charge. Alyson is an empowered employee. a. True b. False ANSWER: True 16. _____ 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 ANSWER: a 17. 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 ANSWER: c

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Chapter 12: Global Marketing 18. 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 ANSWER: a 19. _____ 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 ANSWER: a 20. _____ 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 ANSWER: c 21. 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 ANSWER: c

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Chapter 12: Global Marketing 22. KFC sells a number of core items around the world, but offers other items tailored to specific markets. KFC is following a(n) _____ strategy. a. standardization b. adaptation c. glocalization d. marketing research e. hybrid ANSWER: c 23. 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 ANSWER: d 24. 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 ANSWER: b 25. 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 ANSWER: e

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Chapter 12: Global Marketing 26. 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 ANSWER: d 27. Prices usually need to be reduced in the _____ stage of the product life cycle due to increased competition. a. maturity b. growth c. decline d. introduction e. commercialization ANSWER: a 28. 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.

ANSWER: d 29. 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 ANSWER: e

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Chapter 12: Global Marketing 30. 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 ANSWER: e 31. Which is the most focused of advertising media? a. television b. radio c. newspapers d. magazines e. direct mail ANSWER: e 32. 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 ANSWER: c 33. 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 ANSWER: a

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Chapter 12: Global Marketing 34. 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 ANSWER: a 35. 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 ANSWER: e 36. 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 ANSWER: e 37. 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 ANSWER: b

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Chapter 12: Global Marketing 38. Shipping products to overseas markets in trailer-sized containers is called _____. a. pipelining b. freight forwarding c. containerization d. chunking e. virtual distribution ANSWER: c 39. International shipments using different modes of transportation is called _____. a. freightlining b. overnight shipping c. hybridization d. right-timing e. intermodal transporter ANSWER: e 40. _____ pricing 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 ANSWER: a 41. _____ pricing objectives are used to keep competitors out of a foreign market. a. Performance b. Prevention c. Maintenance d. Survival e. Growth ANSWER: b

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Chapter 12: Global Marketing 42. _____ 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 ANSWER: d 43. _____ 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. Counterfeiting b. Arm's length pricing c. Transfer pricing d. Dumping e. Gray marketing ANSWER: e 44. _____ refers to the percentage of purchases in a category a buyer gives to one vendor. a. Performance price b. Share of wallet c. Market share d. Arm's length price e. Transfer price ANSWER: b 45. _____ refers to performance of various aspects of customer service that meets customer expectations. a. Integrity b. Reliability c. Authenticity d. Trustworthiness e. Dependability ANSWER: b 46. _____ is the total number of units of a product that could possibly be sold by all companies doing business in a specific international market.

ANSWER: Market potential

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Chapter 12: Global Marketing 47. A compromise strategy between standardization and adaptation is called ______.

ANSWER: glocalization 48. _______ is a formal, written procedure to determine which of a company’s products should be dropped.

ANSWER: Product elimination 49. _____ are magazines that target specific industries.

ANSWER: Vertical publications 50. _______ refers to stories about a company, its products or services, and its executives that appear in media.

ANSWER: Publicity 51. Shipping products to overseas markets in various-sized trailers is called _____.

ANSWER: containerization 52. International shipments using different modes of transportation refers to _____.

ANSWER: intermodal transportation 53. _______ refers to a price in a foreign market that undercuts the prices of companies competing there.

ANSWER: Dumping 54. The percentage of purchases in a category a buyer gives to one vendor is called ______.

ANSWER: share of wallet 55. ______ refers to aspect of customer service that allows employees to take care of customer problems immediately without having to consult superiors.

ANSWER: Empowerment 56. Select two aspects of international demographics and explain why this information is important to global companies.

ANSWER: Student answers will vary.

57. Describe how new products are developed for international markets.

ANSWER: Student answers will vary.

58. Describe the advantages and disadvantages of different methods of promoting products in international markets.

ANSWER: Student answers will vary.

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Chapter 12: Global Marketing 59. “Channels of distribution have no role in international markets.” Do you agree with this statement? Defend your position.

ANSWER: Student answers will vary.

60. Explain the objectives that are applicable to international pricing decisions.

ANSWER: Student answers will vary.

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.

61. 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 ANSWER: e 62. 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 Items are often used differently or for different purposes by foreigners than by U.S. b. 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 ANSWER: d

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Chapter 12: Global Marketing 63. 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 ANSWER: b 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.

64. 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 ANSWER: c 65. 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.

Use an agent d. Enlist the services of a foreign distributor e.

Use local government distribution systems ANSWER: e

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Chapter 12: Global Marketing 66. 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. ANSWER: e 67. 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 ANSWER: b

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Chapter 13: Global Operations and Supply-Chain Management 1. A production system is a system that businesses use to create the goods and services or to produce the products. a. True b. False ANSWER: True 2. The production system of a hair and nail salon would be called a manufacturing system. a. True b. False ANSWER: False 3. The activities in operations management can be grouped into four business functions: procurement, production, logistics, and research and development. a. True b. False ANSWER: True 4. In operations management, the acquisition of goods and services is referred to as logistics. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True

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Chapter 13: Global Operations and Supply-Chain Management 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 offshoring. a. True b. False ANSWER: False 8. A major advantage of making components and raw materials in-house is that the firm is not required to honor protections of intellectual property. a. True b. False ANSWER: False 9. The practice of producing components and raw materials in-house AND purchasing them from suppliers is referred to as a supply-chain malfunction. a. True b. False ANSWER: False 10. When the demand is equal or lower than the minimum efficient scale, multiple production facility locations are preferred. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True

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Chapter 13: Global Operations and Supply-Chain Management 13. A supply chain encompasses all the activities associated with the flow and transformation of goods and services from raw material to the end user. a. True b. False ANSWER: True 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. a. True b. False ANSWER: True 15. The property of ERP systems to handle the accounting standards of multiple countries is called the multi-currency property. a. True b. False ANSWER: False 16. 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 ANSWER: c 17. 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 ANSWER: b

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Chapter 13: Global Operations and Supply-Chain Management 18. In the production system model, all of the following would be considered inputs EXCEPT _____. a. labor b. machines and equipment c. the finished product d. raw materials e. factors of production ANSWER: c 19. Goods and services that integrate a product are called _____. a. production process b. production facilities c. raw materials d. components e. factors of production ANSWER: d 20. Steps in the production process are called _____. a. production stages b. production facilities c. raw materials d. components e. factors of production ANSWER: a 21. Most of the activities in operations management can be grouped into ____ business functions. a. two b. three c. four d. five e. six ANSWER: c

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Chapter 13: Global Operations and Supply-Chain Management 22. 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 ANSWER: e 23. 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 ANSWER: d 24. 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.

ANSWER: e 25. 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.

ANSWER: a

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Chapter 13: Global Operations and Supply-Chain Management 26. When the firm doing the outsourcing and the supplier that will provide the outsourced goods and services are located in the same country, it is called _____. a. domestic outsourcing b. domestic manufacturing c. insourcing d. offshoring e. global outsourcing ANSWER: a 27. 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 ANSWER: e 28. 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.

ANSWER: c 29. 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.

ANSWER: a

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Chapter 13: Global Operations and Supply-Chain Management 30. 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 ANSWER: c 31. Which of the following has the highest value-to-weight ratio? a. pickup trucks b. HD televisions c. personal computers d. microchips e. petroleum ANSWER: d 32. 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 ANSWER: b 33. 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 ANSWER: a

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Chapter 13: Global Operations and Supply-Chain Management 34. ERP systems aim to a. store all information in multiple databases. b. represent each business function by a module. c. design the system as a collection of functions. d. eliminate the need for internetworking networks. e. reduce a business's reliance on software.

ANSWER: b 35. _____ 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 ANSWER: a 36. A Japanese user of Sony's ERP system can view the company's financial information in Japanese yen, while a British user of the system is able to see the same information in British pounds. This ERP system is _____. a. multi-language b. multi-national c. multi-currency d. multi-enterprise e. multi-culture ANSWER: c 37. 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 ANSWER: b

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Chapter 13: Global Operations and Supply-Chain Management 38. 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 ANSWER: d 39. ______ 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 ANSWER: a 40. 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 ANSWER: c 41. 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 ANSWER: b

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Chapter 13: Global Operations and Supply-Chain Management 42. ______ is responsible for the design of new products in the production process. a. Procurement b. Logistics c. Production d. Research and development e. Selling ANSWER: d 43. ______ 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 ANSWER: b 44. Tipton Manufacturing is based in Lexington, Kentucky. The company does not make the gears it uses in its products, it purchases them from a supplier in Hong Kong. Tipton Manufacturing is practicing a. global outsourcing. b. domestic outsourcing. c. insourcing. d. right-sizing. e. downsizing.

ANSWER: a 45. One production facility will usually be favored when a. fixed costs are low. b. demand is higher than the minimum efficient scale. c. goods have a low value-to-weight ratio. d. unemployment is very low. e. a company is extremely profitable.

ANSWER: a 46. When the goods dominate the value of the product, the production system is typically called a(n) ________ system.

ANSWER: manufacturing Copyright Cengage Learning. Powered by Cognero.

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Chapter 13: Global Operations and Supply-Chain Management 47. Goods and services that integrate a product are called __________.

ANSWER: components 48. __________ occurs when a firm buys components and raw materials globally.

ANSWER: Global procurement 49. __________ (also called global outsourcing) occurs when a firm is outsourcing to a supplier located in a different country.

ANSWER: Offshoring 50. A company that only completes product design and outsources all other production process functions is called a(n) __________.

ANSWER: hollow corporation 51. __________ occurs when components and raw materials are produced in-house and purchased from suppliers.

ANSWER: Dual sourcing 52. 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 __________.

ANSWER: location decision 53. __________ 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.

ANSWER: Supply chain 54. __________ refers to collections of computer hardware and software arranged to transmit information from one place to another.

ANSWER: telecommunication networks 55. __________ refers to a property of ERP systems to handle the accounting standards of multiple countries.

ANSWER: Multi-national 56. Differentiate between manufacturing and service system. Describe a typical production system using a company.

ANSWER: Student answers will vary.

57. Describe the advantages and disadvantages of global procurement.

ANSWER: Student answers will vary.

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Chapter 13: Global Operations and Supply-Chain Management 58. Identify the advantages and disadvantages of making components and raw materials in-house.

ANSWER: Student answers will vary.

59. Discuss the circumstances that would MOST likely convince a company to use one production facility rather than multiple facilities.

ANSWER: Student answers will vary.

60. “Fortunately, ERP does not affect global supply chain management.” Do you agree with this statement. Defend your position.

ANSWER: Student answers will vary.

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.

61. 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 ANSWER: d 62. 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.

ANSWER: d

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Chapter 13: Global Operations and Supply-Chain Management 63. Which one of the following would describe Ardella Enterprises if it would decide to stop purchasing goods and services from suppliers and instead make the goods and services in-house? a. A hollow corporation b. An insourcing firm c. An international development association d. An outsourcing corporation e. A production system ANSWER: b 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.

64. 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 ANSWER: b 65. 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 ANSWER: c

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Chapter 13: Global Operations and Supply-Chain Management 66. 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 ANSWER: e

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Chapter 14: Global Financial Management 1. The two types of short-term effects on currency movements are transactions risk and transformational risk. a. True b. False ANSWER: False 2. Prolonged periods of relatively high dollar values in world currency markets would be a disadvantage to U.S. exporters and an advantage to their foreign competitors. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 4. The flexibility to unwind forex hedges when they are no longer needed is a convenient advantage. a. True b. False ANSWER: True 5. If losses occur causing a market participant’s balance to fall below the maintenance margin at the end of the trading day, a call option occurs that requires the bank to replenish the investor’s trading account. a. True b. False ANSWER: False 6. Currency swaps allow firms to exchange currencies at a previously agreed exchange rate as a way to hedge exchange rate movements. a. True b. False ANSWER: True 7. A put option obligates an investor to sell an asset at a predetermined price. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero.

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Chapter 14: Global Financial Management 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. a. True b. False ANSWER: False 9. Moody’s and Standard and Poor’s provide bond ratings, which are important in assuring the credit quality to foreign investors. a. True b. False ANSWER: True 10. A group of banks that collectively make a loan to a firm is called a hedge. a. True b. False ANSWER: False 11. Bonds that are sold in any country outside the home country, but in the home country’s currency, are called junk bonds. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 13. Bank and government loans used by exporters to finance working capital are called trade financing. a. True b. False ANSWER: True

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Chapter 14: Global Financial Management 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). a. True b. False ANSWER: True 15. The sensitivity of a stock to market risk affected by currency movements is called the weighted average cost of capital. a. True b. False ANSWER: False 16. The impact of random change in the value of one currency with respect to other currencies is called the _____ risk. a. transactions b. exchange rate c. economic d. consolidated e. accounting ANSWER: b 17. 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 ANSWER: a 18. _____ risk is associated with the short-term effects of currency movements on the consolidated accounting statements of a firm. a. Transactions b. Translation c. Economic d. Consolidated e. Accounting ANSWER: b

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Chapter 14: Global Financial Management 19. _____ risk refers to the ways in which long-term exchange rate movements affect firms. a. Transactions b. Translation c. Economic d. Consolidated e. Accounting ANSWER: c 20. 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 ANSWER: e 21. 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 ANSWER: a 22. 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 ANSWER: d

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Chapter 14: Global Financial Management 23. Selling a currency in a currency futures contract and profiting on a decrease 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 exchange position ANSWER: c 24. 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 ANSWER: a 25. 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 ANSWER: b 26. Forward contracts a. can never be arranged in the over-the-counter market. b. are less standardized than futures contracts. c. cannot be customized to meet the hedging needs of the buyer. d. are never marked-to-market. e. have a high liquidity risk related to immediate cash access to pay for possible losses.

ANSWER: b

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Chapter 14: Global Financial Management 27. 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 ANSWER: b 28. The price paid by the buyer to the seller for an option contract is called a _____. a. call option b. put option c. premium d. currency swap e. marked-to-market ANSWER: c 29. _____ 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 contracts ANSWER: d 30. 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.

ANSWER: b

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Chapter 14: Global Financial Management 31. 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 ANSWER: a 32. _____ 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 ANSWER: b 33. 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 ANSWER: c 34. 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. participation loan e. bond rating ANSWER: a

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Chapter 14: Global Financial Management 35. Large international firms deal in considerable volumes of goods and often must obtain a(n) _____ from a group of banks known as a syndicate.. a. commercial loan b. call option c. banker’s acceptance d. participation loan e. open account ANSWER: d 36. Moody's and Standard and Poor's issue _____. a. open accounts b. commercial letters of credit c. participation loans d. exchange rates e. bond ratings ANSWER: e 37. Bonds that are sold in any country outside the home country, but in the home country’s currency, are called _____. a. closed bonds b. foreign bonds c. domestic bomds d. Eurobonds e. junk bonds ANSWER: d 38. Home bias tends to a. reduce diversification. b. increase contagion. c. increase diversification. d. reduce contagion. e. increase the price of domestic bonds.

ANSWER: a

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Chapter 14: Global Financial Management 39. An Export-Import Bank is a(n) a. organization that provides secure communications for trade documents. b. derivatives market run by a syndicate of large banks. c. organization that provides large, wholesale dollar payments services for governments. d. U.S. government export finance agency that seeks to level international competition. e. large global bank that makes loans exclusively to international firms.

ANSWER: d 40. 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.

ANSWER: a 41. 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 ANSWER: d 42. 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 ANSWER: b

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Chapter 14: Global Financial Management 43. 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 ANSWER: b 44. 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 ANSWER: c 45. 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 ANSWER: e 46. 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.

ANSWER: transactions 47. _______ accounting statements are the income statements and balance sheets of multinational corporations and of all subsidiaries abroad due to home tax requirements.

ANSWER: Consolidated 48. Investors who attempt to earn profits from trading in currencies or currency derivatives are referred to as _______.

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Chapter 14: Global Financial Management 49. A currency swap combined with a(n) ______ swap is called a pain vanilla currency swap.

ANSWER: interest rate 50. Large global banks are called _______ center banks.

ANSWER: money 51. _______ is the safest method available to an exporter, but that which exposes the importer to some risk related to delivery of goods.

ANSWER: Payment in advance 52. ______ is an examination of optimistic, expected, and pessimistic scenarios to give a more complete picture of the risks and returns of investments abroad.

ANSWER: Sensitivity analysis 53. A holding firm is a(n) ______ firm that is common in multinational corporations.

ANSWER: conglomerate 54. ______ is a coefficient obtained by regressing a stock’s return on a currency’s return over time.

ANSWER: Exchange rate sensitivity 55. ______ is the sensitivity of a stock to market risk affected by currency movements.

ANSWER: Exchange risk beta 56. Differentiate between transaction and translation risks. Explain how these risks affect firms and investors.

ANSWER: Student answers will vary.

57. Differentiate between hedging and speculating.

ANSWER: Student answers will vary.

58. Compare and contrast the Export-Import (Ex-Im) Bank and Japan's Bank of International Cooperation.

ANSWER: Student answers will vary.

59. Explain the domestic versus global cost of capital.

ANSWER: Student answers will vary.

60. Does exchange rate risk affect a firm’s cash flows and its stock value? Explain.

ANSWER: Student answers will vary.

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Chapter 14: Global Financial Management 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.

61. 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?

The short-term effects of currency movements on the consolidated accounting a. statements of a firm b.

The ways in which long-term exchange rate movements affect firms Buying a currency in a currency futures contract and profiting on an increase in the c. 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 ANSWER: e 62. 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 ANSWER: b

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Chapter 14: Global Financial Management 63. 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 ANSWER: a Scenario – The Gayla Corporation The Gayla Corporation is a multinational business that conducts operations in twelve foreign markets. This multimillion 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.

64. 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 The required rate of return by stockholders in a firm that is estimated by means of d.

CAPM e.

Weighted average of different interest rates paid on long-term borrowings ANSWER: e 65. The Gayla Corporation must fully understand and effectively handle all the ways in which long-term exchange rate movements affect the firm. Which of the following best identifies what this organization is facing in this situation? a.

Economic risk b.

Beta risk c.

Transactions risk d.

Hedging e.

Translation risk ANSWER: a

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Chapter 14: Global Financial Management 66. 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 ANSWER: d

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Chapter 15: Accounting and Taxation in Global Business 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. a. True b. False ANSWER: False 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. a. True b. False ANSWER: True 3. The primary external users of accounting information are governmental units, lenders, vendors, credit-rating agencies, stockholders, customers, and employees. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 5. Neither U.S. GAAP nor IFRS permit use of the LIFO method. a. True b. False ANSWER: False 6. A main 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. a. True b. False ANSWER: True

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Chapter 15: Accounting and Taxation in Global Business 7. Pressures for the IASB to harmonize its accounting standards is coming from cross-border mergers and acquisitions and rapid growth in international capital markets. a. True b. False ANSWER: True 8. In the United States, an external auditor's opinion on a publicly traded company's financial statements is included in the annual report that the company files with the SEC. a. True b. False ANSWER: True 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 operating as expected. a. True b. False ANSWER: True 10. Financial ratios are helpful in equalizing companies of different sizes for comparison of financial performance. a. True b. False ANSWER: True 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. a. True b. False ANSWER: False 12. Given the fact that lenders make money in both directions, both positive and negative trends in financial performance are good news for lenders. a. True b. False ANSWER: False

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Chapter 15: Accounting and Taxation in Global Business 13. Conducting business in a tax haven means that there are no taxes whatsoever. a. True b. False ANSWER: False 14. The highest corporate income taxes can be found in the United States and Japan. a. True b. False ANSWER: True 15. Transfer pricing is used by most multinational corporations. a. True b. False ANSWER: True 16. 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 ANSWER: b 17. Which financial statement answers the question: How much income did the firm earn or lose during the period? a. income statement b. balance sheet c. statement of retained earnings d. statement of cash flows e. statement of net value ANSWER: a

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Chapter 15: Accounting and Taxation in Global Business 18. What are retained earnings? a. The part of earnings generated from operations that is paid to employees b. The sum total of all assets, liabilities, and owners' equity accounts c. The sum total of all inflows and outflows of cash for an organization d. The part of stockholder equity generated from operations and kept for use in future operations e. The combined net worth of a company as of a certain date ANSWER: d 19. 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 ANSWER: b 20. Liabilities + Owners' Equity = _______. a. Net Income b. Assets c. Retained Earnings d. Operating Cash Flows e. Total Profit ANSWER: b 21. Which of the following external users would require financial statement information, specifically information concerning ability to meet financial obligations? a. Governmental units b. Lenders c. Vendors d. Employees e. Customers ANSWER: b

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Chapter 15: Accounting and Taxation in Global Business 22. _____ provide the procedures for dealing with specific accounting matters. a. GIIP b. ASEAN c. CPAP d. SFAS e. GAAP ANSWER: d 23. Of the following, which is the LOWEST level of authoritative accounting literature? a. Accounting textbooks b. AICPA Accounting Interpretations c. AICPA Issues Papers d. Industry accounting practices e. Interpretations issues by the FASB ANSWER: a 24. 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 ANSWER: a 25. In this GAAP inventory costing method, a company keeps track of the cost of individual inventory items. a. Specific identification b. FIFO c. LIFO d. Weighted average e. MACRS ANSWER: a

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Chapter 15: Accounting and Taxation in Global Business 26. 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. non-profit c. government d. private e. certified ANSWER: a 27. Differences between U.S. and International GAAP are influenced by all of the following EXCEPT: a. political and legal systems b. language c. taxation d. sources of capital e. inflation ANSWER: b 28. 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.

ANSWER: d 29. _____ 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 ANSWER: c

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Chapter 15: Accounting and Taxation in Global Business 30. 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.

ANSWER: a 31. In the United States, an external audit must be conducted by a(n) _______. a. certified government accountant b. independent CPA c. forensic accountant d. financial advisor e. chartered accountant ANSWER: b 32. There are two major categories of auditing: _____ auditing and _____ auditing. a. management; financial b. domestic; international c. transactional; transformational d. descriptive; evaluative e. external; internal ANSWER: e 33. 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 ANSWER: c

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Chapter 15: Accounting and Taxation in Global Business 34. Which would NOT typically be an objective of a financial statement audit? a. Ensuring the existence of assets and liabilities and occurrence of income and expenses b. Evaluating the economy and efficiency with which scarce resources are used c. Verifying that all financial statement items are properly presented d. Ensuring that the auditee owns the assets and is obligated to the extent of liabilities shown e. Verifying the proper valuation of assets, liabilities, income, and expenses ANSWER: b 35. Internal audits are also called _____ audits. a. human resource b. management c. transactional d. competitive e. federal ANSWER: b 36. 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 ANSWER: b 37. 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 ANSWER: a

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Chapter 15: Accounting and Taxation in Global Business 38. Complete the following equation: Debt Ratio = __? __ / Total Assets. a. Losses b. Net Profit c. Total Liabilities d. Total Assets e. Cash Flows ANSWER: c 39. Complete the following equation: ______ = Current Assets /Current Liabilities. a. Debt Ratio b. Net Profit c. Total Liabilities d. Current Ratio e. Quick Ratio ANSWER: d 40. 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. A low current ratio implies that a company has adequate liquidity to carry out business operations. 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.

ANSWER: c 41. 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.

ANSWER: a

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Chapter 15: Accounting and Taxation in Global Business 42. Types of taxes include all of the following EXCEPT: a. payroll b. sales c. service d. value-added e. labor ANSWER: e 43. 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 ANSWER: c 44. _____ pricing refers to the pricing of goods and services that are bought and sold internally between members of a corporate family. a. Mark-up b. Subsidiary c. Value d. Arm's length e. Transfer ANSWER: e 45. 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. When state corporate income tax rates are added to federal rates, Japan has the highest combined corporate income tax rate among OECD countries. 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.

ANSWER: b

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Chapter 15: Accounting and Taxation in Global Business 46. ______ is the recording, summarizing, and reporting of the economic activities and events of an organization.

ANSWER: Accounting 47. The _______ statement summarizes the revenues earned and the expenses incurred by a business over a period of time.

ANSWER: income 48. On a balance sheet for a corporation, the term owners' equity is replaced by the term ________ equity.

ANSWER: stockholders' 49. The ______ is a financial statement that answers the question: What is the firm's financial position at a designated point in time.

ANSWER: balance sheet 50. _______ accounting refers to the component of the accounting information system that provides the financial information needed internally by business managers for efficient and effective decision-making.

ANSWER: Management 51. Financial accounting is the component of the AIS that provides financial information needed by _______ users, such as investors and lenders.

ANSWER: external 52. According to the ________ inventory costing method, the cost of the first inventory unit purchased is assumed to be the first cost transferred out to cost of goods sold.

ANSWER: first-in, first-out First-In, First-Out FIFO

53. The _______ Accounting Standards Board is an independent, privately funded accounting standard-setter based in London.

ANSWER: International 54. _______ is an evaluation of a company’s financial statements in order to identify significant trends or relationships among the items.

ANSWER: Financial statement analysis 55. The current ratio is calculated as current assets divided by current ________.

ANSWER: liabilities

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Chapter 15: Accounting and Taxation in Global Business 56. Describe the two parts of the accounting information system.

ANSWER: Student responses will vary.

57. Describe and differentiate between the U.S. GAAP and the International GAAP. ANSWER: Student responses will vary.

58. Are International Financial Reporting Standards important to global business operations? Explain.

ANSWER: Student responses will vary.

59. Explain the different objectives of an external audit and an internal audit.

ANSWER: Student responses will vary.

60. Briefly explain how financial statement analysis can be used to evaluate a company’s financial situation.

ANSWER: Student responses will vary.

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.

61. 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 ANSWER: a

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Chapter 15: Accounting and Taxation in Global Business 62. 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 GAAP. 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 ANSWER: a 63. 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 ANSWER: e 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.

64. 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 ANSWER: a

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Chapter 15: Accounting and Taxation in Global Business 65. If the company’s stakeholders requested to be shown a financial statement that summarized the revenues earned and the expenses incurred by the Williams Company 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 ANSWER: a 66. 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 ANSWER: d

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