International Finance
Midterm Exam
Course Introduction
International Finance explores the financial dynamics that govern the global marketplace, focusing on topics such as foreign exchange markets, international monetary systems, balance of payments, and global capital flows. The course examines the management of financial risks arising from currency fluctuation, international investment strategies, and the impact of global financial institutions. Students learn about the functions of multinational corporations, international banking, and financial regulations, gaining the analytical tools necessary to understand and navigate the complexities of cross-border financial transactions and economic policy decisions.
Recommended Textbook
International Business The New Realities 3rd Edition by S. Tamer Cavusgil
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Page 2
Chapter 1: Introduction: What Is International Business
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Q1) What is a born global firm? Explain one strategic or reactive reason why an SME might choose to start as a born global.
Answer: A born global firm is a young entrepreneurial company that initiates international business activity very early in its evolution, moving rapidly into foreign markets. Born globals are found in advanced economies, such as Australia and Japan, and emerging markets, such as China and India.
An SME might start as a born global to lower its production costs by establishing manufacturing bases in foreign countries. Alternatively, the company might benefit from establishing international operations as a way to confront its industry competitors.
Q2) Which of the following best explains why the Japanese firm Canon relocated much of its production to China?
A) low-cost financial capital
B) low-cost labor
C) access to raw materials
D) lack of skilled managerial talent in home country
Answer: B
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3
Chapter 2: Globalization of Markets and the
Internationalization of the Firm
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Q1) In a typical value chain, the firm ________.
A) rarely conducts research and development
B) performs most upstream value-chain activities abroad, when exporting
C) performs marketing activities such as pricing, promotion, and selling
D) performs most downstream activities in the home market, when exporting
Answer: C
Q2) To minimize globalization's harm and reap its benefits, governments should strive for nationalized economic regimes.
A)True
B)False
Answer: False
Q3) While a degree of cultural imperialism may be at work, it is offset by the countertrend of ________.
A) offshoring
B) McDonaldization
C) privatization
D) local nationalism
Answer: D
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Chapter 3: Organizational Participants That Make
International Business Happen
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Q1) A born global firm is defined as ________.
A) a consortium of firms that plan, finance, organize, manage, and implement all phases of a project and then hand it over to a foreign customer after training local personnel
B) a large global company that sells diverse and unrelated products
C) an intermediary that engages in import and export of a variety of commodities, products, and services
D) a young entrepreneurial company that initiates international business activity early in its evolution, moving rapidly into foreign markets
Answer: D
Q2) ________ are businesses, institutions, and governments that purchase goods and services as inputs to a production process, or as supplies needed to run a business or organization.
A) Organizational buyers
B) Freight forwarders
C) Retailers
D) Licensors
Answer: A
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Chapter 4: The Cultural Environment of International Business
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Q1) Cultural intelligence is defined as ________.
A) a person's ability to function effectively in situations characterized by cultural diversity
B) the method of analyzing awkward situations in cross-cultural encounters by developing objectivity and empathy for other points of view
C) the measurement of the inequalities in power that exist among people
D) the information gathered by local firms about those entering foreign markets
Q2) In societies with low uncertainty-avoidance, companies emphasize stable careers and produce many rules to regulate worker actions and minimize ambiguity.
A)True
B)False
Q3) Cross-cultural proficiency cannot be obtained from reading books or befriending natives in one's own country.
A)True
B)False
Q4) Some people view globalization as a destructive force on culture and others see it as having a positive effect. Explain these two positions in a short essay.
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Chapter 5: Ethics and International Business
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Q1) The Nike "Swoosh" is an example of a ________.
A) patent
B) fad
C) copyright
D) trademark
Q2) Sean, a senior manager in Freedom, adheres to the relativist view regarding ethical standards. He goes by the rule, "When in Rome, do as the Romans do." Sean is most likely to agree strongly with which of the following views?
A) Freedom should not partner with foreign business entities.
B) Freedom should passively accept the practices that prevail in countries where it does business.
C) Freedom should not hire foreign managers.
D) Freedom should institute a single global code of conduct for all its employees and suppliers.
Q3) Which of the following behaviors of a firm can be called unethical?
A) setting up operations abroad
B) manufacturing luxury consumer goods
C) tolerating sweatshop conditions
D) failing to meet shareholders' expectations with regard to annual profit
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Page 7
Chapter 6: Theories of International Trade and Investment
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Q1) Which of the following is a benefit of internalizing foreign-based value-chain activities?
A) The MNE maintains a monopolistic presence in foreign countries.
B) The MNE eliminates employee turnover.
C) The MNE oversees control of foreign operations and ensures product quality.
D) The MNE learns new manufacturing methods from foreign partners.
Q2) In the internationalization process of a firm, the active involvement stage follows the committed involvement stage.
A)True
B)False
Q3) A proactive economic development plan initiated by the government, often in collaboration with the private sector, that aims to develop or support particular industries within the country is referred to as ________.
A) national endowment policy
B) national fiscal policy
C) national industrial policy
D) policy on national industrial relations
Q4) Explain the limitations of early trade theories. Discuss born global firms.
Q5) In a short essay, explain mercantilism and the monopolistic advantage theory.
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Chapter 7: Political and Legal Systems in National Environments
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Q1) Describe the similarities and differences of common law and civil law, and explain how inadequate or underdeveloped legal systems pose a risk for international businesses.
Q2) Which of the following supports Country A over Country B?
A) contractual noncompliance provisions are broader in scope
B) contracts are so detailed that they are expensive to draft
C) higher flexibility compared to other legal systems
D) judges confer with legislators on international business issues
Q3) A(n) ________ is a type of trade penalty imposed on one or more countries by one or more other countries.
A) confiscation
B) expropriation
C) subsidy
D) sanction
Q4) Which of the following statements is true of country risk?
A) Its nature remains constant over time and across nations.
B) Its intensity seldom varies over time and across nations.
C) It is present only in poor nations.
D) It is present in all nations.
Q5) What is transparency? Explain how transparency varies around the world.
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Chapter 8: Government Intervention in International Business
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Q1) Tariffs that are ad valorem are ________.
A) based on the weight or size of the imported product
B) assessed as a percentage of the imported product's value
C) intended to provide a steady flow of income for the government
D) charged regardless of the imported product's value
Q2) Which of the following refers to an often-used form of nontariff trade barrier?
A) premium
B) subsidy
C) quota
D) grant
Q3) If high tariffs are present, managers should consider other strategies, such as FDI, licensing, and joint ventures that allow the firm to operate directly in the target market, avoiding import barriers.
A)True
B)False
Q4) ________ represent a major driver of market globalization.
A) Continuous reductions
B) Export controls
C) Import controls
D) Prohibitive tariffs
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Chapter 9: Regional Economic Integration
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Q1) Countries in free trade areas only import and export products and services within the regional economic bloc.
A)True
B)False
Q2) Which of the following statements ideally supports Country A and Country B becoming an economic bloc?
A) similarities in geographic features
B) similarities in economic situations
C) similarities in tariff rules and rates
D) linguistic and cultural similarities
Q3) Firms often internationalize within an economic bloc in order to reduce exposure to competition.
A)True
B)False
Q4) Which of the following economic blocs includes Switzerland as a member country?
A) EU
B) EFTA
C) CAN
D) APEC
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Chapter 10: Understanding Emerging Markets
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Q1) Transferring technology and know-how ________.
A) promotes local innovation and enterprise
B) depresses derived demand for business commodities
C) encourages the development of market monopolies
D) lowers the competitive advantages of firms
Q2) The absence of reliable or consistent governance from recognized government authorities ________.
A) decreases risks
B) increases managers' ability to forecast business conditions
C) increases business costs
D) increases inward FDI
Q3) In emerging markets, the size and growth rate of conglomerates serve as signals of a dynamic market economy.
A)True
B)False
Q4) Africa's GDP has improved substantially since the 1960s.
A)True
B)False
Q5) Write a short essay on technology and emerging markets.
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Chapter 11: The International Monetary and Financial Environment
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Q1) Which of the following is most likely an additional problem faced by Country X due to its inflation?
A) high interest rates
B) herding behavior
C) balance of trade
D) country risk
Q2) The IMF and the World Bank seldom work together.
A)True
B)False
Q3) Explain the duties of central banks. How do central banks, such as the Federal Reserve, implement national monetary policies?
Q4) Which of the following is a characteristic of a bond?
A) It is a short-term loan from a commercial bank.
B) It refers to capital raised by selling corporate shares.
C) It refers to a debt security used to raise capital.
D) It is a debt instrument on which dividends are paid.
Q5) Explain the differences between the international monetary system and the International Monetary Fund. What are the three major types of crises most frequently addressed by the International Monetary Fund?
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Chapter 12: Strategy and Organization in the International Firm
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Q1) During the interview, Dan states that he expects Ace to surpass the competition in two years if he becomes CEO. Which of the following traits does Dan most likely exhibit with his statement that might appeal to the board of directors?
A) commitment to the success of Ace
B) arrogance about his abilities to help Ace
C) recognition of the homogeneity across communities
D) subjective ethical standards
Q2) Which of the following best characterizes the concept of global integration?
A) Effective global competition requires that products be specialized based on the market.
B) Making adjustments for unique markets is an essential element of international business.
C) Creating variations of the same product for different markets is an unnecessary expense.
D) The differences in market-to-market distribution channels must be accommodated.
Q3) Describe local responsiveness and explain how a multidomestic strategy allows an international firm to pursue local responsiveness.
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Chapter 13: Global Market Opportunity Assessment
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Q1) One of the goals that firms most likely want to attain from internationalizing is
A) decrease trade barriers in the foreign markets
B) establish their presence in saturated markets
C) increase their sales and profits
D) minimize country risk
Q2) According to the Emerging Market Potential Indicators index, ________ is an indicator of market intensity.
A) average annual growth rate of primary energy use
B) percentage share of middle class in income/consumption
C) private consumption as a percentage of GDP
D) per-capita imports from the United States
Q3) Assessing the firm's product's market demand should be done before analyzing its readiness to internationalize.
A)True
B)False
Q4) Compare and contrast industry market potential and company sales potential. How is an estimate of industry market potential helpful to managers? What factors are necessary to determine industry market potential?
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Chapter 14: Exporting and Countertrade
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Q1) GrajQ GmbH., an automobile manufacturing company based in Germany, requires a low-risk strategy to enter China. Which of the following foreign market entry strategies is the most suitable for GrajQ?
A) minority-owned equity joint venture
B) global sourcing
C) project-based (nonequity) collaborative venture
D) wholly owned subsidiary (FDI)
Q2) In a short essay, explain why most firms use exporting as part of their internationalization portfolio, and discuss how Incoterms have mitigated problems with logistics.
Q3) Reva Inc. is a U.S.-based automobile manufacturing company that sets up manufacturing bases in India. Its suppliers followed them to India. This is an example of a proactive move.
A)True
B)False
Q4) In international trade transactions, an open account is considered as a more secure method of payment than a letter of credit.
A)True
B)False
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Chapter 15: Foreign Direct Investment and Collaborative Ventures
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Q1) Host-country governments often pressure MNEs to undertake acquisition over greenfield investments.
A)True
B)False
Q2) Discuss resource and asset-seeking motives for FDI. Why might a company favor acquisition over greenfield investment as an FDI approach?
Q3) Using individual managers in each European country is more efficient that using the same base of managers all over Europe.
A)True
B)False
Q4) Discuss three reasons for firms seeking new market opportunities. Illustrate each with an example of a firm that sought a new foreign market for that particular motive.
Q5) Explain why MNEs prefer acquisition instead of greenfield FDI. Why do foreign governments encourage greenfield FDI?
Q6) FDI is the most advanced and complex foreign market entry strategy.
A)True
B)False
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Chapter 16: Licensing, Franchising, and Other Contractual Strategies
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Q1) ________ is an arrangement in which a contractor supplies managerial know-how to operate a hotel, hospital, airport, or other facility in exchange for compensation.
A) Build-operate-transfer
B) Management contract
C) Leasing
D) Exporting
Q2) Describe three challenges faced by professional service firms when they internationalize.
Q3) A patent exclusively refers to a distinctive design, symbol, logo, word, or series of words placed on a product label.
A)True
B)False
Q4) Licensing agreements enable energy and defense firms to enter nations that restrict the foreign ownership of businesses related to national security.
A)True
B)False
Q5) Describe the guidelines for protecting intellectual property.
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Chapter 17: Global Sourcing
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Q1) International logistics usually make use of a single transportation mode.
A)True
B)False
Q2) Global sourcing hinders firms from freeing expensive analysts, engineers, and managers from routine tasks.
A)True
B)False
Q3) A global supply chain is the compilation of business activities intended to create, produce, advertise, deliver, and support a focal firm's product or service.
A)True
B)False
Q4) Offshoring is common in the service sector, including banking, software code writing, legal services, and customer-service activities.
A)True
B)False
Q5) Back-office activities consist of downstream, customer-related services.
A)True
B)False
Q6) How can a focal firm protect its interests in the supplier relationship?
Page 19
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Chapter 18: Marketing in the Global Firm
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Q1) All of the following are true of global new-product planning teams EXCEPT
A) they assemble employees with special knowledge and expertise
B) they are responsible for global promotion of products and services
C) they include geographically-diverse employees in team activities
D) they determine which elements of the product will be standardized
Q2) MNEs typically centralize transfer pricing under the direction of the chief financial officer at corporate headquarters.
A)True
B)False
Q3) All of the following refer to external factors that impact international pricing EXCEPT
A) cost of manufacturing
B) value-added taxes
C) shipping
D) anticipated fluctuations in currency exchange rates
Q4) Define international price escalation. Discuss how distribution channel length affects international business transactions.
Q5) Briefly discuss the principal advantages of standardization.
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Chapter 19: Human Resource Management in the Global Firm
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Q1) Which of the following offsets some of the benefits of paying low wages abroad?
A) high productivity
B) flat organizational structures
C) cost of training
D) expatriate assignment failure
Q2) Typically, ________ provide(s) a means for collective bargaining.
A) government agencies
B) the top management of MNEs
C) labor unions
D) NGOs
Q3) International experience tends to ________.
A) lower sensitivity
B) lower cross-cultural awareness
C) enhance problem-solving and crisis management skills
D) enhance a greater unease in traveling on foreign assignments
Q4) Avoiding country bias, nepotism, and other local practices and cultivating a global mindset are some of the significant challenges of the international staffing policy.
A)True
B)False
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Chapter 20: Financial Management and Accounting in the Global Firm
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Q1) Which of the following is the final task in international financial management?
A) manage currency risk
B) manage the diversity of international accounting and tax practices
C) raise funds for the firm
D) manage working capital and cash flow
Q2) Discuss two reasons why a nation might NOT consider a firm's high debt ratio a risky approach to international business.
Q3) Net present value is defined as the ________.
A) combined value of the capital assets of a project and the sales projections
B) difference between the present value of a firm's assets and the future project liabilities
C) difference between the present value of a project's incremental cash flow and the initial investment
D) combined value of a project's initial investment and its incremental cash flow
Q4) Net working capital is ________.
A) the combined total of a firm's equity capital and net losses
B) the difference between a firm's current assets and current liabilities
C) the difference between a firm's expected profits and current debts
D) any currency deposited in a bank outside its country of origin
Page 22
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