International Business Exam 2 Review

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Part 2 - Multiple Choice Questions

The reasons a government may nationalize a firm include:
A. to extract more money from the firm.
B. to increase the firm's profitability.
C. to preserve jobs.
D. all of the above.
E. two of A, B, and C.

D. all of the above.

Privately owned companies sometimes complain that government-owned companies have the following unfair advantages:
A. higher-cost financing.
B. ability to charge higher prices.
C. access to government contracts.
D. all of the above.
E. two of A, B, and C.

C. access to government contracts.

Nationalization and privatization are:
A. similar trends.
B. opposing trends.
C. both risks faced by privately held firms.
D. both risks not encountered in capitalist democracies.
E. two of the above.

B. opposing trends.

Government stability is understood to refer to a government's:
A. policies—their ability to endure over time.
B. ability to keep itself in power.
C. two of A, B, and D.
D. ability to adjust to sudden changes by making radical policy changes.
E. all of A, B, and D.

C. two of A, B, and D.

Zimbabwe is an example of:
A. a richly endowed country that has suffered because of government instability.
B. a government that expropriated private property, that is, nationalized it, and then redistributed it.
C. a country whose leadership stole the 2008 election.
D. all of the above.
E. two of A, B, and C.

D. all of the above.

Government stability is a characteristic of a government that:
A. makes sudden radical policy changes.
B. readily shifts alliances to maintain power.
C. maintains predictability in fiscal, monetary and political policies.
D. two of the above.
E. all of A, B, and C.

C. maintains predictability in fiscal, monetary and political policies.

International business can be a powerful political force, in part because:
A. a recent Supreme Court ruling in the United States allows corporate contributions to political races.
B. many top management team members are willing to accept roles with national security agencies.
C. about half the world's 100 largest economic units are firms.
D. business is all about achieving political goals.
E. two of the above.

C. about half the world's 100 largest economic units are firms.

The trend for firms in regard to country risk assessment (CRA) is to:
A. avoid it as an added cost in competitive markets.
B. concentrate much more on CRA in making decisions about foreign activities.
C. use CRA in obviously dangerous locations, but only in those situations.
D. all of the above.
E. two of A, B, and C.

B. concentrate much more on CRA in making decisions about foreign activities.

The national defense argument for trade restrictions has been used in the United States to argue for restriction on imports of:
A. munitions.
B. uniforms.
C. shoes.
D. all of the above.
E. two of A, B, and C.

C. shoes.

An argument against using trade restrictions to punish an offending nation is that:
A. sanctions seldom achieve their goal of forcing change in the offending country.
B. sanctions are relatively harmful to the citizens of the offending country.
C. sanctions are not condoned by the UN.
D. sanctions decrease the cost of doing business.
E. two of the above.

A. sanctions seldom achieve their goal of forcing change in the offending country.

Dumping is:
A. selling a product abroad for less than its production cost in the importing nation.
B. selling a product abroad for less than the market price in the export nation.
C. exporting a product to a third country without correct documentation.
D. two of the above.
E. all of A, B, and C.

B. selling a product abroad for less than the market price in the export nation.

An example of environmental dumping can be found in the:
A. maquiladora plants of Mexico, located near the U.S. border and operating at lower environmental standards than would be required in the United States.
B. nuclear waste shipments to developing nations.
C. garbage shipments from New Jersey to developing nations.
D. all of the above.
E. two of A, B, and C.

D. all of the above.

New types of dumping include:
A. cultural, social, financial services, and tax dumping.
B. truck, financial services, and black-market dumping.
C. gray-market, subsidiary, and transfer-pricing dumping.
D. two of the above.
E. all of A, B, and C.

A. cultural, social, financial services, and tax dumping.

The primary motivation of tariffs is to:
A. raise government revenue at the cost of importers.
B. raise the price of imports, to protect domestic goods.
C. punish countries over political issues.
D. encourage foreign consumption.
E. none of the above.

B. raise the price of imports, to protect domestic goods.

Official prices ensure that:
A. imported goods will be sold at minimum prices, to avoid dumping.
B. a black market will be healthy and available for imported goods.
C. low-priced invoices to avoid tariffs will not be successful.
D. two of the above.
E. none of A, B, and C.

D. two of the above.

Nuisance tariffs:
A. annoy the importers with red tape and administrative paperwork.
B. are a historical anomaly.
C. are found in developed nations more than in developing nations.
D. have no point other than to indicate that tariff regulations change quickly.
E. two of the above.

A. annoy the importers with red tape and administrative paperwork.

Quotas are a quantitative barrier that sets:
A. limits, established by the importer.
B. goals, established by the exporter.
C. precise quantities of imports or exports, based on price.
D. expectations on domestic and foreign sales.
E. two of the above.

A. limits, established by the importer.

Unlike quotas, voluntary export restraints (VERs) are imposed by the:
A. importing country's government.
B. exporting country's government.
C. either the importing or exporting country's government; what matters is that they are voluntary.
D. the importing company.
E. none of the above.

B. exporting country's government.

Non-quantitative nontariff barriers:
A. are seen by many to be the most significant nontariff barrier.

B. often involve government participation in trade, especially in customs and other administrative procedures.
C. often involve standards.
D. all of the above.
E. two of A, B, and C.

D. all of the above.

Customs procedures in many countries often:
A. are transparent and fair.
B. discriminate against imports and favor exports.
C. are online and impersonal.
D. two of the above.
E. all of A, B, and C.

B. discriminate against imports and favor exports.

Standards are a way to establish nontariff barriers, and examples are:
A. all of B, C, and D.
B. Japan's refusal to import light mayonnaise.
C. Canada's categorization of orange juice with added calcium as a drug and subject to special requirements.
D. the prohibition of imported drugs at the consumer level in the United States.
E. two of B, C, and D.

A. all of B, C, and D.

Anyone studying legal forces affecting international business soon realizes that:
A. there is a remarkable level of coordination among legal systems in the developed nations.
B. most laws are predictable, and that, although there is variance, what constitutes illegal behavior is commonly shared.
C. the variety of these forces complicates the task of understanding the laws.
D. thanks to the World Court, officials in most legal systems are open to collaborating with their international colleagues.
E. none of the above.

C. the variety of these forces complicates the task of understanding the laws.

The existence of the rule of law in a foreign market suggests that:
A. lawyers will be necessary in any substantive business transaction.
B. personal relationships will be less effective than in a country governed outside the rule-of-law system. !!
C. none of A, B, D, or E.
D. legal rulings will be the basis of any dispute resolution.
E. foreign investors can assume that their interests will be protected.

E. foreign investors can assume that their interests will be protected.

Laws governing transactions of individuals and companies that cross international borders are:
A. none of B, C, D, or E.
B. private international law.
C. product liability law.
D. public international law.
E. customary law.

B. private international law.

The main source(s) of international law is(are):
A. the UN International Court of Justice.
B. the U.S. Supreme Court and the EU Court of Justice.
C. bilateral and multilateral treaties, along with customary law.
D. nonexistent.
E. the WIPO.

C. bilateral and multilateral treaties, along with customary law.

Extraterritoriality is:
A. a nation's attempt to enforce its law beyond its borders.
B. added territory as a result of dispute settlements in wars, such as the Sakalin Islands.
C. a citizen's claim to government assistance in a foreign environment.
D. a taxable condition most international firms attempt to avoid.
E. two of the above.

A. a nation's attempt to enforce its law beyond its borders.

If two English multinational companies had a dispute arising in New York City, and there were no choice-of-law or choice-of-forum clauses in their contract, it is likely that:
A. a New York court would hear their complaint.
B. they would bring their dispute to an English court.
C. the dispute would get heard not in court but, rather, in the boardrooms.
D. they would reach an agreement informally and develop an off-the-books settlement.
E. they would bring their dispute to the World Court for adjudication.

B. they would bring their dispute to an English court.

Where litigation in international disputes should occur is:
A. usually evident from the documentation available.
B. at times unclear, in which case the UN International Court of Justice will make a jurisdictional ruling.
C. often complex, so contracts should include choice-of-law and choice-of-forum clauses.
D. dictated by where the problem arose; a problem arising in India is adjudicated in India.
E. determined by a jury during pretrial discovery.

C. often complex, so contracts should include choice-of-law and choice-of-forum clauses.

Arbitration is a private solution that is:
A. often preferred by foreign litigants because it is perceived as fairer, faster, cheaper, and more confidential than are the courts.
B. favored by international unions.
C. recommended by the UN for international companies facing litigation in developing countries.
D. two of the above.
E. all of A, B, and C.

A. often preferred by foreign litigants because it is perceived as fairer, faster, cheaper, and more confidential than are the courts.

Usually, it is reasonable to assume that foreign law:
A. will be similar to U.S. law.
B. will differ from U.S. law and must be understood.
C. won't matter because you and your trading partner will agree to arbitrate.
D. will be biased against the foreigner.
E. will vary but that U.S. law will take precedence.

B. will differ from U.S. law and must be understood.

Intellectual property:
A. excludes intangibles, which is why it is a difficult area.
B. includes thoughts and ideas, but not tangible products.
C. includes anything that is a result of a creative process that does not have material qualities.
D. includes anything that is the result of things created using someone's intellect.
E. excludes things found in nature, such as natural colors, scents, and sounds.

D. includes anything that is the result of things created using someone's intellect.

Patents are government grants that give the owner:
A. exclusive rights to use, sell, manufacture, or exploit the invention or process.
B. the exclusive right to use the fundamental ideas on which the invention is based.
C. the right to sell the invention, but only beyond the patent-granter's borders.
D. rights to the invention but do not prevent others from copying the invention.
E. two of the above.

A. exclusive rights to use, sell, manufacture, or exploit the invention or process.

WIPO and TRIPS represent:
A. patent harmonization agreements in Southeast Asia and the EU, respectively.
B. anticounterfeiting agreements in Korea and North America, respectively.
C. WTO and UN agreements on IP.
D. UN and WTO agencies or programs that focus on IP.
E. international governments during litigation at the World Court.

D. UN and WTO agencies or programs that focus on IP.

Trademarks can be:
A. a color.
B. a sound.
C. a design.
D. two of the above.
E. all of A, B, and C.

E. all of A, B, and C.

Antitrust law is intended to:
A. challenge successful businesses to allow proper levels of competition.
B. prevent large concentrations of economic power, such as monopolies.
C. create a more trusting business environment.
D. allow socialism to flourish.
E. two of the above.

B. prevent large concentrations of economic power, such as monopolies.

U.S. antitrust law is applied:
A. to all firms based in the United States, but not others.
B. to all firms, including extraterritorially.
C. only to U.S.-owned firms with assets in the United States.
D. to all firms, as long as they have assets in the United States.
E. all of the above.

B. to all firms, including extraterritorially.

The U.S. antitrust law contains both civil and criminal penalties:
A. neither of which can be applied outside the United States.
B. and the criminal penalties apply to foreign companies even if the conspiracy took place outside the United States.
C. but their application to foreign companies is limited to actions that have taken place within the United States.
D. and they can be administered by foreign courts.
E. and they are enforced through the United Nations

B. and the criminal penalties apply to foreign companies even if the conspiracy took place outside the United States.

Trade obstacles are considered to be legal forces because:
A. they often are based on legislation.
B. their compliance is costly to the firm and the consumer.
C. they are imposed by a formal institution and noncompliance can carry punishment.
D. two of the above.
E. all of A, B, and C.

D. two of the above.

The end result of legal trade obstacles is often:
A. limited trade, with the recipient of the obstacles withdrawing.
B. political negotiations between the two countries, to smooth relations and reduce costs.
C. higher costs to consumers.
D. lower taxes to citizens due to tariff revenues.
E. none of the above.

C. higher costs to consumers.

In the U.S. court system, tort claims may result in:
A. exceedingly large awards.
B. lower liability insurance.
C. a reduction in strict liability.
D. reduced liability insurance costs for foreign companies.
E. none of the above.

A. exceedingly large awards.

Punitive damages in product liability cases can be awarded in:
A. Japan.
B. Japan and the EU.
C. the UK.
D. the United States
E. all of the above.

D. the United States

The Foreign Corrupt Practices Act has:
A. carried the discussion of transparency and corruption out into the open.
B. impaired American competitiveness abroad.
C. jailed legions of corrupt foreign executives in the United States.
D. introduced clear, concise terminology into the discussion of corruption.
E. been based on the United Kingdom Bribery Act.

A. carried the discussion of transparency and corruption out into the open.

Historically, gold has been used as a way for people to store value because of its:
A. purity and scarcity.
B. high transportation and security costs.
C. lack of interest-earning ability.
D. all of the above.

A. purity and scarcity.

Sir Isaac Newton put England on the gold standard when he:
A. declared, as master of the English mint, that he would sell gold for 1 pound, 1 shilling, 1 pence, under the law of one price.
B. set a market price for gold, the British pound and the U.S. dollar.
C. established a fixed equivalency between gold and the British currency.
D. brought the matter to Queen Anne, who declared Britain would follow the gold standard.

C. established a fixed equivalency between gold and the British currency.

The present floating exchange rate system was:
A. designed by the IMF and implemented flawlessly in 1973.
B. established by the major trading nations in 19721 after Nixon closed the gold window.
C. implemented in tandem with a reintroduction of the gold standard.
D. established after several trials in which central bankers set rates incorrectly and speculators corrected them in the markets, and it was formalized after the fact in the IMF's Jamaica Agreement.

D. established after several trials in which central bankers set rates incorrectly and speculators corrected them in the markets, and it was formalized after the fact in the IMF's Jamaica Agreement.

Financial forces such as inflation and taxation are considered uncontrollable because:
A. there is nothing a manager can do to adjust to them, so the recommended approach is to ignore them.
B. they are external forces beyond the influence of the firm, around which a manager can manage.
C. they are external to the firm and their influence is to be avoided.
D. they are unpredictable.

B. they are external forces beyond the influence of the firm, around which a manager can manage.

The present floating exchange rate system is not a totally free float because:
A. there is an exchange fee of 1.5 to 1.75 percent.
B. some governments refuse to allow foreign traders to trade their currency.
C. some central banks from time to time intervene in the market to buy or sell large amounts of currency to affect the supply and demand of a particular currency.
D. A and B.

C. some central banks from time to time intervene in the market to buy or sell large amounts of currency to affect the supply and demand of a particular currency.

The forward currency market:
A. allows purchasers to lock in purchases of currencies at known rates.
B. provides governments a way to manage their currency's value.
C. makes trading in several currencies more efficient.
D. helps managers manage domestic debt.

A. allows purchasers to lock in purchases of currencies at known rates.

If the Japanese yen is strengthening against the U.S. dollar, and the Japanese government wanted to boost exports, the central bank of Japan might well:
A. sell U.S. dollars in large amounts in the currency markets.
B. buy massive amounts of Japanese yen in the FX markets.
C. sell massive amounts of Japanese yen in the FX markets.
D. buy massive amounts of other hard currencies, such as the British pound sterling and the euro, to deflect the focus on dollars.

C. sell massive amounts of Japanese yen in the FX markets.

Arbitrage functions to:
A. provide French markets access to other EU markets.
B. exploit price differences between markets, so as to profit with no risk.
C. create wealth through interest rate swaps.
D. create increased trading in commodity markets.

B. exploit price differences between markets, so as to profit with no risk.

When the law of one price is applied to interest rates, it suggests that:
A. interest rates do not differ much across national borders.
B. inflation is not affected by interest rates.
C. inflation and interest rates do not follow the law of one price.

D. varying interest rates take into account anticipated differences in inflation rates.

D. varying interest rates take into account anticipated differences in inflation rates.

The international Fisher effect says that the interest rate differentials in any two currencies reflect:
A. the ratio of their inflation rates minus COL
B. arbitrary differences in the two economies.
C. PPP differences in the two economies.
D. the expected change in their exchange rates.

D. the expected change in their exchange rates.

Purchasing power parity is a way to compare:
A. the purchasing power of several currencies.
B. tastes in several different cultures.
C. the impact of financial aid in several economies.
D. meals in the quick-service restaurant sector—via the Big Mac index.

A. the purchasing power of several currencies.

The three main approaches to exchange rate forecasting are:
A. the efficient market approach, the fundamental approach, and the technical approach.
B. the efficient market approach, the random walk hypothesis, and the pragmatic approach.
C. the random walk hypothesis, the pragmatic approach, and the fundamental approach.
D. none of the above.

A. the efficient market approach, the fundamental approach, and the technical approach.

Foreign reserves are used to:
A. help foreigners who need additional funds.
B. provide military support to foreign operations, for example, the French legion and UN peacekeepers.
C. cover foreign debt, import purchases, and other demands for foreign currency that banks might encounter.
D. support foreign operations that are branches but not subsidiaries.

C. cover foreign debt, import purchases, and other demands for foreign currency that banks might encounter.

Taxation is a financial force in that:
A. if the firm can achieve a lower tax burden than its competitors, it can generate higher revenues and then lower its prices or pay higher wages and dividends.
B. governments, which enact taxes, are formal institutions that enforce tax law via force.
C. businesses are compelled by foreign governments to pay taxes.
D. it is not controlled by the firm.

A. if the firm can achieve a lower tax burden than its competitors, it can generate higher revenues and then lower its prices or pay higher wages and dividends.

The inflation rate determines:
A. a currency's strengthening.
B. the real price of borrowing in capital markets.
C. locations for outsourcing.
D. import substitution regimes.

B. the real price of borrowing in capital markets.

The balance-of-payments account is a record of:
A. the total tangible trade flows of a country over a five-year period.
B. a country's transactions with the rest of the world.
C. a country's total debt service payments during a one-year period.
D. the outstanding balance of a country's debt payments for the fiscal year.

B. a country's transactions with the rest of the world.

Most significantly for the international manager, the balance of payments reveals:
A. demand for a firm's products.
B. a firm's financial position.
C. a country's export patterns.
D. demand for a country's currency and potential changes in its economic environment.

D. demand for a country's currency and potential changes in its economic environment.

A vehicle currency is a currency:
A. used to trade in the transportation sector and is usually the dollar, euro, or yen.
B. whose value lies in its function in transfer pricing.
C. specifically used in arbitrage deals as a trading medium only.
D. used for international trade or investment.

D. used for international trade or investment.

Monetary and fiscal policies:
A. have nothing to do with exchange rate movement.
B. influence interest rates and taxation, and so may influence exchange rates.
C. have no predictable influence on inflation.
D. have no influence on trade patterns.

B. influence interest rates and taxation, and so may influence exchange rates.

The law of one price is that:
A. only one price can be charged for an item in a contract deal.
B. in an efficient market, one price only is the permissible price.
C. in an efficient market, like goods will have like prices.
D. even in international markets, bait and switch is illegal.

C. in an efficient market, like goods will have like prices.

The Eonomist's Big Mac index (May 2010) suggests that against the dollar, the Chinese yuan is:
A. trading fairly, since the Big Mac prices are similar.
B. quite undervalued, since the Chinese Big Mac is almost 50 percent less expensive than the U.S.-dollar Big Mac.
C. is overvalued, since the Big Mac sells for almost 50 percent less in Chinese currency than in U.S. dollars.
D. trading at a historical premium.

B. quite undervalued, since the Chinese Big Mac is almost 50 percent less expensive than the U.S.-dollar Big Mac.

Fixed-rate relationships among currencies could not stay fixed, according to Obstfeld and Rogoff, because:
A. the volume of global transactions started to exceed most countries' foreign exchange reserves, so governments couldn't intervene to sustain the value of their currency.
B. the complexity of international trade demanded return of the gold standard.
C. Walmart and other leading firms argued successfully at the Federal Reserve that fixed rates were too costly to maintain.
D. the EU had decided to float the euro.

A. the volume of global transactions started to exceed most countries' foreign exchange reserves, so governments couldn't intervene to sustain the value of their currency.

In general, with regard to exchange controls, developed countries:
A. rarely use them.
B. use them only to discourage foreign investment.
C. use them when needed to implement monetary policy.
D. use them secretly.

A. rarely use them.

The three major taxes governments use to generate revenue are:
A. VAT, income tax, and withholding tax.
B. sales tax, VAT, and income tax.
C. property tax, VAT, and sales tax.
D. income tax, property tax, and sales tax.

A. VAT, income tax, and withholding tax.

A value-added tax is actually a sales tax that is:
A. paid by the firm rather than the consumer.
B. paid in stages along the process from raw materials to consumer and then credited after final sale.
C. called value added to create a positive spin on taxation.
D. voluntarily paid on exports.

B. paid in stages along the process from raw materials to consumer and then credited after final sale.

Withholding tax is:
A. an indirect tax paid by employers before employees receive salaries.
B. a direct tax levied on earned income.
C. a 30 percent tax levied on foreign residents.
D. an indirect tax levied on passive income.

D. an indirect tax levied on passive income.

The inflation rate determines:
A. the capital structure of the firm.
B. the growth rate of sales.
C. the real cost of borrowing in capital markets.
D. the equilibrium point.

C. the real cost of borrowing in capital markets.

Balance-of-payments data:
A. reveal a country's assets.
B. suggest areas of concern in monetary and fiscal policy.
C. reveal demand for a country's currency.
D. show how the country's currency arrangement (fixed, pegged, floating) is valued.

C. reveal demand for a country's currency.

The current account on the BOP has three subaccounts:
A. export, import, and capital.
B. tangible exports, tariff revenues, and capital.
C. fixed assets, current liabilities, and long-term debt.
D. merchandise, services, and unilateral transfers.

D. merchandise, services, and unilateral transfers.

A purchase of foreign goods from the United States (requiring importing) will:
A. be recorded in the BOP as an asset in the current account.
B. be recorded in the BOP as a debit in the current account.
C. have no record in the BOP because the purchase is made in the United States
D. be recorded in the BOP as a liability in the foreign transfer account.

B. be recorded in the BOP as a debit in the current account.

The Triffin paradox suggests that:
A. reserve currencies can never run deficits.
B. eventually, reserve currencies will run deficits, which will lead to lack of confidence in the currency.
C. the more a currency is held in reserves, the stronger it is.
D. the U.S. dollar could never be a reserve currency.

B. eventually, reserve currencies will run deficits, which will lead to lack of confidence in the currency.

Who took the United States off the gold system?
A. President Eisenhower
B. President Kennedy
C. the Supreme Court
D. President Nixon

D. President Nixon

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