Business Foundations O C Ferrell 12th Edition - Test Bank

Business Foundations O C Ferrell 12th Edition –
Test Bank
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Sample Test
Business Foundations: A Changing World, 12e (Ferrell)
Chapter 3 Business in a Borderless World

1) International business involves the buying, selling, and trading of goods
and services across national boundaries.

Answer: TRUE
Explanation: International business refers to the buying, selling, and trading
of goods and services across national boundaries.
Difficulty: 1 Easy
Topic: Definition of Business
Learning Objective: 03-01 Explore some of the factors within the international
trade environment that influence business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

2) Nations trade with other nations to obtain resources that would otherwise
be unavailable to them.

Answer: TRUE
Explanation: Nations and businesses engage in international trade to obtain
raw materials and goods that are otherwise unavailable to them or are
available elsewhere at a lower price than that at which they themselves can
produce.
Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets
Bloom’s: Remember

3) Fit Rite Fasteners, a firm based in the United States, buys metal parts from
China to manufacture its fasteners. In doing so, the company is engaged in
exporting.

Answer: FALSE
Explanation: Importing is the purchase of goods and services from foreign
sources.
Difficulty: 2 Medium
Bloom’s: Apply
AACSB: Knowledge Application

4) When a nation imports more than it exports, it has a positive balance of
trade.

Answer: FALSE
Explanation: When a nation imports more than it exports, it has a negative
balance of trade, or trade deficit.
Difficulty: 1 Easy
Bloom’s: Remember

5) Trade deficits can help businesses succeed, create more jobs, and improve
the standard of living.

Answer: FALSE
Explanation: Trade deficits are harmful because they can mean the failure of
businesses, the loss of jobs, and a lowered standard of living.
Difficulty: 3 Hard
Bloom’s: Understand

6) A business that is engaging in importing and exporting must be familiar with
the ratio at which one nation’s currency can be exchanged for another. In
other words, the business must be familiar with the balance of trade.

Answer: FALSE
Explanation: The business must be familiar with the exchange rate which is
the ratio at which one nation’s currency can be exchanged for another.
Familiarity with exchange rates is important because they affect the cost of
imports and exports.
Difficulty: 1 Easy
Topic: Barriers to International Trade
Learning Objective: 03-02 Assess some of the economic
Bloom’s: Remember

7) A common reason for establishing quotas or tariffs is to encourage
dumping.

Answer: FALSE
Explanation: One common reason for setting quotas or tariffs is to prohibit
dumping, which occurs when a country or business sells products at less than
what it costs to produce them.

8) Political unrest in countries often creates a hostile environment for foreign
businesses and can act as a barrier to international trade.

Answer: TRUE
Explanation: Businesses engaged in international trade must consider the
relative stability of countries. Political unrest in countries may create a hostile
or even dangerous environment for foreign businesses.
Difficulty: 1 Easy
Bloom’s: Remember

9) Sociocultural differences, such as variations in body language and personal
space, rarely have an impact on international business.

Answer: FALSE
Explanation: Sociocultural differences, such as variations in body language
and personal space, have an impact on international business. These cultural
differences may generate uncomfortable feelings or misunderstandings when
business people of different countries negotiate with each other.
Difficulty: 1 Easy
Bloom’s: Remember

10) The General Agreement on Tariffs and Trade (GATT) provided a forum for
tariff negotiations and a place where international trade problems could be
resolved.

Answer: TRUE
Explanation: Originally signed by 23 nations in 1947, the General Agreement
on Tariffs and Trade provided a forum for tariff negotiations and a place where
international trade problems could be discussed and resolved.
Difficulty: 1 Easy
Topic: International Trade Agreements and the Organizations that Facilitate
Trade
Learning Objective: 03-03 Specify some of the agreements
Bloom’s: Remember

11) The World Trade Organization agreements were rejected by most of the
world’s trading nations.

Answer: FALSE
Explanation: Key to the World Trade Organization are the WTO agreements,
which are the legal ground rules for international commerce. The agreements
were negotiated and signed by most of the world’s trading nations and ratified
by their parliaments.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

12) Many U.S. companies have taken advantage of Mexico’s low labor costs
and proximity to the United States to set up maquiladoras.

Answer:TRUE
Explanation: As a result of the North American Free Trade Agreement
(NAFTA), many U.S. companies have taken advantage of Mexico’s low labor
costs and proximity to the United States to set up production facilities,
sometimes called maquiladoras.
Trade

13) The Asia-Pacific Economic Cooperation (APEC) is a trade agreement
between Asian countries and does not include the United States.

Answer: FALSE
Explanation: The Asia-Pacific Economic Cooperation (APEC), established in
1989, promotes open trade and economic and technical cooperation among
member economies, which initially included Australia, Brunei Darussalam,
Canada, Indonesia, Japan, South Korea, Malaysia, New Zealand, the
Philippines, Singapore, Thailand, and the United States. Since then, the
alliance has grown to include Chile; China; Hong Kong, China; Mexico; Papua
New Guinea; Peru; Russia; Chinese Taipei; and Vietnam.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

14) The International Monetary Fund promotes trade among member nations
by eliminating trade barriers and fostering financial cooperation.

Answer: TRUE
Explanation: The International Monetary Fund (IMF) was established in 1947
to promote trade among member nations by eliminating trade barriers and
fostering financial cooperation.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

15) Export agents either purchase products outright or take them on
consignment but are not responsible for storage and transportation of the
product.

Answer: FALSE
Explanation: Export agents either purchase products outright or take them on
consignment. They are also responsible for storage and transportation.
Difficulty: 1 Easy
Learning Objective: 03-04 Summarize the different levels of organizational
involvement in international trade.
Bloom’s: Remember

16) Licensing is a good option for small manufacturers wanting to launch a
well-known brand internationally.

Answer: TRUE
Explanation: Licensing is a trade arrangement in which one company—the
licensor—allows another company—the licensee—to use its company name,
products, patents, brands, trademarks, raw materials, and/or production
processes in exchange for a fee or royalty. Licensing is especially
advantageous for small manufacturers wanting to launch a well-known brand
internationally.

17) As an international business opportunity, direct investment provides the
least amount of control but is also the least expensive way to participate in
foreign trade.

Answer: FALSE
Explanation: The opposite is true. Companies that want more control and are
willing to invest considerable resources in international business may consider
direct investment, the ownership of overseas facilities.

18) Multinational corporations (MNCs) are rarely targeted by activists because
they provide so many benefits to the countries in which they do business.

Answer: FALSE
Explanation: Multinational corporations (MNCs) have been targeted by anti-
globalization activists at global business forums, and some protests have
turned violent. MNCs are criticized on the grounds that they increase the gap
between rich and poor nations, misuse and misallocate scarce resources,
exploit the labor markets in less-developed countries (LDCs), and harm their
natural environments.

19) Companies doing business internationally have traditionally used a
globalization strategy.

Answer: FALSE
Explanation: Companies doing business internationally have traditionally
used a multinational strategy, customizing their products, promotion, and
distribution according to cultural, technological, regional, and national
differences.
Learning Objective: 03-05 Contrast two basic strategies used in international
business.
Bloom’s: Remember

20) A global strategy involves standardizing products for the whole world.

Answer: TRUE
Explanation: A global strategy involves standardizing products (and, as much
as possible, their promotion and distribution) for the whole world, as if it were
a single entity.
Difficulty: 1 Easy
Learning Objective: 03-05 Contrast two basic strategies used in international
business.
Bloom’s: Remember

21) If a company in the United States buys, sells, and trades goods and
services with several other countries, it is engaged in
1. A) international business.
2. B) contract manufacturing.
3. C) outsourcing.
4. D) direct investment.
5. E) the balance of trade.

Answer: A
Explanation: International business is the buying, selling, and trading of
goods and services across national boundaries.
Topic: Definition of Business

22) A(n) ________ exists when a country is the most efficient producer of an
item.
1. A) comparative advantage
2. B) comparative disadvantage
3. C) absolute advantage
4. D) absolute disadvantage
5. E) domestic advantage

Answer: C
Explanation: Some nations have a monopoly on the production of a particular
resource or product. Such a monopoly, or absolute advantage, exists when a
country is the only source of an item, the only producer of an item, or the most
efficient producer of an item.
Difficulty: 1 Easy
Topic: Competition
Bloom’s: Remember

23) Bolivia, South America is the only country in the world that is able to grow
a rare plant that is used to produce a healing ointment for arthritis patients.
Because Bolivia is the only country with access to this plant, it has a(n)
1. A) comparative advantage.
2. B) comparative disadvantage.
3. C) absolute advantage.
4. D) absolute disadvantage.
5. E) domestic advantage.

Answer: C
Explanation: This is an example of absolute advantage, which exists when a
country is the only source of an item, the only producer of an item, or the most
efficient producer of an item.
Difficulty: 3 Hard
Topic: Competition
Bloom’s: Apply

24) Suppose there are several countries that are efficient at producing coffee
beans and Brazil is one of those countries. While Brazil is efficient at
producing coffee beans, it is inefficient at producing electronics. Because of
this, Brazil sells its coffee beans to other countries and buys
electronics from other countries. This scenario exemplifies the concept of
1. A) supply and demand.

2. B) absolute advantage.
3. C) a monopoly.
4. D) exchange controls.
5. E) comparative advantage.

Answer: E
Explanation: This is an example of comparative advantage, which occurs
when a country specializes in products that it can supply more efficiently or at
a lower cost than it can produce other items.
Difficulty: 3 Hard
Topic: Competition
Bloom’s: Apply

25) ________ is the transferring of manufacturing or other tasks—such as
data processing—to countries where labor and supplies are less expensive.
1. A) Importing
2. B) Exporting
3. C) Outsourcing
4. D) Dumping
5. E) Insourcing

Answer: C
Explanation: Outsourcing is the transferring of manufacturing or other tasks—
such as data processing—to countries where labor and supplies are less
expensive.
Difficulty: 1 Easy
Topic: Competition
Bloom’s: Remember

26) Why has outsourcing become a controversial practice in the United
States?
1. A) Outsourcing takes away jobs that could be accomplished by workers

in the United States.
2. B) Outsourcing takes away a company’s ability to develop a
comparative advantage.
3. C) Outsourcing has made U.S.-based products significantly more
expensive.
4. D) Outsourcing increases the cost of labor and supplies needed to get
the job done.
5. E) The outsourced products end up having sub-standard quality
because their producers lack expertise.

Answer: A
Explanation: Outsourcing has become a controversial practice in the United
States because many jobs have moved overseas where those tasks can be
accomplished for lower costs.
Topic: Competition

27) ________ is best described as the sale of goods and services to foreign
markets.
1. A) Franchising
2. B) Offshoring
3. C) Outsourcing
4. D) Exporting
5. E) Importing

Answer: D
Explanation: To obtain needed goods and services and the funds to pay for
them, nations trade by exporting and importing. Exporting is the sale of goods
and services to foreign markets.
Difficulty: 1 Easy
Bloom’s: Remember

28) Ann bought a new shirt from a retailer in the United States. When she
checked the tag, she saw that her shirt was made in Vietnam. This means her
shirt is a(n) ________ good.
1. A) exported
2. B) outsourced
3. C) absolute
4. D) imported
5. E) domestic

Answer: D
Explanation: This is an example of an imported good. Importing is the
purchase of goods and services from foreign sources.
Bloom’s: Apply

29) A nation’s ________ is defined as the difference in value between its
exports and imports.
1. A) balance of import
2. B) balance of export
3. C) balance of trade
4. D) trade surplus
5. E) trade deficit

Answer: C
Explanation: A nation’s balance of trade is the difference in value between its
exports and imports.
Difficulty: 1 Easy
Bloom’s: Remember

30) U.S. exports to China have been rapidly increasing but not fast enough to
offset the imports from China. This means that the United States has a(n)
1. A) domestic gain.
2. B) trade surplus.
3. C) trade deficit.
4. D) absolute advantage.
5. E) comparative advantage.

Answer: C
Explanation: U.S. exports to China have been rapidly increasing but not fast
enough to offset the imports from China, meaning that the United States has a
trade deficit. A trade deficit is defined as a nation’s negative balance of trade,
which exists when that country imports more products than it exports.

31) One of the outcomes of a country continually operating with a trade deficit
is
1. A) an increase in successful businesses.

2. B) an increase in the number of exported products.
3. C) an increase in unemployment.
4. D) a decrease in the number of imported products.
5. E) a higher standard of living.

Answer: C
Explanation: A trade deficit is defined as a nation’s negative balance of trade,
which exists when that country imports more products than it exports. Trade
deficits are harmful because they can mean the failure of businesses, the loss
of jobs, and a lowered standard of living.

32) A favorable balance of trade exists when a country
1. A) imports more than it exports.

2. B) exports more than it imports.
3. C) has more debt liabilities than assets.
4. D) spends more than it saves.
5. E) saves more than it spends.

Answer: B
Explanation: When a nation exports more goods than it imports, it has a
favorable balance of trade, or trade surplus.
Difficulty: 1 Easy
Bloom’s: Remember

33) Until 1970, the United States experienced a trade surplus. What factor
contributed to this surplus?
1. A) inefficient manufacturing systems

2. B) plentiful imports from other countries
3. C) a negative balance of payments
4. D) an abundance of natural resources
5. E) healthy economies in other countries

Answer: D
Explanation: Until about 1970, the United States had a trade surplus due to
an abundance of natural resources and the relative efficiency of its
manufacturing systems.
Difficulty: 1 Easy
Bloom’s: Remember

34) The difference between the flow of money into and out of a country is
called its
1. A) balance of trade.
2. B) domestic gain.
3. C) balance of payments.
4. D) credit balance.
5. E) exchange rate.

Answer: C
Explanation: The difference between the flow of money into and out of a
country is called its balance of payments. A country’s balance of trade, foreign
investment, foreign aid, loans, military expenditures, and money spent by
tourists comprise its balance of payments.
Difficulty: 1 Easy
Bloom’s: Remember

35) If a country imports more goods and services than it exports, the country
most likely has
1. A) a trade deficit.
2. B) a favorable balance of trade.
3. C) a favorable balance of payments.
4. D) a trade surplus.
5. E) high production and employment levels.

Answer: A
Explanation: When a country has a trade deficit, it imports more products
than it exports. As a result, more money flows out of the country than into it.
When this happens, the country may experience declining production and
higher unemployment because there is less money available for spending.

36) A U.S. firm is considering doing business in a foreign country.
What economic factor should the business consider regarding the country in
which it will conduct its business?
1. A) whether the country is part of a cartel

2. B) any tariffs the country might impose
3. C) the political climate of the country
4. D) cultural differences between the two countries
5. E) the infrastructure of the country

Answer: E
Explanation: Any firm considering international business must research the
other country’s economic, legal, political, social, cultural, and technological
background. The economic factors that should be considered are the
country’s economic development, infrastructure, and exchange rates.

37) Which statement about less-developed countries (LDCs) is true?
1. A) Almost all countries in Europe are LDCs.

2. B) In LDCs, consumers tend to purchase more nonessential products.
3. C) LDCs are characterized by solid infrastructures.
4. D) LDCs represent a potentially huge and profitable market for many
businesses.
5. E) LDCs are characterized by high per-capita income.

Answer: D
Explanation: Many countries in Africa, Asia, and South America are less
economically advanced than those in North America and Europe. These less-
developed countries (LDCs) are characterized by low per-capita income,
which means consumers are less likely to purchase nonessential items.
Nonetheless, LDCs represent a potentially huge and profitable market for
many businesses because they may be buying technology to improve their
infrastructures, and much of the population may desire consumer products.

38) Physical facilities such as railroads, highways, airfields, hospitals, and
distribution systems all support a country’s economic activities and are
referred to as the country’s
1. A) absolute advantage.
2. B) strategic alliance.
3. C) infrastructure.
4. D) exchange rate.
5. E) exchange controls.

Answer: C
Explanation: A country’s level of development is determined in part by its
infrastructure, the physical facilities that support its economic activities, such
as railroads, highways, ports, airfields, utilities and power plants, schools,
hospitals, communication systems, and commercial and distribution systems.
Difficulty: 1 Easy
Bloom’s: Remember

39) The ratio at which one nation’s currency can be exchanged for another
nation’s currency is referred to as the
1. A) exchange rate.
2. B) balance of payments.
3. C) trade ratio.
4. D) value ratio.
5. E) currency rate.

Answer: A
Explanation: The ratio at which one nation’s currency can be exchanged for
another nation’s currency is the exchange rate.
Difficulty: 1 Easy
Bloom’s: Remember

40) If the United States were to devalue its currency, the most likely result
would be
1. A) an increase in foreign tourists to the United States.

2. B) a decrease in the number of foreign tourists to the United States.
3. C) a decrease in the sale of domestic goods.
4. D) an increase in its imports.
5. E) an increase in the cost of American goods abroad.

Answer: A
Explanation: Devaluation decreases the value of currency in relation to other
currencies. Devaluation encourages the sale of domestic goods and tourism.

41) Which situation encourages the sale of domestic goods and tourism?
1. A) inflation
2. B) dumping
3. C) outsourcing
4. D) devaluation
5. E) tariffs

Answer: D
Explanation: Devaluation decreases the value of currency in relation to other
currencies. If the U.S. government were to devalue the dollar, it would lower
the cost of American goods abroad and make trips to the United States less
expensive for foreign tourists. Thus, devaluation encourages the sale of
domestic goods and tourism.

42) Which statement is true about barriers to international business?
1. A) Devaluation discourages the sale of domestic goods and tourism.

2. B) Revaluations occur daily because of the daily changes in exchange
rates.
3. C) Legal and ethical requirements for successful business are
decreasing globally.
4. D) Many of the legal rights that Americans take for granted do not exist
in other countries.
5. E) Less developed countries resist international trade and therefore are
not profitable markets.

Answer: D
Explanation: Many of the legal rights that Americans take for granted do not
exist in other countries, and a firm doing business abroad must understand
and obey the laws of the host country.

43) Countries like China and Vietnam are flooded with counterfeit videos,
movies, computer software, furniture, and clothing. Why is this?
1. A) The counterfeit products are of better quality.

2. B) The copyright laws of those countries are strict for domestic
products.
3. C) Those countries do not engage in any trade that is legal.
4. D) Intellectual property laws in those countries are very strict.
5. E) Copying is a tradition in those countries.

Answer: E
Explanation: Because copying is a tradition in China and Vietnam and laws
protecting copyrights and intellectual property are weak and minimally
enforced, those countries are flooded with counterfeit videos, movies,
computer software, furniture, and clothing.

44) A specific amount of money levied on each unit of a product brought into a
country is referred to as a(n) ________ tariff.
1. A) ad valorem
2. B) value-added
3. C) fixed
4. D) prohibitive
5. E) zero

Answer: C
Explanation: A fixed tariff is a specific amount of money levied on each unit of
a product brought into a country, while an ad valorem tariff is based on the
value of the item. Most countries allow citizens traveling abroad to bring home
a certain amount of merchandise without paying an import tariff.
Difficulty: 1 Easy
Bloom’s: Remember

45) A fixed tariff differs from an ad valorem tariff because an ad valorem tariff
1. A) is a specific amount of money levied on each unit of a product sold

by a country.
2. B) is a specific amount of money levied on each unit of a product
brought into a country.
3. C) is based on the value of an item.
4. D) prohibits trade in a particular product.
5. E) limits the number of units of a particular product that can be imported
into a country.

Answer: C
Explanation: A fixed tariff is a specific amount of money levied on each unit of
a product brought into a country, while an ad valorem tariff is based on the
value of an item.

46) Janie took a vacation to Italy and bought $1,000 worth of jewelry in
Florence. The United States will allow Janie to bring $800 back into the
country duty free. What happens to the other $200 that is part of her total
expenditure?
1. A) Janie does not have to account for the extra $200; the U.S.
government will pay a duty tax on it.
2. B) Janie cannot bring home more than $800 worth of goods, so she
must return $200 worth of merchandise.
3. C) Janie must pay an ad valorem tariff on the extra $200.
4. D) Janie must pay a fixed tariff on the extra $200.
5. E) Janie must claim the $200 as an export tariff.

Answer: C
Explanation: A U.S. citizen may bring $200, $800, or $1,600 worth of
merchandise into the United States duty free depending on the country
visited. After that, U.S. citizens must pay an ad valorem tariff based on the
cost of the item and the country of origin. Thus, identical items purchased in
different countries might have different tariffs.
Difficulty: 3 Hard
Bloom’s: Apply

47) Which statement is true about tariffs?
1. A) Countries are not allowed to levy tariffs for political reasons.

2. B) Protective tariffs allow more expensive domestic goods to compete
with foreign ones.
3. C) Critics of protective tariffs argue that their use promotes too much
free trade and competition.
4. D) Supporters of protective tariffs say the tariffs insulate the world
economy from entering into trade wars.
5. E) Protective tariffs force domestic and foreign products to be sold for
the exact same price.

Answer: B
Explanation: Protective tariffs allow more expensive domestic goods to
compete with foreign ones. For example, because other markets can produce
steel more cheaply than the United States, the U.S. has imposed tariffs on
steel imported into the United States because imports have caused many
local steelworks to crash.

48) What is the primary purpose of a protective tariff?
1. A) to allow more expensive domestic goods to compete with foreign

ones
2. B) to completely ban certain goods from entering a country
3. C) to limit the number of products in a certain category from entering a
country
4. D) to standardize the number of items that can be brought into a country
duty free
5. E) to makeup for variances in currency exchange rates.

Answer: A
Explanation: Import tariffs are commonly imposed to protect domestic
products by raising the price of imported ones. Protective tariffs allow more
expensive domestic goods to compete with foreign ones. Such protective
tariffs have become controversial, as Americans become increasingly
concerned over the U.S. trade deficit.

49) If Thailand wants to limit the amount of sugar that the United States
imports into its country, it would do so by imposing a(n)
1. A) quota.
2. B) value-added tax.
3. C) export tariff.
4. D) embargo.
5. E) subsidy.

Answer: A
Explanation: A quota limits the number of units of a particular product that
can be imported into a country, whereas an embargo would prohibit the
United States from importing sugar to Thailand.
Difficulty: 3 Hard
Bloom’s: Apply

50) A(n) ________ is best defined as a prohibition on trade in a particular
product.
1. A) ad valorem tariff
2. B) excise tax
3. C) cartel
4. D) quota
5. E) embargo

Answer: E
Explanation: An embargo prohibits trade in a particular product.
Difficulty: 1 Easy
Bloom’s: Remember

51) Because it goes against their religious beliefs, some Muslim nations forbid
the importation of alcoholic beverages into their countries. This is an example
of a(n)
1. A) trade tariff.
2. B) trade embargo.
3. C) quota limit.
4. D) fixed tariff.
5. E) ad valorem tariff.

Answer: B
Explanation: An embargo prohibits trade in a particular product. Embargoes
are generally directed at specific goods or countries and may be established
for political, economic, health, or religious reasons. Some Muslim nations
forbid the importation of alcoholic beverages on religious grounds.
Bloom’s: Apply

52) ________ is defined as the act of a country or business selling products at
less than what it costs to produce them.
1. A) Dumping
2. B) Offshoring
3. C) Outsourcing
4. D) Exporting
5. E) Importing

Answer: A
Explanation: Dumping is the act of a country or business selling products at
less than what it costs to produce them.
Difficulty: 1 Easy
Bloom’s: Remember

53) Which statement is true about dumping?
1. A) Dumping occurs when the country of origin has products with the
latest technology that are in high demand in overseas markets.
2. B) Dumping occurs when a business sells products at much more than
what it costs to produce them.
3. C) Dumping occurs when the domestic market for a firm’s product is too
big to match the level of production.
4. D) Quotas cannot be imposed based on suspicion of dumping unless
proven.
5. E) Dumping permits quick entry into a market.

Answer: E
Explanation: Dumping is the act of a country or business selling products at
less than what it costs to produce them. Dumping permits quick entry into a
market.

54) All of the following nations have been subject to economic sanctions for
political reasons in recent years EXCEPT
1. A) the United States.

2. B) Cuba.
3. C) Iran.
4. D) Syria.
5. E) North Korea.

Answer: A
Explanation: In recent years, Cuba, Iran, Syria, and North Korea have been
subject to economic sanctions for political reasons.
Difficulty: 1 Easy
Bloom’s: Remember

55) Political concerns may lead a group of nations to form a(n) ________, a
group of firms or nations that agrees to act as a monopoly and not compete
with each other.
1. A) embargo
2. B) conglomerate
3. C) joint venture
4. D) cartel
5. E) franchise

Answer: D
Explanation: Political concerns may lead a group of nations to form a cartel, a
group of firms or nations that agrees to act as a monopoly and not compete
with each other, to generate a competitive advantage in world markets. The
Organization of Petroleum Exporting Countries (OPEC), the most famous
cartel, was founded in the 1960s to increase the price of petroleum throughout
the world and to maintain high prices in order to enhance the economies of its
member nations.

56) A country that imposes an embargo in response to some political event is
attempting to
1. A) restrict trade with other nations.

2. B) increase trade with other nations.
3. C) encourage dumping into the country.
4. D) increase the amount of currency that can be brought into the country.
5. E) increase the potential for countries to engage in dumping.

Answer: A
Explanation: An embargo prohibits trade in a particular product. Political
considerations affect international business daily as governments enact tariffs,
embargoes, or other types of trade restrictions in response to political events.

57) A sudden change in power can result in a regime that is hostile to foreign
investment. This is a primary example of a(n) ________ barrier.
1. A) political
2. B) cultural
3. C) exchange
4. D) language
5. E) geographic

Answer: A
Explanation: A sudden change in power can result in a regime that is hostile
to foreign investment. This is a primary example of a political barrier.

58) A catastrophic flood crippled a country’s government. In an effort to help
local businesses rebuild, the government forced foreign businesses out of the
country. This is an example of a(n) ________ barrier to trade.
1. A) political
2. B) social
3. C) economic
4. D) ethical
5. E) legal

Answer: A
Explanation: This is an example of a political barrier to trade. Natural
disasters can cripple a country’s government, making the region unstable.
Forcing businesses out of a country altogether is a drastic example of
international politics.
Bloom’s: Apply

59) Differences in spoken and written language represent a(n) ________
barrier to international trade.
1. A) technological
2. B) political
3. C) legal
4. D) cultural
5. E) economic

Answer: D
Explanation: Cultural differences include differences in spoken and written
language. Although it is certainly possible to translate words from one
language to another, the true meaning is sometimes misinterpreted or lost.
Difficulty: 1 Easy
Bloom’s: Remember

60) Understanding that Arab businessmen tend to stand face-to-face when
holding a conversation reveals the importance of understanding another
culture’s use of
1. A) language.
2. B) dialect.
3. C) religious practices.
4. D) ethics.
5. E) body language.

Answer: E
Explanation: Differences in body language and personal space affect
international trade. Body language is nonverbal, usually unconscious
communication through gestures, posture, and facial expression. Personal
space is the distance at which one person feels comfortable talking to
another. Americans tend to stand a moderate distance away from the person
with whom they are speaking. Arab businessmen tend to stand face-to-face
with the object of their conversation.

61) At the conclusion of a business meeting in Brazil, David gave the A-OK
sign to the people in the room. This hand gesture in America means OK,
however, the Brazilians were embarrassed because in their culture the
gesture is perceived as rude. This situation exemplifies how even simple
differences in ________ can cause misunderstandings in international
relationships.
1. A) laws
2. B) family roles
3. C) body language
4. D) gender
5. E) written language

Answer: C
Explanation: Gestures vary from culture to culture, and gestures considered
acceptable in American society—forming a circle with one’s index finger and
thumb, for example—may be considered rude in others.
Difficulty: 3 Hard
Bloom’s: Apply

62) Schweppes Tonic Water discovered during an ad campaign in Italy that its
name was translated to read “Schweppes Toilet Water.” Effective translations
of product names are an example of a(n) ________ barrier to international
trade.
1. A) political
2. B) cultural
3. C) legal
4. D) ethical
5. E) demographic

Answer: B
language. Although it is certainly possible to translate words from one
language to another, the true meaning is sometimes misinterpreted or lost.

63) Many countries do not allow children to be used in advertising. This is an
example of a(n) ________ barrier.
1. A) political
2. B) cultural
3. C) economic
4. D) geographic
5. E) religious

Answer: B
language, body language, personal space, family roles, perceptions of time,
national and religious holidays, local customs, and measurement systems.
Family roles also influence marketing activities. Many countries do not allow
children to be used in advertising, for example.
Difficulty: 1 Easy
Bloom’s: Remember

64) Americans value promptness in business meetings, while it is common in
Mexico and Spain for a meeting to start thirty minutes late. This exemplifies
how the perceptions of ________ differ among nations.
1. A) space
2. B) time
3. C) language
4. D) ethics
5. E) respect

Answer: B
Explanation: The people of other nations quite often have a different
perception of time. Americans value promptness; a business meeting
scheduled for a specific time seldom starts more than a few minutes late. In
Mexico and Spain, however, it is not unusual for a meeting to be delayed half
an hour or more.
Difficulty: 3 Hard
Bloom’s: Apply

65) Which statement about the General Agreement on Tariffs and Trade
(GATT) is true?
1. A) More than 100 nations abided by its rules.

2. B) It was originally signed by 30 nations in 1947.
3. C) It sponsored rounds of negotiations aimed at increasing trade
restrictions.
4. D) The Uruguay Round promoted dumping.
5. E) The most recent round was the Paraguay Round (2001–2005).

Answer: A
Explanation: The General Agreement on Tariffs and Trade (GATT), originally
signed by 23 nations in 1947, provided a forum for tariff negotiations and a
place where international trade problems could be discussed and resolved.
More than 100 nations abided by its rules. GATT sponsored rounds of
negotiations aimed at reducing trade restrictions. The most recent round, the
Uruguay Round, further reduced trade barriers for most products and provided
new rules to prevent dumping.
Trade

66) Which of the following is the international organization based in Geneva,
Switzerland, that was created in 1995 by the Uruguay Round of the General
Agreement on Tariffs and Trade (GATT)?
1. A) the European Union

2. B) the World Trade Organization
3. C) the World Bank
4. D) the Association of Southeast Asian Nations
5. E) the Asia-Pacific Economic Cooperation

Answer: B
Explanation: The World Trade Organization (WTO), an international
organization dealing with the rules of trade between nations, was created in
1995 by the Uruguay Round of the General Agreement on Tariffs and Trade
(GATT). Based in Geneva, Switzerland, the WTO has also adopted a
leadership role in negotiating trade disputes among nations.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

67) Which regions were merged into one market by the North American Free
Trade Agreement (NAFTA)?
1. A) Canada and Alaska

2. B) Brazil, Mexico, and the United States
3. C) Chile, Brazil, and the United States
4. D) Canada, Mexico, and the United States
5. E) Canada and Chile

Answer: D
Explanation: The North American Free Trade Agreement (NAFTA) merged
Canada, the United States, and Mexico into one market. NAFTA virtually
eliminated all tariffs on goods produced and traded among Canada, Mexico,
and the United States to create a free trade area.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

68) ________ is the single largest trading partner of the United States.
1. A) Mexico
2. B) India
3. C) China
4. D) Japan
5. E) Canada

Answer: E
Explanation: Canada’s nearly 37 million consumers are relatively affluent,
with a per capita GDP of $48,100. Trade between the United States and
Canada totals approximately $580 billion. In fact, Canada is the single largest
trading partner of the United States.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

69) Which statement about the European Union is true?
1. A) It is trying to create opportunities to trade with South America.

2. B) It is working toward the creation of a standardized currency.
3. C) It is striving to impose customs checks within Europe.
4. D) It is working toward the abolition of import duties.
5. E) It is trying to increase value-added taxes.

Answer: B
Explanation: The European Union (EU) is a union of European nations
established in 1958 to promote trade among its members and is one of the
largest single markets today. To facilitate free trade among members, the EU
is working toward standardization of business regulations and requirements,
import duties, and value-added taxes; the elimination of customs checks; and
the creation of a standardized currency for use by all members.
Trade

70) What is “Brexit”?
1. A) the new currency adopted by the European Union

2. B) the United Kingdom’s decision to leave the European Union
3. C) a set of sanctions imposed on EU members that trade outside of the
union
4. D) the unilateral decision to remove the United Kingdom and France
from the union
5. E) the term used for tariffs the EU has imposed on other nations

Answer: B
Explanation: In 2016, the United Kingdom voted to exit the European Union.
This decision to exit, called “Brexit,” resulted in the value of the pound falling
sharply.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

71) Established in 1989, the international trade alliance between 21 nations
that promotes open trade and economic and technical cooperation among its
member nations is called the
1. A) General Agreement on Tariffs and Trade (GATT).

2. B) Asia-Pacific Economic Cooperation (APEC).
3. C) North American Free Trade Agreement (NAFTA).
4. D) European Union (EU).
5. E) Association of Southeast Asian Nations (ASEAN).

Answer: B
member nations. The 21-member alliance represents approximately 40
percent of the world’s population, 54 percent of the world’s GDP, and nearly
44 percent of global trade.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

72) Which country was a member nation of Asia-Pacific Economic
Cooperation (APEC) when it was established in 1989?
1. A) Vietnam
2. B) Japan
3. C) China
4. D) Hong Kong
5. E) Chile

Answer: B
member economies, which initially included Australia, Brunei Darussalam,
Canada, Indonesia, Japan, South Korea, Malaysia, New Zealand, the
Philippines, Singapore, Thailand, and the United States.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

73) Which statement about the Association of Southeast Asian Nations
(ASEAN) is true?
1. A) It does not have fully free labor flows between member-nations.

2. B) It is the most unified of all the trading blocs.
3. C) It has a common currency.
4. D) It has a 21-member alliance.
5. E) It was established in 1989.

Answer: A
Explanation: The Association of Southeast Asian Nations (ASEAN) was
established in 1967 as a 10-member alliance. ASEAN’s goals include the
promotion of free trade, peace, and collaboration between its members;
however, it faces challenges in becoming a unified trade bloc. ASEAN
members are quite different from one another and major conflicts have
occurred between member-nations. Unlike the EU, ASEAN will not have a
common currency or fully free labor flows between member-nations.
Trade

74) Which organization was established by the industrialized nations in 1946
to loan money to underdeveloped and developing countries?
1. A) the Foreign Credit Insurance Association

2. B) the Exim Bank
3. C) the World Bank
4. D) the World Trade Organization
5. E) the International Monetary Fund

Answer: C
Explanation: The World Bank, more formally known as the International Bank
for Reconstruction and Development, was established by the industrialized
nations, including the United States, in 1946 to loan money to underdeveloped
and developing countries.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

75) What is true of the World Bank?
1. A) It funds the member nations of the NAFTA and EU.

2. B) It provides aid to industrialized nations in times of financial crisis.
3. C) It acts as a global police force.
4. D) It finances construction projects in underdeveloped and developing
countries.
5. E) It helps developed nations obtain money to start businesses.

Answer: D
Explanation: The World Bank loans its own funds or borrows funds from
member countries to finance projects ranging from road and factory
construction to the building of medical and educational facilities. The World
Bank and other multilateral development banks are the largest source of
advice and assistance for developing nations.
Trade

76) The ________ is the closest thing the world has to an international central
bank.
1. A) International Monetary Fund
2. B) World Bank
3. C) European Union
4. D) Organization for Economic Cooperation and Development
5. E) World Trade Organization

Answer: A
Explanation: The International Monetary Fund (IMF) is the closest thing the
world has to an international central bank. If countries get into financial
trouble, they can borrow from the World Bank. However, the global economic
crisis created many challenges for the IMF as it was forced to significantly
increase its loans to both emerging economies and more developed nations.
Difficulty: 1 Easy
Trade
Bloom’s: Remember

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1. A) supply and demand.

1. A) Outsourcing takes away jobs that could be accomplished by workers

1. A) an increase in successful businesses.

1. A) imports more than it exports.

1. A) inefficient manufacturing systems

1. A) whether the country is part of a cartel

1. A) Almost all countries in Europe are LDCs.

1. A) an increase in foreign tourists to the United States.

1. A) Devaluation discourages the sale of domestic goods and tourism.

1. A) The counterfeit products are of better quality.

1. A) is a specific amount of money levied on each unit of a product sold

1. A) Countries are not allowed to levy tariffs for political reasons.

1. A) to allow more expensive domestic goods to compete with foreign

1. A) the United States.

1. A) restrict trade with other nations.

1. A) More than 100 nations abided by its rules.

1. A) the European Union

1. A) Canada and Alaska

1. A) It is trying to create opportunities to trade with South America.

1. A) the new currency adopted by the European Union

1. A) General Agreement on Tariffs and Trade (GATT).

1. A) It does not have fully free labor flows between member-nations.

1. A) the Foreign Credit Insurance Association

1. A) It funds the member nations of the NAFTA and EU.

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