Chapter 1: An Overview of International Business

A.MULTIPLE CHOICE
1) Olympic sponsorship is best suited for companies that are ________.
A) pursuing a niche market
B) selling technological goods
C) pursuing a worldwide market
D) marketing athletic equipment
Answer: C
2) IBM is considering becoming a worldwide partner for the 2012 Olympics. Which of the
following would IBM most likely receive as a result?
A) free public relations
B) low-cost marketing
C) top athlete endorsements
D) priority advertising space
Answer: D
3) Cities wishing to host the Olympic Games must do all of the following except ________.
A) make facilities commitments
B) develop a volunteer workforce
C) generate organizational support
D) build high-speed rail links between event cities
Answer: D
4) Which of the following is the LEAST likely benefit to Olympic host cities? A) enhanced
media sponsorship
B) greater economic growth
C) improved infrastructure
D) increased tourism
Answer: A

5) ________ consist(s) of business transactions between parties from more than one
country.
A) Currency exports
B) International business
C) Domestic business
D) Global ventures
Answer: B
6) As an experienced accounts manager for a U.S. firm, Tyrone has worked exclusively with
other U.S. firms. However, his employer is expanding overseas, and Tyrone will now be an
international manager. Tyrone will most likely need to develop his knowledge in all of the
following areas EXCEPT ________.
A) cultural differences
B) audience analysis
C) social customs
D) foreign laws
Answer: B
7) Which of the following is not an international business transaction?
A) purchasing products in one country and assembling them in another
B) building a plant in a foreign country to capitalize on lower labor costs
C) borrowing money from a major bank to finance capital improvements
D) shipping finished products from one country to another for retail sale
Answer: C
8) The Internet has helped small businesses compete in global markets because it
________.
A) allows them to establish a physical presence in each country
B) avoids transactions involving foreign exchange
C) eliminates price controls
D) reduces entry costs
Answer: D

9) A manager who has cultural literacy can most likely ________.

A) speak and read in more than one language
B) recognize the similarities and differences of cultures
C) develop accurate cultural assessments of foreign colleagues
D) function as an expatriate manager in multiple foreign locations
Answer: B
10) Individuals should most likely study international business to ________.
A) comply with graduate school certification requirements
B) ensure that an employer has a global online presence
C) remain current on the latest business methods
D) obtain bilingual business experience
Answer: C
11) The number of Americans working for U.S. affiliates of foreign-owned corporations is
about ________.
A) 2 million
B) 3 million
C) 4 million
D) 5 million
Answer: D
12) Which of the following has most likely triggered the increase of small businesses
involved in international business?
A) e-commerce
B) economic recession
C) foreign-made materials
D) increased cultural literacy
Answer: A
13) Just-in-time systems were created in ________.
A) the United States
B) Japan
C) Germany
D) China
Answer: B
14) Just-in-time systems are used by firms to ________.
A) store important data
B) manage inventory
C) monitor production
D) screen job applicants
Answer: B

15) Sony's suppliers deliver necessary inputs as they are needed by Sony. Sony is most
likely using a(n) ________ system.
A) cross-functional
B) just-in-time
C) inventory management
D) on-demand delivery
Answer: B
16) Black and Decker produces tools at a plant in North Carolina and ships the tools to
retailers in England. This is an example of which type of international business activity?
A) merchandising
B) importing
C) exporting
D) trading
Answer: C
17) _______ is the buying of products made in other countries for use or resale in one's own
country.
A) Exporting
B) Importing
C) Merchandising
D) Transporting
Answer: B

18) Sam's Club purchases kalamata olives from Greece for sale in its stores. Which
international business activity does this represent?
A) exporting
B) importing
C) merchandising
D) franchising
Answer: B
19) The British term for the trading of tangible goods is ________.
A) visible trade
B) invisible trade
C) merchandising
D) service franchising
Answer: A
20) The British term for the trading of intangible goods is ________.
A) visible trade
B) invisible trade
C) merchandise exports and imports
D) service exports and imports
Answer: B
21) Boeing, an American firm, sells commercial aircraft to Lufthansa in Germany. This is
an example of ________.
A) exporting
B) importing
C) licensing
D) franchising
Answer: A
22) Exports account for about ________ of Netherland's gross domestic product? A) 20%
B) 35%
C) 50%
D) 75 %
Answer: D
23) The international business activity called ________ occurs when capital is supplied by
residents of one country to residents of another country.
A) international investment
B) global direct investment
C) portfolio financing
D) state capitalism
Answer: A
24) ________ are investments made for the purpose of actively controlling property, assets,
or companies located in host countries.
A) Licensing investments
B) Portfolio investments
C) Foreign direct investments
D) Indirect global investments
Answer: C

25) Which term refers to the location of a parent company's headquarters?

A) host country
B) home country
C) third country
D) local country
Answer: B
26) If a company is headquartered in Taiwan, then Taiwan is the company's ________. A)
host country
B) home country
C) dominant country
D) competitive country
Answer: B
27) Ford Motor Company is based in Detroit, Michigan. It also has offices in Germany,
England, and China. Which of the following is Ford's home country?
A) Germany
B) England
C) China
D) United States
Answer: D
28) The ________ is where a company operates but is not headquartered.
A) host country
B) home country
C) parental country
D) third party country
Answer: A
29) Siemens is headquartered in Germany but maintains operations in the United States.
The United States is the ________ country.
A) home
B) host
C) parent
D) subsidiary
Answer: B
30) Trade between nations can be traced back as far as ________.
A) 2000 BC
B) 500 BC
C) 1200
D) 1600
Answer: A
31) Which country was a significant focal point for international business during the
Middle Ages?
A) China
B) England
C) Italy
D) Russia
Answer: C
32) ________ are purchases of foreign financial assets for a purpose other than control. A)
Foreign direct investments
B) Global business investments
C) Foreign portfolio investments
D) Indirect investments
Answer: C
33) If a Dutch pension fund purchases 1,000 shares of Nissan's stock, the Dutch company
has most likely ________.
A) made a foreign direct investment
B) made a foreign portfolio investment
C) earned a higher return on assets
D) earned a lower rate of return
Answer: B
34) Compared to Thailand, the United States has a ________ level of exports of goods and
services as a percentage of GDP.
A) slightly lower
B) slightly higher
C) significantly lower
D) significantly higher
Answer: C
35) Ford Motor Company purchased all of the common stock of Sweden's Volvo
Corporation. This is an example of ________.
A) foreign portfolio investment
B) foreign direct investment
C) international expansion
D) global licensing
Answer: B
36) McDonald's has licensed its brand name, operational systems, and trademarks to
individual restaurant owners in Europe. This is called international ________.
A) leasing
B) marketing
C) franchising
D) diversifying
Answer: C
37) ________ is a contractual arrangement in which a firm in one country allows the use of
its intellectual property by a firm in a second country in return for a royalty payment.
A) Leasing
B) Franchising
C) Licensing
D) Merchandising
Answer: C
38) Licensing usually involves permission to use all of the following EXCEPT ________.
A) patents
B) trademarks
C) brand names
D) production facilities
Answer: D
39) Walt Disney permits a German clothing manufacturer to market children's pajamas
embroidered with Mickey Mouse in return for a percentage of company sales. This is an
example of ________.
A) franchising
B) licensing
C) leasing
D) piracy
Answer: B
40) A(n) ________ involves a firm in one country agreeing to operate facilities for a firm in
another country for an agreed-upon fee.
A) franchising agreement
B) licensing agreement
C) management contract
D) indirect investment
Answer: C
41) In 2010, ________ was considered the world's largest corporation.
A) Toyota
B) ExxonMobil
C) Coca-Cola
D) Wal-Mart
Answer: D
42) Any organization that engages in cross-border commercial transactions with
individuals, private firms, and/or public sector organizations is a(n) ________.
A) multinational corporation
B) multinational enterprise
C) international business
D) international franchise
Answer: C
43) The term ________ is used to identify firms that have extensive involvement in
international business.
A) global operation
B) multinational corporation
C) international conglomerate
D) multidomestic organization
Answer: B
44) The International Red Cross is an example of a(n) ________.
A) international business
B) multinational enterprise
C) multinational organization
D) multinational corporation
Answer: C
45) Which of the following is not a common activity of MNCs?
A) owning and controlling foreign assets
B) buying resources in various countries
C) creating goods in a variety of countries
D) establishing foreign exchange rates
Answer: D
46) Nike, ExxonMobil, Mitsubishi, and Volkswagen are all examples of ________. A)
multinational companies
B) management contracts
C) portfolio investments
D) franchised firms
Answer: A
47) International nonprofit organizations are called ________.
A) multinational corporations
B) multinational organizations
C) multinational enterprises
D) multinational nonprofits
Answer: B
48) The integration of markets, nation-states, and technologies in a way that is enabling
individuals, corporations, and nation-states to reach around the world farther, faster,
deeper, and cheaper than ever before is referred to as ________.
A) international business organization
B) market internationalization
C) economic integration
D) globalization
Answer: D
49) The ratio of international trade to economic activity has ________ since 1950.
A) risen slightly
B) risen dramatically
C) fallen slightly
D) remained about the same
Answer: B

50) The importance of foreign direct investment in the world's economy has ________ over
time.
A) fallen slightly
B) fallen significantly
C) risen significantly
D) risen slightly
Answer: C
51) Which of the following is the LEAST likely reason that firms globalize? A) expanding
into new markets
B) acquiring low-cost resources
C) leveraging core competencies
D) competing for critical workers
Answer: D
52) Which of the following is the likely motive for Procter & Gamble's move into China?
A) leveraging core competencies
B) acquiring new resources
C) accessing new markets
D) improving competition
Answer: C

53) A(n) ________ is a distinctive strength that is central to a firm's operations.

A) core competency
B) unilateral skill
C) comparable advantage
D) strategic imperative
Answer: A
54) Singapore Airlines' ________ is its award-winning standards of customer satisfaction.
A) core competency
B) distinctive advantage
C) differential advantage
D) strategic imperative
Answer: A
55) Which of the following is a primary reason that firms acquire resources and supplies
from other countries?
A) comply with trade regulations
B) minimize resource competition
C) decrease shipping and handling costs
D) obtain items unavailable in home country
Answer: D
56) Which of the following is the LEAST likely reason that firms globalize?
A) generate profit growth
B) achieve economies of scale
C) diversify the firm's revenue stream
D) increase dependence on home country sales
Answer: D

57) Pepsi's reason for following Coca-Cola to new markets was most likely to ________.
A) acquire resources and supplies
B) leverage core competencies
C) compete more effectively
D) gain economies of scale
Answer: C
58) After World War I, international business was primarily restricted by ________.
A) import barriers
B) export restrictions
C) government contracts
D) high transportation costs
Answer: A
59) After World War II, international business was primarily triggered by the ________.
A) loss of high-quality Japanese goods
B) reduction of tariffs and quotas
C) improvement of transportation
D) introduction of the Euro
Answer: B
60) Mexico and Poland are examples of ________.
A) Second World economies
B) emerging markets
C) First World economies
D) developed markets
Answer: B
61) Which of the following countries has the LEAST dependence on exporting for its
overall GDP?
A) Germany
B) Mexico
C) Japan
D) China
Answer: C
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62) Which country dominated international trade during the 5th century B.C.?
A) China
B) Italy
C) Spain
D) Greece
Answer: D
63) What is the primary reason that U.S. advertising agencies frequently film commercials
in South Africa?
A) environmental safeguards
B) improved competition
C) low production costs
D) new markets
Answer: C
64) Colgate-Palmolive expanded into overseas markets with its toothpaste when the
product reached the ________ stage of the product life cycle.
A) growth
B) maturity
C) decline
D) development
Answer: B
65) According to the text, businesses in the ________ industry frequently enter foreign
markets to prevent rivals from becoming dominant in any particular country.
A) airline manufacturing
B) semiconductor
C) accounting
D) coffee
Answer: A
66) Regional trade and investment has been made easier through all of the following
EXCEPT the ________.
A) European Union
B) Kyoto Protocol
C) Mercosur Accord
D) North American Free Trade Agreement
Answer: B
67) What is the largest component of international trade in the service industry?
A) tourism
B) accounting
C) consulting
D) higher education
Answer: A
68) During the Cold War, which term was used when referring to the Soviet Union and its
allied Communist states?
A) First World
B) Second World
C) Third World
D) Fourth World
Answer: B
69) During the Cold War, which term was used when referring to the United States,
Australia, and Western Europe?
A) First World
B) Second World
C) Third World
D) Fourth World
Answer: A
70) During the Cold War, low-income countries in ________ were primarily considered
suppliers of raw materials to First World countries.
A) the United States
B) Western Europe
C) the Soviet Union
D) Latin America
Answer: D
71) Which two countries account for more than one-third of the world's population?
A) Mexico and Brazil
B) China and India
C) Brazil and India
D) Mexico and China
Answer: B
72) Which of the following is most likely a true statement about China?
A) Computer production is most active in Shanghai.
B) China's growth has mostly benefited Shanxi.
C) China's largest ethnic group is the Han.
D) Labor costs are lower in coastal China.
Answer: C
73) All of the following are the primary sources of revenue for the IOC during the
Olympics EXCEPT ________.
A) television coverage
B) corporate sponsors
C) real estate sales
D) advertising time
Answer: C

74) A boundaryless economy is one in which ________.

A) exported goods are predominant
B) regional borders are significant
C) trade laws are strictly enforced
D) national borders are irrelevant
Answer: D
75) In which country is AG used to indicate that a business has limited liability?
A) Germany
B) Sweden
C) Mexico
D) Japan
Answer: A

Chapter 2: Global Marketplaces and Business Centers

A.MULTIPLE CHOICE
1) Which of the following is LEAST responsible for driving the floriculture industry?
A) technological changes
B) competitve rivalries
C) trade liberalization
D) state capitalism
Answer: D
2) FloraHolland is best described as a(n) ________.
A) cooperative floral auction organization
B) international floral import corporation
C) small, independent flower grower
D) floral industry stock program
Answer: A
3) Which of the following best explains the success of FloraHolland?
A) use of e-commerce
B) availability of cheap labor
C) creation of a futures market
D) acquisition of inexpensive land
Answer: C
4) The patterns of trade and investment in international business are LEAST affected by
________.
A) linguistics
B) cultural ties
C) education trends
D) military alliances
Answer: C
5) Companies doing international business are more likely to be successful when they
________.
A) conduct frequent performance appraisals
B) understand local market characteristics
C) employ primarily local managers
D) rely on experienced expatriates
Answer: B
6) What is London's origin as a world financial center?
A) military power of British Empire in the nineteenth century
B) influence of royalty on the city's reputation
C) rule over several former American colonies
D) prestige of the London Stock Exchange
Answer: A
7) Which of the following markets has the LEAST impact on the world's current economic
activity?
A) North America
B) European Union
C) China
D) Japan
Answer: C
8) In the twenty-first century, growth rates in ________ have outpaced those in ________.
A) the United States and China; India and Japan
B) Canada and Japan; Germany and the U.S.
C) Japan and India; China and Canada
D) China and India; Germany and Japan
Answer: D
9) The European Union accounted for about ________ percent of the world's GDP in 2009.
A) 15
B) 28
C) 45
D) 52
Answer: B
10) Which country has the highest per capita income in North America?
A) the United States
B) Central America
C) Canada
D) Mexico
Answer: A
11) The countries of North America produce approximately ________ percent of the
world's output.
A) 18
B) 29
C) 45
D) 52
Answer: B
12) ________ is the currency in which the sale of goods and services is denominated. A)
Flight capital
B) Euro currency
C) Invoicing currency
D) Capital substitution
Answer: C
13) The prime market for lower-income countries that are trying to raise their living
standards through exports is ________.
A) the United States
B) Japan
C) Germany
D) China
Answer: A
14) ________ is the money sent out of a politically or economically unstable country to one
perceived as a safe haven.
A) Invoicing currency
B) Flight capital
C) Capital substitution
D) Foreign currency
Answer: B
15) When a firm makes a sale of goods denominated in Japanese yen, the yen is referred to
as ________.
A) flight capital
B) export capital
C) the invoicing currency
D) the transaction currency
Answer: C
16) Which country listed below commonly attracts flight capital?
A) Germany
B) Canada
C) the United States
D) Singapore
Answer: C
17) U.S. exports of goods and services in 2010 accounted for about ________ percent of U.S.
GDP.
A) 12
B) 23
C) 30
D) 45
Answer: A
18) About what percentage of the world's 500 largest corporations in 2010 were
headquartered in the United States?
A) 12%
B) 19%
C) 27%
D) 45%
Answer: C
19) Which of the following is not true of Mexico?
A) It is the world's largest Spanish-speaking nation.
B) It has increased its protectionist measures in recent years.
C) It has been promoting the privatization of multiple industries.
D) It has signed free trade pacts with El Salvador, Guatemala, and Honduras.
Answer: B
20) ________ is the dominant market for Canadian goods.
A) The European Union
B) The United States
C) China
D) Mexico
Answer: B
21) Which of the following aspects about Canada is a concern to many international
investors?
A) legal system instability
B) separatist movement
C) weak infrastructure
D) education system
Answer: B
22) How many countries currently participate in the European Union's common currency,
the euro?
A) 12
B) 17
C) 22
D) 27
Answer: B
23) Countries designated "middle income" have per capita incomes of ________.
A) less than $995
B) between $996 and $12,196
C) between $12,196 and $23,221
D) between $23,222 and $34,021
Answer: B
24) The European Union is comprised of ________ countries.
A) 12
B) 15
C) 22
D) 27
Answer: D
25) Which country is a low-income nation?
A) Cambodia
B) Costa Rica
C) India
D) Chile
Answer: A
26) What is the most likely reason that Germany is considered the most important member
of the EU?
A) Germany has the world's fourth largest economy.
B) Germany's government promotes human rights.
C) Germany initially suggested developing the EU.
D) Germany uses a codetermination system.
Answer: A
27) Which EU country has drawn criticism for promoting an agenda of economic
nationalism, and in particular, for protecting its farmers under the guise of the Common
Agricultural Policy?
A) Germany
B) France
C) Italy
D) Spain
Answer: B
28) Who was responsible for introducing glasnost and perestroika to the Soviet Union?
A) Czar Nicholas II
B) Boris Yeltsin
C) Vladimir Putin
D) Mikhail Gorbachev
Answer: D
29) China is attracting the attention of multinational companies and investors for all of the
following reasons EXCEPT its ________.
A) move to adopt market-oriented economic policies
B) abandonment of many communist principles
C) hard-working, low-cost labor force
D) state ownership of key industries
Answer: D
30) Which of these countries is NOT a member of the EU?
A) Austria
B) Monaco
C) Norway
D) Portugal
Answer: C
31) What country holds the world's largest land mass?
A) the United States
B) Russia
C) China
D) Canada
Answer: B
32) Who was Russia's first democratically elected president?
A) Mikhail Baryshnikov
B) Mikhail Gorbachev
C) Boris Yeltsin
D) Vladimir Putin
Answer: C
33) The Newly Independent States refers to the ________.
A) Central European countries
B) former Soviet republics
C) largest African nations
D) Four Tigers
Answer: B
34) Which of the following has achieved high-income status according to the World Bank?
A) the Czech Republic
B) Russia
C) Slovenia
D) Romania
Answer: A
35) Russia's natural resources include all of the following except ________.
A) diamonds
B) natural gas
C) gold
D) grain
Answer: D
36) Immediately following World War II, Japan's Ministry for International Trade and
Investment encouraged firms to concentrate on ________.
A) steel and shipbuilding
B) automobiles and electronics
C) financial services
D) apparel and footwear
Answer: A
37) The Japanese term sogo sosha refers to a(n) ________.
A) major Japanese bank
B) family of interrelated companies
C) export trading company
D) supplier
Answer: C
38) The Japanese term, keiretsu, refers to a(n) ________.
A) major Japanese bank
B) family of interrelated companies
C) export trading company
D) supplier
Answer: B
39) Exports accounted for about ________ percent of New Zealand's 2009 GDP.
A) 10
B) 20
C) 30
D) 40
Answer: B
40) Samsung, Hyundai, Daewoo Group, and LG are all examples of ________.
A) chaebol
B) keiretsu
C) glasnost
D) sogo sosha
Answer: A
41) Which of the following is most likely a true statement about New Zealand?
A) The country prohibits privatization in most industries.
B) Most of the country's population lives on the South Island.
C) The country primarily relies on its gold and coal resources.
D) Merchandise trade is extremely important to the country's GDP.
Answer: D
42) All of the following except ________ are typical exports from New Zealand. A) dairy
products
B) meat
C) wool
D) petroleum
Answer: D
43) The Four Tigers are also called ________.
A) newly industrialized countries
B) newly independent states
C) commonwealth of independent states
D) commonwealth of industrialized countries
Answer: A
44) The Four Tigers refers to the countries listed below except ________.
A) South Korea
B) Indonesia
C) Taiwan
D) Singapore
Answer: B
45) The World Bank classifies the Four Tigers as ________.
A) developing
B) middle-income
C) newly developed
D) high-income
Answer: D
46) What caused South Korea's economic growth to suddenly slow in 1997-1998?
A) collapse of the chaebol
B) return to Communist rule
C) Asian currency crisis
D) import substitution policies
Answer: C
47) The Korean term, chaebol, refers to ________.
A) a family-based conglomerate
B) workplace harmony
C) economic restructuring
D) cooperative banks
Answer: A
48) Which of the following African countries is not a major oil exporter?
A) Algeria
B) Gabon
C) Zambia
D) Libya
Answer: C
49) The Republic of China is most commonly known as ________.
A) Taiwan
B) Vietnam
C) Hong Kong
D) Singapore
Answer: A
50) What is the most likely reason that Taiwanese businesses are increasingly investing in
Chinese factories?
A) demand for automated manufacturing
B) need for low-wage workers
C) government requirements
D) need for additional land
Answer: B
51) What is the most significant problem for Singapore today?
A) Chinese control
B) shipping costs
C) labor shortages
D) low technological expertise
Answer: C
52) Because of its excellent port facilities, Singapore thrives on ________.
A) shipping
B) oil refining
C) franchising
D) reexporting
Answer: D
53) ________ is the world's most populous country.
A) India
B) China
C) Indonesia
D) The United States
Answer: B
54) India was a colony of which country?
A) China
B) France
C) Pakistan
D) the United Kingdom
Answer: D
55) Which two countries make up the Indian subcontinent?
A) India and Egypt
B) India and Pakistan
C) Afghanistan and India
D) India and Iran
Answer: B
56) Which of the following is NOT a similarity between India and Great Britain?
A) parliamentary system
B) independent judiciary
C) professional bureaucracy
D) state-owned industry
Answer: D
57) Alfred Communications, a U.S. firm, is considering opening a facility in India.
However, executives at the firm are not certain that India is the best location for
investment. What is the most likely reason for management's concerns?
A) weak judiciary system
B) rampant corruption
C) state capitalism
D) religious strife
Answer: B
58) Thailand, Malaysia, and Indonesia were all recipients of significant FDI during the
1980s and 1990s because they offer ________.
A) strong domestic currencies
B) large domestic markets
C) few trade barriers
D) low labor costs
Answer: D
59) Because of its past colonial relationship, France has a competitive advantage in all of
the countries listed below except ________.
A) Niger
B) Chad
C) Kenya
D) Senegal
Answer: C
60) Because of its past colonial relationship, the United Kingdom has a competitive
advantage in all of the countries listed below except ________.
A) Kenya
B) Zimbabwe
C) Senegal
D) the Republic of South Africa
Answer: C
61) What region is sometimes called the cradle of civilization?
A) the European Union
B) the Middle East
C) the Far East
D) Africa
Answer: B
62) Which of the following religions was not born in the Middle East?
A) Buddhism
B) Christianity
C) Judaism
D) Islam
Answer: A
63) A policy that attempts to stimulate development of local industry by discouraging imports
through tariffs and nontariff barriers is called ________.
A) export substitution
B) import substitution
C) development stimulation
D) protectionism
Answer: B
64) A policy that encourages economic growth through export expansion is called
________.
A) export expansion
B) export substitution
C) export promotion
D) development stimulation
Answer: C
65) Export promotion has been successfully applied by all the countries listed below except
________.
A) Taiwan
B) Hong Kong
C) South Korea
D) Brazil
Answer: D
66) Vandever Enterprises is considering expanding its operations into Asia. Managers at
the firm are currently evaluating the income levels of three different Asian countries.
Which of the following is LEAST likely to be determined by this analysis?
A) public infrastructure status
B) purchasing power of citizens
C) government's ability to monitor corruption
D) technological sophistication of local production processes
Answer: C
67) Which of the following best explains why Japan's economic growth has slowed?
A) state industries
B) import restrictions
C) poor quality control
D) fast-growing population
Answer: B

68) ITX Enterprises, an electronics firm, plans to open a new manufacturing facility.
Managers are considering building the new plant in Canada. Which of the following is a
risk associated with a Canadian expansion?
A) unstable federal and state governments
B) inadequate secondary education systems
C) political instability related to language conflicts
D) shrinking supply of natural resources for exporting
Answer: C
69) Parker Manufacturing is considering relocating its headquarters from its current
location in Vancouver, British Columbia. Executives at Parker want the firm to be located
with the majority of other MNCs in the world. Which location would be most appropriate?
A) Zurich
B) Boston
C) Tokyo
D) London
Answer: B
70) Brampton Industries has a facility in a country that has been designated by the World Bank
as middle-income. Which of the following is the most likely location of Brampton's plant?
A) Costa Rica
B) Turkey
C) Latvia
D) Rwanda
Answer: A
71) Carter Industries has a garment facility in Guatemala. Which of the following is most
likely an issue faced by the firm?
A) severe FDI restrictions
B) poor control of counterfeiting
C) inadequate educational systems
D) government ownership of rivals
Answer: C
72) Hawthorne Enterprises, an Australian firm, has plans to open a manufacturing facility in
France next year. Some executives at the firm are unhappy with this decision, most likely
because France ________. A) opposes human rights legislation
B) promotes economic nationalism
C) refuses to switch to the euro
D) advocates free trade
Answer: B
73) Which of the following controls the monetary policy for countries that use the euro?
A) World Bank
B) Bank of London
C) German Central Bank
D) European Central Bank
Answer: D
74) Executives at Oswego Enterprises, a U.S. textile company, are discussing the idea of
expanding into the Asian market by opening a facility in Hong Kong. Which of the
following is NOT a characteristic of Hong Kong?
A) complete autonomy from China
B) entry point to mainland China
C) location of many major banks
D) highly educated workforce
Answer: A
75) Executives at Cornwall Industries, a U.S. firm, are considering expanding into Niger.
As a manager at the firm you have been given the task of analyzing the advantages and
disadvantages of Niger. Which of the following is the most likely problem associated with
expanding into Niger?
A) influence of British government
B) insufficient natural resources
C) dominance of French firms
D) risk of civil unrest
Answer: C

Chapter 3: Legal, Technological, Accounting, and

Political Environments
A.MULTIPLE CHOICE
1) National legal systems typically vary for all of the following reasons EXCEPT ________.
A) history
B) culture
C) politics
D) markets
Answer: D
2) Statutory law is primarily based on ________.
A) legislative actions
B) historical precedents
C) moral judgments
D) religious beliefs
Answer: A
3) Common law is primarily based on ________.
A) actions taken by government legislatures
B) the cumulative wisdom of judges' decisions on individual cases through history
C) a codification of what is and is not permissible
D) the officially established rules governing the faith and practice of a particular religion
Answer: B
4) Civil law is primarily based on ________.
A) actions taken by local governments
B) the cumulative wisdom of judges' decisions on individual cases through history
C) a codification of what is and is not permissible
D) the officially established rules governing the faith and practice of a particular religion
Answer: C
5) Religious law is primarily based on ________.
A) legislative actions
B) judges' court decisions
C) codifications of permissible acts
D) officially established rules governing a faith
Answer: D
6) Walton Enterprises, a U.S. firm, has a facility in China. Walton managers in China
frequently complain about the arbitrary rules and decisions implemented by Chinese
government authorities. Such legal unpredictability suggests that China has a system
based on ________ law.
A) civil
B) common
C) theocratic
D) bureaucratic
Answer: D
17) Which of the following is not a foundation for legal systems?
A) common law
B) statutory law
C) religious law
D) bureaucratic law
Answer: B
8) ________ is the foundation of the legal systems in the United Kingdom and its former
colonies.
A) Common law
B) Civil law
C) Religious law
D) Bureaucratic law
Answer: A
9) ________ is based on the cumulative wisdom of judges' decisions on individual cases
through history.
A) Common law
B) Civil law
C) Statutory law
D) Bureaucratic law
Answer: A
10) The foundation of the legal system in India is ________.
A) common law
B) civil law
C) religious law
D) bureaucratic law
Answer: A
11) The foundation of the legal system in China is ________.
A) common law
B) civil law
C) religious law
D) bureaucratic law
Answer: D
12) ________ is based on a codification of what is and is not permissible.
A) Common law
B) Civil law
C) Statutory law
D) Religious law
Answer: B
13) ________ is a law enacted by legislative action.
A) Common law
B) Civil law
C) Statutory law
D) Bureaucratic law
Answer: C
14) The U.S. Freedom of Information Act is an example of ________.
A) common law
B) civil law
C) statutory law
D) bureaucratic law
Answer: C
15) Civil law originated in biblical times with the ________.
A) French
B) Greeks
C) Jews
D) Romans
Answer: D
16) Dawson Enterprises, a U.S. firm, conducts business in Saudi Arabia. The MNE recently
experienced a business dispute with a local firm and was forced to meet the demands of the
local firm without going through due process. Dawson's experience most likely occurred
because Saudi Arabia relies on ________.
A) civil law
B) common law
C) religious law
D) bureaucratic law
Answer: C
17) In which of the following countries are interest-bearing transactions not allowed?
A) India
B) South Korea
C) Iran
D) Mexico
Answer: C
18) A legal system that lacks due process, lacks appeals procedures, and prohibits banks
from charging interest on loans is most likely based on ________.
A) common law
B) civil law
C) religious law
D) bureaucratic law
Answer: C
19) In Iran, the religious law is based on the teachings of the ________.
A) Bible
B) Koran
C) Buddha
D) Napoleonic Code
Answer: B
20) Under which type of legal system can contracts be broken at the whim of those in
power?
A) religious law
B) common law
C) bureaucratic law
D) civil law
Answer: C
21) ________ operates under bureaucratic law.
A) England
B) Mexico
C) Iran
D) China
Answer: D
22) Of the laws that may form the basis for a country's legal system, which one is
considered the riskiest for international businesses?
A) common law
B) religious law
C) bureaucratic law
D) statutory law
Answer: C
23) Cochran Industries, a U.S. firm, has a manufacturing facility in Mexico. Which aspect
of Cochran's operations is probably LEAST affected by the Mexican legal system?
A) training its workforce
B) financing its operations
C) marketing its products
D) developing technology
Answer: A

24) Laws regarding ________ are the primary reason the manufacturers in Germany and
France compete on quality rather than price.
A) interest rates
B) worker safety
C) patent liability
D) employee benefits
Answer: D
25) In most cases, legal systems based on bureaucratic law have all of the following
characteristics EXCEPT ________.
A) unpredictability
B) discretionary power
C) nonexistent appeals processes
D) lengthy due process procedures
Answer: D
26) A country restricting access to high-technology goods or withdrawing preferential tariff
treatments is using ________.
A) embargoes
B) trade limits
C) sanctions
D) extraterritoriality
Answer: C
27) Which of the following is LEAST likely a sanction?
A) boycotts
B) embargoes
C) high-interest loans
D) removal of preferential tariffs
Answer: C

28) The United States restricts all trade with Cuba. This is an example of a(n) ________.
A) boycott
B) tariff
C) embargo
D) ban
Answer: C
29) Dual-use products are those that can be used for both ________ and ________
purposes.
A) civilian; military
B) domestic; business
C) wholesale; retail
D) profit; nonprofit
Answer: A
30) Many countries enforced embargoes against ________ during the 1980s to protest its
apartheid policies.
A) Cuba
B) South Africa
C) China
D) Afghanistan
Answer: B
31) A country that attempts to regulate business activities that are conducted outside its borders is
using ________.
A) extraterritoriality
B) embargoes
C) sanctions
D) boycotts

32) The ________ is directed against international firms that traffic in the assets of U.S.
companies that were confiscated by the Cuban government in 1959.
A) Bay of Pigs Declaration
B) Anti-Castro Act
C) Helms-Burton Act
D) Freeport McMoRan Doctrine
Answer: C
33) Extraterritoriality refers to ________.
A) the transfer of ownership of resources from the private to the public sector
B) a government's attempt to regulate business activities outside its borders
C) nationalization of a corporation without fair and appropriate compensation
D) restrictions on the ability of a company to return profits to its headquarters
Answer: B
34) ________ refers to the transfer of ownership of resources from the private to the public
sector.
A) Nationalization
B) Expropriation
C) Federalization
D) Conversion
Answer: A
35) Expropriation is best defined as the ________.
A) transference of ownership of resources from private to public sector with no
compensation
B) transference of ownership from private to public sector with compensation to private
owners for their losses
C) conversion of state-owned property to privately owned property
D) conversion of state-owned property to privately owned property with no compensation
Answer: B
36) Privatization is ________.
A) the transfer of ownership of resources from the public to the private sector
B) a government's regulation of business activities outside its borders
C) nationalization without compensation
D) nationalization with compensation
Answer: A
37) Privatization frequently creates opportunities for international businesses because most
state-owned entities are ________.
A) untaxed
B) well funded
C) unprofitable
D) well staffed
Answer: C
38) In which industry does Mexico restrict foreign ownership?
A) energy
B) broadcasting
C) transportation
D) telecommunications
Answer: A
39) Which of the following best explains why the telecommunications industry has been
privatized in many countries?
A) shrinking ability to employ quality workers
B) international regulations regarding social media
C) citizen demands to separate government and business
D) inability of governments to pay for technological upgrades
Answer: D
40) Randall's Groceries, an international supermarket chain, recently opened a new store
in the Taiwanese market. Which of the following will Taiwanese consumers LEAST likely
experience?
A) greater selection of products
B) more mom-and-pop stores
C) higher standards of quality
D) creation of more local jobs
Answer: B
41) Hawkins Tire is an international chain of discount tire stores. The firm has recently
opened a store in Frankfurt, Germany, where there are already a number of local tire
stores. Which of the following is the most likely negative effect of Hawkins Tire on
Frankfurt?
A) failure of local tire stores
B) higher prices for tires
C) lower tire selection
D) poor tire quality
Answer: A
42) All of the following occurred when France's Carrefour entered the Chinese market
EXCEPT that ________.
A) product selection significantly increased
B) national brands became available
C) hygiene standards improved
D) tax revenue decreased
Answer: D
43) The ________ provides that a country will honor and enforce within its own territory
the judgments and decisions of foreign courts with certain limitations.
A) Helms-Burton Act
B) principle of comity
C) arbitration agreement
D) principle of fairness
Answer: B
44) Which of the following questions is LEAST relevant when resolving an international
business dispute?
A) Which country's law applies?
B) Where should the issue be resolved?
C) How long should litigation occur?
D) How will the settlement be enforced?
Answer: C
45) Which of the following is not one of the conditions required for the principle of comity
to apply?
A) Reciprocity is extended between the countries.
B) The defendant is given proper notice.
C) The foreign court judgment does not violate domestic statutes or treaty obligations.
D) The foreign court has less stringent punitive damages for corporations.
Answer: D
46) When a company seeks to have a dispute heard in the court system most favorable to its
own interests, the company is ________.
A) forum shopping
B) adopting the principle of comity
C) rejecting the principle of comity
D) engaging in arbitration
Answer: A
47) ________ is the process by which both parties in a conflict agree to submit their cases to
a private individual or body whose decision they will honor.
A) Negotiation
B) Repatriation
C) Arbitration
D) Resolution
Answer: C

48) ________ provides that the actions of foreign governments against U.S. firms are
generally beyond the jurisdiction of U.S. courts.
A) Arbitration
B) The Helms-Burton Act
C) The principle of comity
D) The Foreign Sovereign Immunities Act of 1976
Answer: D
49) What was the key to the transition from communism to capitalism for Hungary and
Poland?
A) technology transfer from FDI
B) investment in infrastructure
C) the adoption of the euro
D) low-cost labor forces
Answer: A
50) In which country are monetary awards in legal disputes usually the highest? A) United
States
B) France
C) United Kingdom
D) Canada
Answer: A
51) Which of the following would LEAST likely help a country change its technological
environment?
A) investment in infrastructure
B) investment in human capital
C) minimum wage increase
D) foreign direct investment
Answer: C
52) The transmittal of technology from one country to another is known as technology
________.
A) repatriation
B) transfer
C) drain
D) piracy
Answer: B
53) Which country has the highest rate of software piracy?
A) Georgia
B) Azerbaijan
C) Pakistan
D) Bangladesh
Answer: A
54) Which country follows a "first to invent" patent policy?
A) United States
B) Japan
C) Germany
D) Hong Kong
Answer: A
55) In which country do firms publish a social balance sheet detailing their treatment and
compensation of their workforce?
A) France
B) Germany
C) the United Kingdom
D) China
Answer: A
56) Which law was passed to address perceived public accounting problems?
A) Burton-Helms Act
B) Sarbanes-Oxley Act
C) Berne Convention
D) Hays-Douglas Act
Answer: B
57) Accounting reserves ________.
A) are the basis for assessing a firm's income tax burden
B) record deductions and expenses that are relevant for taxes
C) are important in determining how inventory should be valued
D) record foreseeable future expenses that might affect a firm's operations
Answer: D
58) Which country does NOT require firms to capitalize financial leases?
A) Switzerland
B) United States
C) Great Britain
D) Canada
Answer: A
59) ________ is a systematic analysis of the political risks possible in foreign countries.
A) Environmental scanning
B) SWOT analysis
C) Political risk assessment
D) Operating risk analysis
Answer: C
60) Which results in a loss of assets?
A) repatriation
B) confiscation
C) expropriation
D) inflation
Answer: B

61) ________ is the risk associated with the potential for the firm's property to be
confiscated or expropriated.
A) Transfer risk
B) Ownership risk
C) Operating risk
D) Exchange rate risk
Answer: B
62) ________ is the risk associated with the potential for the employees or operations of the
firm to be threatened by changes in laws, environmental standards, tax codes, and
terrorism.
A) Transfer risk
B) Ownership risk
C) Operating risk
D) Exchange rate risk
Answer: C
63) ________ is the risk associated with the potential for the government to interfere with
the firm's ability to move funds in and out of the country.
A) Transfer risk
B) Ownership risk
C) Operating risk
D) Exchange rate risk
Answer: A
64) Wilfred Enterprises has foreign operations in Taiwan, India, and China. The firm pays
an annual insurance premium to the Overseas Private Investment Corporation. The firm is
most likely protecting itself from ________.
A) privatization
B) natural disasters
C) nationalization
D) financial instability
Answer: C
65) Political risk that affects all firms in a country is referred to as ________.
A) micropolitical risk
B) macropolitical risk
C) inclusive political risk
D) exclusive political risk
Answer: B
66) ________ is political risk that affects only a specific firm or firms within a specific
industry.
A) Inclusive political risk
B) Exclusive political risk
C) Micropolitical risk
D) Macropolitical risk
Answer: C
67) ________ has one of the highest levels of macropolitical risk.
A) Saudi Arabia
B) Chile
C) Venezuela
D) Afghanistan
Answer: D
68) Which of the following is most likely a true statement about piracy on the high seas?
A) Piracy is a significant problem along the Somali coast and Strait of Malacca.
B) Piracy has primarily been eliminated because of international laws.
C) The primary cause of piracy is environmental warfare.
D) Navy patrols have suppressed pirates near Malaysia.
Answer: A
69) Saudi Arabia's nationalization of the oil industry in the 1970s is an example of
________.
A) macropolitical risk
B) micropolitical risk
C) transfer risk
D) ownership risk
Answer: B
70) Martin, a manager at an international firm located in China, is required to monitor political
risks for his employer. Which of the following would LEAST likely provide Martin with useful
information? A) consulting firms
B) embassy officials
C) telecommunication firms
D) home country employees
Answer: C
71) BGL Enterprises, a global firm, operates a facility in Angola. Managers want to reduce
the firm's vulnerability to political risk in Angola. All of the following actions would most
likely accomplish this task EXCEPT ________.
A) reducing net investment in the subsidiary
B) purchasing capital equipment outright
C) buying inputs from local suppliers
D) being a good corporate citizen
72) APO Manufacturing is a U.S. based firm that manufactures electronic equipment. The
firm conducts business with a Japanese electronics firm, and a dispute has arisen between
the two firms regarding intellectual property rights. APO management plans to use
arbitration to resolve the problem. Which of the following best supports this decision?
A) APO's legal department is knowledgeable in global patent laws.
B) APO's legal department expects the principle of comity to apply.
C) APO needs to settle the dispute quickly and inexpensively.
D) APO expects to have record profits during the next year.
Answer: C
73) The IT department at World Airlines has recently improved the airlines' Website to
help facilitate transactions. Now, when repeat customers log on to the Website, their
seating preferences and billing addresses are automatically accessed. For World Airlines
customers located in the European Union, the company will most likely have to ________.
A) obtain customer permission before using cookies
B) register the domain name of all clients
C) block all pop-ups on the Website
D) provide a secure Web portal
Answer: A
74) Pimlico Steel operates an aluminum refining plant in Jamaica. The contract between
Pimlico and Jamaica requires the corporation to train Jamaican engineers in the latest
processes. Jamaica has most likely required Pimlico to agree to a(n) ________.
A) intellectual property contract
B) electronic copyright system
C) technology transfer
D) direct investment
Answer: C
75) Ellis Electronics is a U.S. firm with operations in Saudi Arabia. Ellis has learned that it
may face expropriation. What would be the most likely result of such actions?
A) higher operating costs
B) loss of future profits
C) higher security costs
D) loss of assets
Answer: B

Chapter 4: The Role of Culture

A.MULTIPLE CHOICE
1) Which term refers to the collection of values, beliefs, behaviors, customs, and attitudes
that distinguish one society from another?
A) history
B) culture
C) politics
D) norms
Answer: B
2) In which country is nepotism valued?
A) the United States
B) Great Britain
C) France
D) China
Answer: D
3) Which virtue of a job candidate would most likely NOT be perceived as valuable by a
Japanese employer? A) unity
B) loyalty
C) individualism
D) personal responsibility
Answer: C
4) From what source do cultural changes usually occur?
A) internal forces
B) external forces
C) strengths
D) weaknesses
Answer: B
5) Which of the following is not one of the basic elements of culture?
A) social structure
B) language
C) religion
D) architecture
Answer: D
6) Social structure is best defined as the ________.
A) means by which a society's members communicate with each other
B) attitudes of MNEs towards corporate social responsibility on a global scale
C) overall framework that determines the roles of individuals within a society
D) behavior of and opportunities available to MNCs operating in a given society
Answer: C
7) Which of the following is not a component of social structure?
A) individual roles
B) stratification of society
C) individual mobility within society
D) societal dress codes within regions
Answer: D
8) Which form of family is most emphasized in the United States?
A) nuclear
B) extended
C) blended
D) ancestral
Answer: A
9) Which form of family is most emphasized in Somalia?
A) nuclear
B) extended
C) blended
D) ancestral
Answer: D
10) Businesses in ________ discourage nepotism while in ________ family ties are crucial to
ensure the growth of a company.
A) the U.S.; China
B) China; Germany
C) Saudi Arabia; the United Kingdom
D) France; the United States
Answer: A
11) Which country listed below is a group-focused society?
A) Japan
B) Germany
C) Ireland
D) Canada
Answer: A
12) In which of the following countries is social mobility likely to be highest? A) the United
States
B) India
C) the United Kingdom
D) Hong Kong
Answer: A
13) Social stratification refers to how people in a society are ________.
A) sorted for housing
B) identified by families
C) paid for employment
D) categorized by attributes
Answer: D
14) ________ is the ability of individuals to move from one stratum of society to another.
A) Social stratification
B) Social mobility
C) Socialization
D) Hierarchical structure
Answer: B
15) The ________ the society, the more possible it is for individuals to move from one
stratum to another.
A) less stratified
B) more stratified
C) more populated
D) less populated
Answer: A
16) Which country listed below is not considered socially mobile?
A) U.S.
B) India
C) Canada
D) Singapore
Answer: B
17) Cultural attitudes toward social mobility are LEAST likely to affect an international
business in the area of ________.
A) labor relations
B) human capital formation
C) risk taking
D) foreign exchange
Answer: D
18) Historically, the rigid class system and low social mobility in the United Kingdom has
led to ________.
A) fewer young people seeking higher education
B) more elderly people dependent on families
C) less foreign investment in manufacturing
D) more tailored advertisements in the media
Answer: A
19) According to the text, what is the most likely reason that Japan's cultural values could
hinder the country's future prospects?
A) Most firms prefer to hire experienced workers rather than new college graduates.
B) The needs of young workers are being sacrificed to protect older workers.
C) Lifetime employment policies promote the interests of businesses.
D) Part-time employees are being offered full health benefits.
Answer: B
20) Language ________.
A) is the exclusive means by which a society's members communicate with each other
B) shapes the attitudes its adherents have toward work, consumption, individual
responsibility, and planning for the future
C) is the overall framework that determines the roles of individuals within a society, the
stratification of the society, and the individuals' mobility within the society
D) stems from deep-seated beliefs about the individual's position in relation to his or her
deity, the family, and social hierarchy
Answer: B
21) Countries with multiple language groups tend to be ________.
A) homogeneous
B) heterogeneous
C) large
D) small
Answer: B
22) Bolton Products, an MNE based in Chicago, is developing a marketing campaign for a
new laundry detergent that will be sold in Canada. What is the most relevant question that
Bolton's marketers should ask when adapting their campaign for linguistic differences?
A) What are the attitudes and needs of French Canadians and English Canadians?
B) What are the geographic differences between British Columbia and Ontario?
C) Which Canadian provinces are populated by French-speaking consumers?
D) How does Canadian class structure differ from American class structure?
Answer: A
23) Quadro Tires is an MNE with facilities in Australia, Ireland, Canada, and the U.S.
Which of the following is the LEAST likely problem that Quadro experiences in global
management? A) political risks
B) cultural differences
C) language complications
D) supply chain variations
Answer: C
24) Lingua franca means ________.
A) common language
B) French language
C) official language
D) Latin language
Answer: A
25) ________ is the lingua franca of international business.
A) French
B) Spanish
C) English
D) American
Answer: C
26) Before finalizing a new advertisement for the Chinese market, Barton Soda assigns one
person to translate the advertisement from English to Chinese and another person to
translate the translated version back into English. Barton is most likely using ________.
A) translation
B) backtranslation
C) proofreading
D) market pre-testing
Answer: B
27) The primary purpose of conducting a backtranslation is to ________.
A) convey a positive image
B) meet FAA requirements
C) avoid communication mistakes
D) ensure global media functionality
Answer: C
28) While negotiating a contract between an American firm and a Japanese supplier, the
Japanese manager responds by saying "yes." The Japanese manager probably meant
________.
A) yes, I agree
B) no, that's wrong
C) yes, I understand
D) I will think about it
Answer: C
29) Communication senders and receivers from different cultures use ________ to encode
or decode the message.
A) perceptions
B) cultural filters
C) written tools
D) media
Answer: B
30) What percentage of information is transmitted among members of a culture by some
means other than language?
A) 20-30 percent
B) 40-50 percent
C) 60-70 percent
D) 80-90 percent
Answer: D
31) During a business meeting with Japanese executives, Jay, an American manager, uses
his hand to make the "okay" signal. The Japanese executives will most likely interpret
Jay's hand signal to mean ________.
A) okay
B) a vulgarity
C) money
D) homosexuality
Answer: C
32) Mario, a U.S. manager, is attending a business meeting with Saudi Arabian executives.
During conversations, Mario should most likely expect that the Saudi Arabian executives
will stand ________ from him.
A) 10 inches
B) 20 inches
C) 30 inches
D) 40 inches
Answer: A
33) Brandon, a U.S. manager, is on a business trip in Tokyo meeting with a group of
executives.
Brandon receives a gift from one of the Japanese executives. What should Brandon most likely
do? A) verify the gift's cost
B) open the gift in private
C) refuse to accept the gift
D) open the gift in front of the group
Answer: B
34) Bad news in Korea should be delivered ________.
A) right away
B) in private
C) at the end of the day
D) when another person opens a gift
Answer: C
35) The rise of capitalism has been attributed by Max Weber to ________.
A) the Protestant ethic
B) consumption desires
C) democracy
D) economic hardships
Answer: A
36) The Protestant ethic stresses all of the following except ________.
A) hard work
B) frugality
C) achievement
D) consumption
Answer: D
37) According to the text, ________ of the world's population claims a religious affiliation.
A) 95%
B) 85%
C) 75%
D) 65%
Answer: B
38) Hinduism stresses all of the following except ________.
A) spirituality
B) frugality
C) purity
D) consumption
Answer: D
Diff: 2
39) According to the text, the second most popular religion in the world behind Christianity
is ________.
A) Islam
B) Judaism
C) Hinduism
D) Buddhism
Answer: A
40) Tristan is attending a business meeting in Saudi Arabia. How often during the day
should Tristan expect his host to stop the meeting to pray to Allah each day?
A) 2 times
B) 3 times
C) 4 times
D) 5 times
Answer: D
41) In which country does the attitude "time is money" prevail?
A) Japan
B) Saudi Arabia
C) Canada
D) Mexico
E) Argentina
Answer: C
42) Attitudes ________.
A) are the means by which a society's members communicate with each other
B) are the overall framework that determines the roles of individuals within a society
C) shape the behavior of and opportunities available to MNCs operating in a given culture
D) stem from deep-seated beliefs about the individual's position in relation to his or her deity
Answer: C
43) In ________, it is acceptable to interrupt meetings to greet family or friends who
wander by.
A) the U.S.
B) Canada
C) England
D) Saudi Arabia
Answer: D
44) In India, a person's status depends on ________.
A) age
B) corporate affiliation
C) caste
D) personal achievement
Answer: C
45) Which of the following countries is not considered a low-context culture?
A) Canada
B) Australia
C) Korea
D) England
Answer: C
46) In a ________ culture, a speaker's words explicitly convey the speaker's message. A)
verbal
B) low-context
C) high-context
D) linguistic
Answer: B
47) Which of the following countries is considered a high-context culture?
A) Canada
B) Germany
C) China
D) England
Answer: C
48) Which of the following is a negotiating style common among Japanese managers?
A) being argumentative
B) making subtle power plays
C) exhibiting emotional passion
D) making spontaneous decisions
Answer: B
49) In a high-context culture, the presence of a lawyer during business dealing would be
considered a sign of ________.
A) wisdom
B) trust
C) distrust
D) pragmatism
E) commitment
Answer: C
50) A ________ comprises countries that share many cultural similarities.
A) value cluster
B) cultural cluster
C) trading bloc
D) region
Answer: B
51) What is a greenfield investment?
A) a brand-new investment
B) a corporate shift toward a "greener" strategy
C) a joint venture with a firm that is recognized as a "green" company
D) an overall shift in attitude towards less waste and more foreign investment
Answer: A
52) Which country cluster is made up of Belgium, France, Italy, Portugal, and Spain?
A) Anglo
B) Nordic
C) Germanic
D) Latin European
E) Latin American
Answer: D
53) Which of the following is NOT characteristic of the Latin American negotiating style?
A) impatience with documentation
B) hiding of emotions
C) impulsive decision making
D) loyalty to employer
Answer: B
54) Which of the following is not one of Hofstede's Five Dimensions?
A) social orientation
B) cultural orientation
C) time orientation
D) uncertainty orientation
Answer: B
55) ________ is a person's beliefs about the relative importance of the individual and the
groups to which that person belongs.
A) Social orientation
B) Time orientation
C) Uncertainty orientation
D) Goal orientation
Answer: A
56) ________ is the cultural belief that the person comes first.
A) Social orientation
B) Individualism
C) Uncertainty orientation
D) Goal orientation
Answer: B
57) According to Hofstede's Five Dimensions, ________ is the opposite of individualism.
A) wa
B) groupism
C) collectivism
D) goal orientation
Answer: C
58) Which of the following countries is not considered a collectivist culture?
A) Singapore
B) New Zealand
C) Hong Kong
D) Pakistan
E) Taiwan
Answer: B
59) Cultures emphasizing collectivism are more likely to emphasize ________.
A) self-interest
B) self-actualization
C) nepotism
D) higher education
Answer: C
60) In Japan, a collectivist society, a CEO's pay primarily reflects ________.
A) knowledge
B) group performance
C) personal accomplishments
D) individual contributions to the firm
Answer: B
61) In a collectivist society, changing jobs is most likely interpreted as ________.
A) wisdom
B) disloyalty
C) impatience
D) ambition
Answer: B
62) In which country would an employee most likely question the decision of a manager? A)
Spain
B) Japan
C) Germany
D) Singapore
Answer: C
63) In cultures characterized by ________, people at all levels in a firm accept the decision
of those above them because of the implicit belief that higher-level positions carry the right
to make decisions.
A) power respect
B) power tolerance
C) uncertainty avoidance
D) passive goal behavior
Answer: A
64) ________ is the feeling people have regarding ambiguous situations.
A) Power orientation
B) Locus of control
C) Optimism
D) Uncertainty orientation
Answer: D
65) Formal rules and standards in the workplace are preferred by individuals from a
culture high in ________.
A) power tolerance
B) power respect
C) uncertainty avoidance
D) uncertainty acceptance
Answer: C
66) ________ refers to the extent to which members of a culture adopt a long-term versus a
short-term outlook on work, life, and other aspects of society.
A) Need for achievement
B) Time orientation
C) Power orientation
D) Uncertainty orientation
Answer: B
67) ________ is the unconscious use of one's own culture to help assess new surroundings.
A) Cultural conversion
B) Cultural illiteracy
C) Cross-cultural literacy
D) Self-reference criterion
E) Acculturation
Answer: D
68) What is the first step in acculturation?
A) cultural conversion
B) cross-cultural literacy
C) self-reference criterion
D) language training
Answer: B
69) ________ is the process by which people not only understand a foreign culture but also
modify and adapt their behavior to make it compatible with that culture.
A) Cultural conversion
B) Cross-cultural literacy
C) Culture training
D) Acculturation
Answer: D
70) Why did the producers of the The Apprentice have problems selling the Japanese
version of the show to Japanese TV networks?
A) Public humiliation is avoided in the Japanese culture.
B) Japanese networks were offended by the show's language.
C) Backtranslation tools were unavailable to the Japanese producers.
D) The Japanese political system supports the concept of lifetime employment.
Answer: A
71) Country X has 14 official languages and nearly 2,000 dialects. Which of the following is
most likely a true statement?
A) Nonverbal communication is unlikely to be very effective in Country X.
B) Income and value differences exist among the citizens of Country X.
C) MNEs should avoid Country X due to costly adaptation needs.
D) Nationhood is the defining factor of the society in Country X.
Answer: B
72) According to the low-context-high-context theory, in which of the following countries
should advertisements be fact-oriented?
A) Japan
B) Greece
C) Saudi Arabia
D) Switzerland
Answer: D
73) According to the low-context-high-context theory, business decisions made by ________
managers are more likely to be impulsive.
A) American
B) Mexican
C) Japanese
D) German
Answer: B
74) According to Ronen and Shenkar, which of the following countries is NOT in the same
cultural cluster?
A) Austria
B) Norway
C) Denmark
D) Sweden
Answer: A
75) According to Ronen and Shenkar, which of the following countries does NOT belong to
a country cluster?
A) Chile
B) Turkey
C) India
D) Taiwan
Answer: C
 Chapter 5: Ethics and Social Responsibility in
International Business
A.MULTIPLE CHOICE
1) Which term refers to an individual's personal beliefs about whether a decision, behavior,
or action is right or wrong?
A) values
B) culture
C) ethics
D) norms
Answer: C
2) Fruit juice suppliers in South America rely heavily on ________.
A) elderly employees
B) child labor
C) female workers
D) illegal immigrant workers
Answer: B
3) According to the text, the primary ethics concerns surrounding BP related to ________.
A) corruption
B) child labor
C) worker safety
D) market price control
Answer: C
4) Ethical beliefs are primarily ________ in nature.
A) societal
B) familial
C) individual
D) cultural
Answer: C
5) Which of the following is LEAST influential on an individual's ethics?
A) family
B) peers
C) social trends
D) religious beliefs
Answer: C
6) Behavior that fails to conform to generally accepted social norms is considered
________.
A) ethical
B) unethical
C) illegal
D) unregulated
Answer: B
7) When behavior conforms to generally accepted norms, it is referred to as ________
behavior.
A) ethical
B) societal
C) normal
D) unethical
8) According to the text, which of the following is NOT an ethical generalization?
A) Individuals have their own belief system about what is ethical and unethical.
B) People from the same cultural backgrounds usually have similar ethics.
C) National values have little influence on an individual's personal ethics.
D) Circumstances cause individuals to deviate from their ethical beliefs.
Answer: C
9) ________ are the things a person feels to be important.
A) Values
B) Ethics
C) Norms
D) Expectations
Answer: A
10) Which of the following best explains why looting was uncommon in Japan after the
country's 2011 earthquake and tsunami?
A) personal religious beliefs
B) individual desires for survival
C) pressures from law enforcement
D) importance of group membership
Answer: D
11) Mick has been padding his expense account on business trips. However, it seems fair to
him because the company refuses to provide him with comp time despite long hours he
works on these business trips.Which ethical generalization does this most likely illustrate?
A) Individuals have their own personal belief system.
B) Individuals are typically consistent with their beliefs.
C) Individuals can rationalize behavior in various circumstances.
D) Individuals from the same cultural contexts have similar beliefs.
Answer: C
12) Three employees of Martin Enterprises have flown to China to meet a potential
business partner. The three employees cannot agree about giving a gift to the potential
partner. James, an American manager, believes that gift-giving is an ethical violation. Eun
Hee, a South Korean manager, and Evan Lee, a Japanese manager, assert that gift-giving
would be appropriate. This situation most likely illustrates which of the following
statements?
A) Personal and business ethics are often rationalized.
B) Cultural similarities lead to common ethical beliefs.
C) Belonging to a group is important to the Asian culture.
D) Individuals may not always be consistent with their beliefs.
Answer: B
13) Sonya and Amber work together in the Hong Kong corporate office. Despite having
similar backgrounds and education, they cannot agree on whether it is appropriate to offer
bribes to Chinese officials for the purpose of expediting business transactions. Which
ethical generalization does this most likely illustrate?
A) Individuals have their personal belief systems.
B) Culture has the strongest influence on personal ethics.
C) Personal values rarely overlap with global business dealings.
D) Society requires individuals to rationalize ethical inconsistencies.
Answer: A
14) BP's program to prepare managers at headquarters for assignments in Russia is an
example of ________.
A) ethics training
B) selection procedures
C) corporate socialization
D) employee orientation
Answer: A
15) Which of the following is LEAST susceptible to ethical variations in international
business?
A) hiring practices
B) working conditions
C) insurance benefits
D) employee privacy
Answer: C
16) Which term refers to a decision that benefits an individual to the possible detriment of
the organization?
A) conflict of interest
B) confidentiality
C) ethical behavior
D) breach of privacy
Answer: A
17) Braxton Clothing Company most likely forbids its buyers from accepting gifts from
potential suppliers because the firm wants to avoid a(n) ________.
A) conflict of interest
B) strategic breakdown
C) breach of contract
D) trade violation
Answer: A
18) In Japan, ________ gifts represent a token of gratitude for favors and loyalty shown
throughout the year.
A) wa
B) ochugen
C) oseibo
D) keiretsu
Answer: C
19) The type of gift exchanged by business people in Japan is primarily determined by all
of the following factors EXCEPT the ________.
A) nature of the business relationship
B) length of the business relationship
C) amount of business being transacted
D) location of the business in the community
Answer: D
20) Gift exchanges in a business situation in Japan are best described as ________.
A) common
B) trendy
C) rare
D) illegal
Answer: A
21) Gift exchanges are likely to be considered a conflict of interest in a(n) ________
culture.
A) high-context
B) collectivist
C) low-context
D) power-respecting
Answer: C
22) HR at APEX Designs, an international architectural firm, have noticed the following
behaviors among employees lately. Which of the following would NOT be considered a
problematic ethical situation at APEX?
A) taking office supplies home for personal use
B) making personal calls during work time
C) padding company expense accounts
D) working excessive overtime
Answer: D
23) Sally uses her telephone at work to call her sister long distance. Which of the following
best describes Sally's ethical issue?
A) conflict of interest
B) dishonesty
C) poor confidentiality
D) lack of secrecy
Answer: B
24) Jason completes company work at home on the weekends. He justifies taking office
supplies home because of the company work he completes at home. Which ethical issue
does this scenario relate to?
A) conflict of interest
B) honesty
C) confidentiality
D) secrecy
Answer: B
25) Jack always likes to place orders with Sam's Supply Company because the company
sends him a gift certificate for $100 each holiday season. Which ethical issue is this an
example of?
A) conflict of interest
B) honesty
C) confidentiality
D) secrecy
Answer: A
26) In an international setting, which of the following behaviors is LEAST likely to be
subject to ethical ambiguity?
A) recruiting
B) advertising
C) bargaining
D) purchasing
Answer: A
27) Which of the following is not a common method for encouraging ethical behavior
among employees?
A) codes of ethics
B) ethics training
C) public admonishment
D) organizational practices
Answer: C
28) Which of the following most likely improves the effectiveness of a code of ethics for an
MNE?
A) relevancy to local religions
B) application by new recruits
C) explanation through online training
D) support from organizational practices
Answer: D
Diff: 2
Skill: Concept Objective: 3
Learning Outcome: Discuss the role of ethics and social responsibility in international business.
29) Morton Enterprises manufactures electronic components used in automobiles. The firm
is currently based in the U.S. but is planning to expand operations overseas. Morton's new
manufacturing facilities in China and Bangladesh are scheduled to open in six months. HR
and top executives are working together to revise the firm's code of ethics. Ten of Morton's
American managers will be relocated overseas for at least three years to manage
international operations alongside locally hired managers. Which of the following questions
is most relevant to the current discussion about the firm's code of ethics?
A) Should the code of ethics be globally consistent or tailored to local contexts?
B) What should be addressed by the firm's code of ethics in order to comply with U.S. laws?
C) Should home-country or host-country managers provide training on the firm's code of
ethics?
D) What punishment is used by the firm's competitors when employees violate the code of
ethics?
Answer: A
30) Morton Enterprises manufactures electronic components used in automobiles. The firm
is currently based in the U.S. but is planning to expand operations overseas. Morton's new
manufacturing facilities in China and Bangladesh are scheduled to open in six months. HR
and top executives are working together to revise the firm's code of ethics. Ten of Morton's
American managers will be relocated overseas for at least three years to manage
international operations alongside locally hired managers. Which of the following training
topics would most likely prepare expatriate managers for handling ethics issues in China
and Bangladesh?
A) multilingual contexts
B) local religious customs
C) local business practices
D) global marketing methods
Answer: C
31) In a survey on the acceptability of bribing officials when doing business in foreign
countries, all of the following countries except ________ found bribery acceptable.
A) Russia
B) Austria
C) Taiwan
D) South Korea
Answer: B
32) In a survey on the acceptability of bribing officials when doing business in foreign
countries, all of the following countries except ________ found bribery unacceptable.
A) Sweden
B) Australia
C) Switzerland
D) South Korea
Answer: D
33) The term ________ refers to the set of obligations an organization undertakes to protect
and enhance the society in which it functions.
A) organizational ethics
B) social responsibility
C) corporate ethics
D) social values
Answer: B
34) A company that is socially responsible will most likely ________.
A) do as little as possible to address social or environmental problems
B) undertake efforts to protect the society in which it functions
C) conform to regional, national, and international laws
D) follow basic ethical standards of behavior
Answer: B

35) What was the first action taken by Siemens after the firm was fined for numerous ethics
violations?
A) implemented new hiring policies
B) changed the hierarchical structure
C) revised the code of ethics
D) replaced top executives
Answer: D
.
36) The term ________ refers to those people and organizations that are directly affected
by the practices and performance of an organization.
A) corporate customers
B) permanent employees
C) community stockholders
D) organizational stakeholders
Answer: D
37) Which of the following is not one of the main groups of stakeholders that firms usually
focus on?
A) competitors
B) customers
C) employees
D) investors
Answer: A
38) Which of the following actions LEAST likely shows a firm's social responsibility toward
its customers?
A) giving fair treatment
B) charging fair prices
C) providing warranties
D) meeting delivery commitments
Answer: C
39) Companies that are socially responsible to their investors do all of the following except
________.
A) provide appropriate information to shareholders and investors
B) manage the organization to protect shareholder rights
C) adhere to appropriate accounting procedures
D) manipulate stock prices
Answer: D

40) Firms such as Procter & Gamble that use recycled materials whenever possible are
most likely demonstrating their ________.
A) commitment to environmental protection
B) concern for general social welfare
C) implementation of a code of ethics
D) responsibility to stakeholders
Answer: A
41) Which of the following statements is most likely true about firms with formal codes of
ethics?
A) Virtually all ethical issues are eliminated from the firm.
B) Ethical training is unnecessary, redundant, and too costly to be effective.
C) Organizational practices and a strong ethical corporate culture are essential.
D) Individual codes must be developed and implemented for each subunit in the firm
.Answer: C
42) Examples of promoting the general welfare of society include all of the following except
________.
A) making charitable contributions
B) supporting public radio stations
C) becoming involved in local schools
D) using appropriate accounting procedures
Answer: D
43) Which of the following is the LEAST responsible approach to social responsibility?
A) obstructionist stance
B) defensive stance
C) accommodative stance
D) proactive stance
Answer: A
44) Which of the following is the most responsible approach to social responsibility?
A) obstructionist stance
B) defensive stance
C) accommodative stance
D) proactive stance
Answer: D
45) When an organization does as little as possible to address social or environmental
issues, it has adopted the ________ to social responsibility.
A) obstructionist stance
B) defensive stance
C) accommodative stance
D) proactive stance
Answer: A
46) When an organization does everything it must do from a legal standpoint but nothing
more, it has adopted the ________ to social responsibility.
A) obstructionist stance
B) defensive stance
C) accommodative stance
D) proactive stance
Answer: B
47) Alcoa's gift of $112,000 to a small town in Brazil to build a sewage treatment plant is an
example of ________.
A) guanxi
B) philanthropic giving
C) ethical compliance
D) legal compliance
Answer: B
48) Which of the following is not an informal dimension of social responsibility?
A) acts of philanthropic giving
B) corporate leadership
C) responses to whistle blowing
D) organizational culture
Answer: A
49) Logix Manufacturing is a U.S. firm with a factory in Mexico City. Local leaders in
Mexico City ask Logix managers to make contributions to a youth sports organization.
Logix provides the league with new equipment and uniforms. Which stance towards social
responsibility does Logix most likely have?
A) proactive
B) obstructionist
C) accommodative
D) defensive
Answer: C.
50) McDonald's Ronald McDonald House program is an example of a(n) ________ to social
responsibility.
A) accommodative stance
B) proactive stance
C) obstructionist stance
D) defensive stance
Answer: B
51) Firms that view themselves as citizens of society have adopted the ________ to social
responsibility.
A) obstructionist stance
B) defensive stance
C) accommodative stance
D) proactive stance
Answer: D
52) A company taking a proactive approach to social responsibility will most likely
________.
A) exhibit sincere and significant efforts to contribute to society
B) require employees to participate in local charities
C) conform to regional customs and laws
D) provide online ethics training
Answer: A
53) R.J. Reynolds' decision to follow laws regarding the marketing of its products in the
United States but market its tobacco aggressively in countries without such regulations is
an example of which approach to social responsibility?
A) the obstructionist stance
B) the defensive stance
C) the accommodative stance
D) the proactive stance
Answer: B
54) The Body Shop seeks out opportunities to improve the welfare of individuals all over
the world. It has adopted the ________ to social responsibility.
A) obstructionist stance
B) defensive stance
C) accommodative stance
D) proactive stance
Answer: D
55) According to the model developed by van Tulder and van der Zwart there are three
main actors in the policy formulation process. Which is not a main actor?
A) commercial society
B) the state
C) the market
D) civil society
Answer: A
56) Which term refers to the disclosure by an employee of illegal or unethical conduct on
the part of others within the organization?
A) whistle-blowing
B) acknowledgement
C) conflict of interest
D) organizational communication
Answer: A
57) Justin is aware that his supervisor used corporate funds to pay for a personal vacation
and reports the offense. This is called ________.
A) whistle-blowing
B) acknowledgement
C) conflict of interest
D) organizational communication
Answer: A
58) The extent to which an organization conforms to regional, national, and international
laws is known as ________.
A) guanxi
B) legal compliance
C) ethical compliance
D) whistle-blowing
Answer: B
59) The extent to which members of an organization follow basic ethical standards of
behavior is ________.
A) guanxi
B) legal compliance
C) ethical compliance
D) whistle-blowing
Answer: C
60) A firm that wants to review the effectiveness of its social responsibility efforts should
most likely conduct a(n) ________.
A) corporate social audit
B) SWOT analysis
C) strategy session
D) HR audit
Answer: A
61) Browning Enterprises is planning to conduct a corporate social audit. Which of the
following would LEAST likely occur during the audit?
A) defining current social responsibility goals
B) gathering social goal data from shareholders
C) assessing the accomplishment of social goals
D) analyzing social responsibility resource distribution
Answer: B
62) According to the model developed by Rob van Tulder and Alex van der Zwart, which of
the following best exhibits the cultural values of a nation's citizens?
A) the state
B) the market
C) civil society
D) competitors
Answer: C
63) According to the model developed by Rob van Tulder and Alex van der Zwart, Anglo-
Saxon countries view the state, the market, and civil society as ________.
A) competitive
B) symbiotic
C) supervisory
D) corrupt
Answer: A
64) According to the model developed by Rob van Tulder and Alex van der Zwart, firms
that adhere to the Asian Way are more likely to ________.
A) bargain with labor groups
B) promote social responsibility
C) strive for competitive advantages
D) cooperate closely with the government
Answer: D
65) According to the model developed by Rob van Tulder and Alex van der Zwart, what is
the key to the Continental European Approach?
A) consumer demands for quality products and services
B) cooperation between labor, business, and government
C) competition to encourage consumer market expansion
D) oversight by nongovernmental organizations
Answer: B
66) What is the purpose of the Foreign Corrupt Practices Act (FCPA)?
A) It prohibits the offering of bribes to any foreign government official.
B) It protects individuals from human rights abuses.
C) It inspects working conditions of factories in developing countries.
D) It prohibits conflicts of interest among employees of international businesses.
Answer: A
67) What is the purpose of the Alien Tort Claims Act? A) It protects individuals from
human rights abuses.
B) It eliminates bribery in international business transactions.
C) It inspects working conditions of factories in developing countries.
D) It prohibits conflicts of interest among employees of international businesses.
Answer: A
68) Individuals convicted under the Anti-Bribery Convention of the Organization for
Economic Cooperation and Development will most likely be required to ________.
A) pay a fine
B) serve time in jail
C) surrender their passport
D) admit to a conflict of interest
Answer: B
69) The primary purpose of the International Labor Organization (ILO)is to ________.
A) minimize the use of child labor by MNEs
B) eliminate extortion in international business transactions
C) monitor working conditions of factories in developing countries
D) prohibit conflicts of interest among employees of international businesses
Answer: C
70) Which regulation prohibits the offering of bribes to any foreign government official in
order to influence official actions or policies of that official or to gain or retain business?
A) Foreign Corrupt Practices Act
B) Helms-Burton Act
C) Alien Tort Claims Act
D) Disclosure of Conflict Act
Answer: A
71) Which regulation seeks to protect individuals from human rights abuses and holds
MNCs accountable for such abuses?
A) Foreign Corrupt Practices Act
B) Helms-Burton Act
C) Alien Tort Claims Act
D) Disclosure of Conflict Act
Answer: C
72) Which regulation attempts to eliminate bribes in international business transactions?
A) Foreign Corrupt Practices Act
B) Helms-Burton Act
C) Alien Tort Claims Act
D) the Anti-Bribery Convention of the OECD
E) Disclosure of Conflict Act
Answer: D
73) What organization is the major watchdog for monitoring working conditions in
factories in developing countries?
A) International Labor Organization
B) Human Rights Campaign
C) Organization for Economic Cooperation and Development
D) World Trade Organization
Answer: A
74) An MNE with a factory in Cambodia is being inspected by the International Labor
Organization. What is the most likely focus of the inspection?
A) excessive corruption
B) customs procedures
C) environmental violations
D) safe working conditions
Answer: D
75) Which of the following best explains why international factory owners would most
likely want regular ILO inspections?
A) eliminate workplace corruption
B) encourage investments from MNEs
C) comply with World Trade Organization
D) earn reductions in exporting taxes and fees
Answer: B

Chapter 6 : International Trade and Investment

A.MULTIPLE CHOICE
1) Which of the following is a characteristic of most Mittelstand firms?
A) emphasis on low price guarantees
B) reliance on global supply chains
C) dependence on foreign investors
D) specialization in product niches
Answer: D
Diff: 2
Skill: Concept
Objective: 1
2) The term ________ refers to the voluntary exchange of goods, services, assets, or money
between one person or organization and another.
A) sales
B) transaction
C) trade
D) strategic management
Answer: C
3) Since World War II, world trade has ________.
A) grown slightly
B) shrunk slightly
C) shrunk significantly
D) grown dramatically
Answer: D
4) In 2009, total international merchandise trade accounted for about ________ percent of
the world's
GDP.
A) 12
B) 21
C) 44
D) 59
Answer: B
5) In 2009, China accounted for nearly ________ of the world's merchandise exports.
A) 10%
B) 25%
C) 40%
D) 55%
Answer: A
6) Ellis, a manager at an MNE, is studying international trade theories. In his current
position, Ellis would most likely use this knowledge to ________.
A) lobby for trade policy changes
B) identify promising new markets
C) predict factors that motivate trade
D) analyze foreign exchange markets
Answer: B
7) During which century were the first theories of international trade developed?
A) sixteenth
B) seventeenth
C) eighteenth
D) nineteenth
Answer: A
8) The first theories of international trade used ________ as a unit of analysis.
A) individual countries
B) country clusters
C) regions
D) continents
Answer: A
9) What type of trade were the early country-based theories of international trade most
useful in understanding?
A) services
B) brand name goods
C) commodities
D) high-tech goods
Answer: C
10) All of the following are examples of differentiated products except ________.
A) lumber
B) cameras
C) shampoo
D) automobiles
Answer: A
11) The theory of ________ maintains that a country's wealth is measured by its holdings of
gold and silver.
A) mercantilism
B) neomercantilism
C) competitive advantage
D) comparative advantage
Answer: A
12) According to mercantilism, what should a country's primary goal be?
A) protecting citizens from unfair labor practices
B) encouraging imports to prevent resource depletion
C) promoting exports to enlarge gold and silver holdings
D) ensuring sufficient labor for low-wage jobs in the textile industry
Answer: C
13) Which of the following benefited the LEAST from mercantilist policies?
A) monarchs
B) local politicians
C) individual consumers
D) domestic manufacturers
Answer: C
14) In the U.S., sugar growers, steel companies, and the AFL-CIO are supporters of
mercantilist policies. These groups are best characterized as ________.
A) protectionists
B) communists
C) isolationists
D) federalists
Answer: A
15) Who is the father of free market economics?
A) David Ricardo
B) Michael Porter
C) Adam Smith
D) John Dunning
Answer: C
16) Which of the following statements is most likely true?
A) Japan eliminated all protectionist policies after WWII.
B) Nearly all countries have some neomercantilist policies.
C) China is one of the few countries with protectionist policies. D) EU countries are
supportive of U.S. neomercantilist policies.
Answer: B
Learning Outcome: Compare and contrast theories of international trade
17) Adam Smith was best known as an advocate of ________.
A) low-cost manufacturing
B) free-market economics
C) mercantilism
D) labor unions
Answer: B
18) What did Adam Smith believe about the ultimate effects of mercantilist policies on the
health of a country's economic situation?
A) Mercantilist policies strengthen an economy by protecting against competition.
B) Mercantilist policies result in strong rates of unemployment.
C) Mercantilist policies reduce the wealth of a country as a whole.
D) Mercantilist policies harm special interest groups.
Answer: C
19) Mercantilism ________.
A) suggests that a country should export those goods for which it is more productive than other
countries and trade for those goods for which other countries are more productive B) maintains
that a country's wealth is measured by its holdings of gold and silver
C) suggests that a country will have a comparative advantage in producing products that
intensively use resources it has in abundance
D) argues that most trade in manufactured goods should be between countries with similar
per capita incomes Answer: B
20) Which theory suggests that a country should export those goods and services for which
it is more productive than other countries and import those goods and services for which
other countries are more productive?
A) mercantilism
B) comparative advantage
C) absolute advantage
D) specialization of countries
Answer: C
21) Which statement is asserted by the theory of absolute advantage?
A) A country should export those goods for which it is more productive than other countries
and trade for those goods for which other countries are more productive.
B) A country should import goods from developing economies in order to maximize returns
on profit and economies of scale.
C) A country will have a comparative advantage if it makes products that rely on global
supply networks.
D) Most trade in manufactured goods should be between countries with similar per capita
incomes.
Answer: A
22) The primary flaw in the theory of absolute advantage is that the theory ________.
A) confuses the acquisition of treasure with the acquisition of wealth
B) looks only at relative productivity differences rather than competitive differences
C) suggests that no trade will occur when one country has an absolute advantage in multiple
products
D) incorporates the concept of opportunity cost in determining which goods a country should
produce
Answer: C
23) Which theory suggests that a country should produce and export those goods and
services for which it is relatively more productive than other countries are and import those
goods and services for which other countries are relatively more productive?
A) relative advantage
B) comparative advantage
C) absolute advantage
D) specialization of countries
Answer: B
24) The ________ of a good is the value of what is given up to get the good.
A) relative cost
B) opportunity cost
C) absolute cost
D) discount cost
Answer: B
25) Which theory incorporates the concept of opportunity cost?
A) comparative advantage
B) mercantilism
C) absolute advantage
D) factor endowments
Answer: A
26) Which theory promotes the notion of specializing in what you do relatively best?
A) country similarity
B) comparative advantage
C) product life cycle
D) absolute advantage
Answer: B
27) Which theory answers the question, "What determines the products for which a
country will have a comparative advantage?"
A) relative advantage
B) absolute advantage
C) relative factor endowments
D) specialization of countries
Answer: C
28) Which theory listed below is also called the Heckscher-Ohlin theory?
A) relative advantage
B) comparative advantage
C) relative factor endowments
D) specialization of countries
Answer: C
29) The Heckscher-Ohlin theory ________.
A) suggests that a country should export those goods for which it is more productive than
other countries and trade for those goods for which other countries are more productive
B) states that a country should produce and export those goods for which it is relatively
more productivethan other countries and import those goods for which other countries are
relatively more productive than it is
C) suggests that a country will have a comparative advantage in producing products that
intensively use resources it has in abundance
D) argues that most trade in manufactured goods should be between countries with similar
per capita income
Answer: C
30) Leontief predicted that if the Heckscher-Ohlin theory held, then the U.S. would
________.
A) import capital-intensive goods
B) import products such as steel
C) export products such as shoes
D) export bulk chemicals
Answer: D
31) Which of the following was determined by Leontief?
A) U.S. exports were less capital intensive than imports.
B) U.S. exports were more capital intensive than imports.
C) Relative factor endowments were not a factor in determining trade patterns.
D) Specialization was not a factor in determining imports and exports.
Answer: A
32) Which factors of production did Leontief focus on?
A) land and labor
B) land and technology
C) capital and labor
D) labor and technology
Answer: C
33) The country similarity theory suggests that most trade in manufactured goods should
be between countries with similar ________.
A) labor costs
B) per capita incomes
C) natural resources
D) cultures and languages
Answer: B
34) Germany exports BMWs to the United States, and the United States exports Dell
Computers to Germany. This is an example of ________.
A) mercantilism
B) diversification
C) interindustry trade
D) intraindustry trade
Answer: C
35) Japan exports Toshiba Computers to the United States, and the United States exports
Apple Computers to Japan. This is an example of ________.
A) mercantilism
B) diversification
C) interindustry trade
D) intraindustry trade
Answer: D
36) The country similarity theory ________.
A) suggests that a country should export those goods for which it is more productive than
other countries and trade for those goods for which other countries are more productive
B) states that a country should produce and export those goods for which it is relatively
more productivethan other countries and import those goods for which other countries are
relatively more productive than it is
C) suggests that a country will have a comparative advantage in producing products that
intensively use resources it has in abundance
D) argues that most trade in manufactured goods should be between countries with similar
per capita incomes
Answer: D
37) Which international trade theory originated in the marketing field?
A) new trade theory
B) product life cycle theory
C) country similarity theory
D) theory of competitive advantage
Answer: B
38) Which of the following is not one of the stages in the international product life cycle
theory?
A) new product
B) modified product
C) maturing product
D) standardized product
Answer: B
39) In which stage of the international product life cycle does the innovating firm's country
become a net importer of the product?
A) new product stage
B) maturing product stage
C) standardized product stage
D) never
Answer: C
40) In the ________ stage of the international product life cycle, the product becomes
commodity-like and price becomes very important.
A) new product
B) maturing product
C) standardized product
D) international product
Answer: C
41) Which theory suggests that trade flows can be determined by firms making the
necessary research and development expenditures?
A) global strategic rivalry theory
B) national competitive advantage theory
C) international product life cycle theory
D) country similarity theory
Answer: A
42) What is the primary focus of the new trade theory developed by Krugman, Helpman,
and Lancaster?
A) protecting intellectual property rights
B) expanding research and development
C) developing economies of scale
D) exploiting the experience curve
Answer: C
43) ________ argued that firms struggle to develop some sustainable competitive advantage
which they then exploit to dominate the global marketplace.
A) Porter
B) Vernon
C) Heckscher and Ohlin
D) Krugman and Lancaster
Answer: D
44) Taylor Helmets has been able to lower the average cost of producing a bicycle helmet as
it increases the number of helmets it manufactures each day. Taylor Helmets is most likely
benefitting from ________.
A) opportunity costs
B) economies of scope
C) economies of scale
D) competitive advantages
Answer: C
45) Which theory of international trade explains that success in international trade comes
from the interaction of four country- and firm-specific elements?
A) national competitive advantage
B) country similarity
C) absolute advantage
D) relative factor endowments
Answer: A
46) Who developed the theory of national competitive advantage?
A) Adam Smith
B) Raymond Vernon
C) Michael Porter
D) Eli Heckscher
Answer: C
47) Which of the following is not one of the four elements discussed in the theory of
national competitive advantage?
A) factor conditions
B) opportunity costs
C) firm strategy, structure, and rivalry
D) related and supporting industries
Answer: B
48) Which of the following factors are not included in Porter's view of factor endowments?
A) land
B) capital
C) work ethic of workforce
D) educational level of workforce
Answer: C
49) Porter's theory of national competitive advantage can best be described as a ________.
A) country-based theory
B) firm-based theory
C) hybrid of country-based and firm-based theories
D) government-focused theory based on economies of scale
50) Firm-based theories of international trade are best at explaining trade in all of the
following types of products except ________.
A) aluminum
B) televisions
C) bulldozers
D) stereo equipment
Answer: A
51) ________ represents passive holdings of securities such as foreign stocks, bonds, or
other financial assets.
A) Foreign direct investment
B) Foreign portfolio investment
C) Capital investment
D) Controlling ownership
Answer: B
52) Which type of investment involves the acquisition of foreign assets for the purpose of
controlling them?
A) Foreign direct investment
B) Foreign portfolio investment
C) Capital investment
D) Controlling ownership
Answer: A
53) Which of the following is a form of foreign direct investment?
A) foreign stock ownership
B) foreign bond ownership
C) participation in a joint venture
D) mutual fund ownership
Answer: C
54) Foreign portfolio investments are most likely motivated by the desire for ________.
A) risk reduction
B) controlling ownership
C) active management
D) immediate globalization
Answer: A
55) The most important source of FDI for the United States is ________.
A) Canada
B) Mexico
C) the U.K.D) China
Answer: C
56) The ________ suggests that a firm owning a valuable asset that creates a competitive
advantage domestically can use that advantage to penetrate foreign markets through FDI.
A) national competitive advantage
B) comparative advantage
C) relative factor endowments
D) ownership advantage theory
Answer: D
57) Which theory explains why a firm would choose to enter a foreign market via FDI
rather than exploit its ownership advantages internationally through other means?
A) eclectic theory
B) internalization theory
C) relative factor endowments
D) national competitive advantage
Answer: B
58) ________ are the costs of negotiating, monitoring, and enforcing a contract.
A) Opportunity costs
B) Transaction costs
C) Indirect costs
D) Direct costs
Answer: B
59) ________ suggest(s) that FDI will be more likely to occur when transaction costs with a
second firm are high.
A) Eclectic theory
B) Internalization theory
C) Ownership advantage theory
D) National competitive advantage
Answer: B
60) Executives at Energex Enterprises are trying to determine whether it would be better to
own and operate a factory overseas or to contract with a foreign firm to do this through a
licensing agreement. Which theory would most likely help the Energex executives make this
decision?
A) ownership advantage theory
B) internalization theory
C) eclectic theory
D) relative factor endowments
Answer: B
61) Who developed the eclectic theory of international investment?
A) Steffan Linder
B) Raymond Vernon
C) Michael Porter
D) John Dunning
Answer: D
62) Which of the following is not one of the conditions specified in eclectic theory for the
occurrence of foreign direct investment? A) ownership advantage
B) location advantage
C) home country advantage
D) internalization advantage
Answer: C
63) Examples of ownership advantage include all of the following except ________.
A) brand name
B) economies of scale
C) intellectual property
D) benefits of outsourcing
Answer: D
64) For the ________ advantage to accrue, undertaking the business activity must be more
profitable overseas than undertaking it locally.
A) ownership
B) location
C) home country
D) internalization
Answer: B
65) Which of the following has the LEAST influence on a firm's decision to undertake
foreign direct investment? A) supply factors
B) political factors
C) demand factors
D) relative endowment factors
Answer: D
66) Supply factors affecting the decision to undertake FDI include all of the following
except ________.
A) logistics
B) production costs
C) customer mobility
D) access to key technology
Answer: C
67) Demand factors affecting the decision to undertake FDI include all of the following
except ________.
A) customer access
B) marketing advantages
C) customer mobility
D) resource availability
Answer: D
68) Saudi Arabia has large crude oil reserves, and India has a large pool of skilled workers.
These are both examples of ________.
A) factor endowments
B) economies of scope
C) production factors
D) opportunity costs
Answer: A
69) MAX Electronics produces tiny wireless speakers that can be used with computers and
MP3 players. The firm has built new factories to expand capacity and meet increasing
domestic and foreign demand. Over the last six months, foreign and domestic competitors
have emerged with a similar product in an attempt to benefit from high consumer demand.
MAX Electronics is most likely in the ________ product stage of the product life cycle.
A) globalized
B) standardized
C) maturing
D) new
Answer: C
70) Coffman Electronics produces small, portable printers. The market for the product has
stabilized, and Coffman has shifted production to Taiwan. However, Coffman's marketing
department in the U.S. remains responsible for advertising and branding decisions.
Coffman Electronics is most likely in the ________ product stage of the product life cycle.
A) globalized
B) standardized
C) maturing
D) new
Answer: B
71) Pandora Housewares is an MNE with production facilities in Taiwan, England, and
India that manufacture bedding, towels, clothing, and luggage. Pandora has benefited from
________ because the firm's average costs have decreased as the number of different
products it sells has increased.
A) economies of scope
B) intellectual property rights
C) economies of scale
D) experience curve exploitation
Answer: A
72) What is the most likely characteristic of a firm that gains a first-mover advantage?
A) government contractor
B) significant capital
C) natural resources
D) niche marketer
Answer: B
73) According to Porter, agglomeration economies lead to all of the following EXCEPT
________.
A) increased entrepreneurship
B) growth of innovative design
C) high reliance on foreign R&D
D) price competition among suppliers
Answer: C
74) Which of the following is a condition of Dunning's eclectic theory?
A) The firm must own a competitive advantage that overcomes competing against foreign
firms in their markets.
B) Research and development costs must outweigh expenses related to foreign direct
investment.
C) The firm must benefit more from outsourcing a service than controlling a foreign
business.
D) Business activity must be more profitable in a domestic location than in a foreign
location.
Answer: A
75) According to the text, which of the following is negatively affecting FDI in Russia?
A) infrastructure
B) labor pool
C) natural resources
D) legal system
Answer: D

Chapter 7 : The International Monetary System and

the Balance of Payments
A.MULTIPLE CHOICE
1) Why does the international monetary system exist?
A) because most countries have their own currencies
B) to control interest rates on international business loans
C) to avoid monetary crises from becoming global
D) because it sets the price of a given currency
Answer: A
2) The ________ establishes the rules by which countries value and exchange their
currencies.
A) international monetary system
B) OECD
C) World Bank
D) Federal Reserve
Answer: A
3) The international monetary system provides a mechanism for ________.
A) establishing global accounting standards
B) enforcing the payment of importing tariffs and fees
C) correcting imbalances between a country’s international payments and receipts
D) increasing a country's paper currency value in comparison to the global gold standard
Answer: C
4) The ________ records international transactions.
A) balance of payments accounting system
B) international accounting standards
C) gold standard procedure
D) ISO 9000 system
Answer: A
5) Which of the following is not true of the balance of payments?
A) It provides information about likely fiscal and monetary policy changes.
B) It supplies vital information about the health of a national economy.
C) It is the international monetary system’s accounting system.
D) It establishes exchange rates between fixed currencies.
Answer: D
6) Which country was the first to adopt the gold standard?
A) the United Kingdom
B) Russia
C) France
D) Germany
Answer:A
7) The ________ refers to an international monetary system in which countries agreed to
buy or sell their paper currencies in exchange for gold on the request of any individual or
firm and to allow the free export of gold.
A) foreign exchange system
B) free market system
C) gold standard
D) mercantilism
Answer: C
8) Under the gold standard ________.
A) currency values were determined by supply and demand
B) countries agreed to buy or sell their paper currencies for gold
C) countries were free to adopt any nation's exchange rate system
D) the dollar’s value was allowed to fall on currency markets
Answer: B
9) What was created by the gold standard?
A) fixed exchange rate system
B) floating exchange rate systemC) global accounting standards
D) export and import regulations
Answer: A
10) A(n) ________ is the price of one currency in terms of a second currency.
A) export rate
B) exchange rate
C) excise tax rate
D) interest payment
Answer: B
11) Under a ________, the price of a given currency does not change relative to other
currency.
A) free trade agreement
B) fixed exchange rate system
C) floating exchange rate system
D) balance of payment system
Answer: B
12) Which term refers to linking a currency value to the value of gold?
A) exchanging
B) pegging
C) pledging
D) standardizing
Answer: B
13) A ________ refers to the official price of a currency in terms of gold.
A) fixed exchange rate
B) pegged rate
C) par value
D) currency rate
Answer: C
14) Under the gold standard, when the United States and the United Kingdom exchanged
their currencies at a rate of the $20.67/₤4.247, the exchange rate was a ________.
A) floating rate
B) fixed exchange rate
C) par value
D) pegged rate
Answer: B
15) When firms had faith in a country’s pledge to exchange its currency for gold, how did
most prefer to be paid?
A) in gold
B) in paper currency
C) in credit
D) in U.S. dollars
Answer: B
16) Assume you are an American exporter in 1895. What currency would you most likely
want to receive for business transactions?
A) U.S. dollar
B) British pound sterling
C) German deutschmark
D) French franc
Answer: B
17) Between 1821 and 1918, why was the international monetary system also known as the
sterlingbased gold standard?
A) economic dominance of the United Kingdom
B) fluctuating gold value in the United States
C) reliance on German banking systems
D) expansion in the United States
Answer: A
18) When did the sterling-based gold standard begin to unravel?
A) during World War I
B) during World War II
C) during the Civil War
D) during the Napoleonic Wars
Answer: A
19) Why was the gold standard suspended during World War I? A) Transporting gold
became unsafe and complicated.
B) Normal commercial transactions between countries ceased.
C) Countries implemented mercantilism by hoarding gold.
D) The Bank of England could not maintain the pound’s value.
Answer: B
Diff: 2
AACSB: Dynamics of the global economy
Skill: Concept Objective: 2
20) The term ________ means that a currency’s value is determined by the forces of supply
and demand.
A) pegged
B) par value
C) float
D) market exchange
Answer: C
21) When the gold standard ended ________.
A) currency values were determined by supply and demand
B) central banks sometimes manipulated exchange rates
C) countries agreed to buy or sell their paper currencies for gold
D) countries were free to adopt whatever exchange rate system best met their own
requirementsE) the dollar’s value was allowed to fall on currency markets
Answer: A
22) The Bank of England no longer redeemed British paper currency for gold at par value
________.
A) in the 1920s
B) in the 1850s
C) before 1821
D) after 1931
Answer: D
23) What did the Bretton Woods conferees agree to do in 1944?
A) end World War II
B) renew the gold standard
C) adhere to the sterling standard
D) promote a foreign exchange market
Answer: B
24) The Bretton Woods conference sought to do all of the following EXCEPT ________.
A) renew the gold standard
B) create the International Monetary Fund
C) create the International Bank for Reconstruction and Development
D) provide no-interest capital loans to emerging economies around the world
Answer: D
25) The World Bank and the International Monetary Fund were created as part of the
________.
A) Jamaica Accord
B) Louvre Accord
C) Plaza Agreement
D) Bretton Woods Agreement
Answer: D
26) The International Bank for Reconstruction and Development is also known as the
________.
A) World Bank
B) International Monetary Fund
C) Organization for Economic Cooperation and Development
D) Bretton Woods Treaty
Answer: A
27) What was the initial goal of the World Bank?
A) administer the gold standard
B) hold financial reserves for all countries
C) finance reconstruction of war-torn economies
D) provide capital for corporate expansion activities
Answer: C
28) Which country holds the largest bloc of votes in the World Bank?
A) the United Kingdom
B) the United States
C) Germany
D) Japan
Answer: B
29) Country X has requested and received a loan from the World Bank. Country X may
NOT use the money to finance ________.
A) new railroads
B) harbor facilities
C) national highways
D) trade deficits
Answer: D
30) ________ are those that bear significant risk of not being repaid.
A) Hard loans
B) Soft loans
C) Development loans
D) Reconstruction loans
Answer: B
31) The interest rate on soft loans is traditionally set at ________.
A) 0 percent
B) 1 percent
C) 5 percent
D) 10 percent
Answer: A
32) What is the primary purpose of the International Finance Corporation?
A) make soft loans
B) make hard loans
C) promote private sector development in developing countries
D) provide political risk insurance to MNEs operating in emerging economies
Answer: C
33) What is the primary purpose of the Multilateral Investment Guarantee Agency?
A) make soft loans
B) make hard loans
C) promote FDI in developing countries
D) provide investors with political risk insurance
Answer: D
34) Which of the following was created by the Bretton Woods Agreement to facilitate the
expansion and balanced growth of international trade and to promote exchange stability?
A) World Bank
B) Inter-American Development Bank
C) International Monetary Fund
D) Multilateral Investment Guarantee Agency
Answer: C
35) Which country controls the largest bloc of votes in the IMF?
A) the United Kingdom
B) the United States
C) Germany
D) Japan
Answer: B
36) What determines a country's borrowing power from the IMF?
A) country size
B) loan size
C) a quota
D) aggregate demand
Answer: C
37) A country can borrow up to ________ percent of its quota from the IMF?
A) 25
B) 40
C) 70
D) 90
Answer: A
38) The leader of Country X has decided that the nation should join the IMF and has
agreed to the rules and regulations of the IMF. Now Country X must ________.
A) pay a quota to the IMF
B) locate a sponsoring IMF country
C) pay each of the IMF members an entrance fee
D) agree to an IMF investigation of government spending
Answer: A
39) What was created by the Bretton Woods system?
A) a fixed exchange rate system
B) a floating exchange rate system
C) an accounting system
D) a export system
Answer: A
40) Currencies that can be freely exchanged for other currencies without legal restrictions
are called ________.
A) floating currencies
B) fixed currencies
C) convertible currencies
D) free currencies
Answer: C
41) Which currency played a central role in the Bretton Woods system?
A) British pound
B) German mark
C) Japanese yen
D) U.S. dollar
Answer: D
42) Special drawing rights, SDRs, are sometimes called ________.
A) gold-sterling
B) paper currency
C) paper gold
D) credit
Answer: C
43) Which of the following is calculated daily as a weighted average of the market value of
four major currencies?
A) special drawing rights
B) dollar averaging
C) exchange rate standard
D) par value
Answer: A
44) What decision was made at the Smithsonian Conference in 1971?
A) implement a flexible exchange rate system
B) restore the fixed exchange rate system
C) eliminate the World Bank
D) create the IMF
Answer: B
45) What resulted from the Smithsonian Conference?
A) the euro was identified as the benchmark currency
B) currencies were allowed to fluctuate freely
C) the U.S. dollar was devalued
D) the SDR was created
Answer: C
46) What term recognizes that in addition to private sector market forces, exchange rates
are also affected by central banks buying or selling currencies on the foreign-exchange
market?
A) par value
B) flexibility
C) managed float
D) special drawing rights
Answer: C
47) Dirty float is another term for ________.
A) flexible float
B) managed float
C) illegal exchange
D) convertible currency
Answer: B
48) Under a floating exchange rate system, what determines the exchange rate for each
currency?
A) par value
B) gold standard
C) pegged value
D) supply and demand
Answer: D
49) Under a managed float ________.
A) currency values are determined only by private sector forces
B) central banks sometime manipulate exchange rates
C) countries agree to exchange paper currencies for gold
D) countries may adopt any exchange rate system
Answer: B
50) Which agreement resulted in each country adopting its own exchange rate system?
A) Bretton Woods
B) Smithsonian
C) Jamaica
D) Genoa
Answer: C
51) What occurred at the Louvre Accord?
A) Central banks allowed the dollar's value to fall.
B) The value of the U.S. dollar was stabilized.
C) EU members adopted a common currency.
D) An exchange rate mechanism was established.
Answer: B
52) Under the Jamaica Agreement ________.
A) currency values were determined by supply and demand
B) countries agreed to buy or sell their paper currencies for gold
C) countries were free to adopt any exchange rate system
D) the dollar’s value was allowed to fall on currency markets
Answer: C
53) The ________ was created to manage currency relationships within the EU.
A) European Monetary System
B) World Bank
C) Brady PlanD) Baker Plan
Answer: A
54) The ________ is a double-entry bookkeeping system designed to measure and record all
economic transactions between residents of one country and residents of all countries
during a particular time period.
A) managerial accounting
B) international accounting
C) balance of payments
D) global books
Answer: C
55) The balance of payments is useful to international business people for all of the
following reasons except ________.
A) warning of new policies that could affect a country’s business climate
B) indicating reductions in a country’s foreign exchange reserves
C) signaling increased riskiness of lending to countries
D) predicting future exchange rates
Answer: C
56) Which of the following is not one of the major accounts in the BOP accounting system?
A) capital account
B) debt account
C) official reserves account
D) errors and omissions
Answer: B
57) The ________ records exports and imports of goods and services, investment income,
and gifts.
A) current account
B) capital account
C) debt account
D) official reserves account
Answer: A
58) The ________ records the purchases and sales of assets between residents of one
country and those of another country.
A) current account
B) capital account
C) debt account
D) official reserves account
Answer: B
59) The ________ records the levels of gold, convertible currencies, special drawing rights,
and reserve positions at the IMF held by a national government.
A) current account
B) capital account
C) debt account
D) official reserves account
Answer: D
60) The sale of a Mercedes-Benz from Germany to France would be recorded as a
merchandise export in the ________ account of Germany’s balance of payments.
A) capital
B) current
C) official reserves
D) export
Answer: B
61) All of the following are typical short-term foreign portfolio investments included in the
capital account except ________.
A) government bonds
B) checking accounts
C) commercial paper
D) bank loans
Answer: A
62) The ________ shows the difference between a country's exports of services and its
imports of services.
A) trade in visibles balance
B) balance in merchandise trade
C) balance on services trade
D) capital account
Answer: C
63) All of the following are typical long-term portfolio investments included in the capital
account except ________.
A) government bonds
B) checking account balances
C) government bills
D) corporate stocks and bonds
Answer: B
64) AeroTech, a German firm, deposits a check in a U.S. bank. The deposit will be recorded
as a ________.
A) capital outflow in the U.S. BOP
B) capital inflow in the U.S. BOP
C) unilateral debit in the U.S.
D) credit to Germany's BOP
Answer: B
65) Which of the following is not a form of asset included in the official reserves account?
A) government bonds
B) convertible currencies
C) special drawing rights
D) reserve positions at the IMF
Answer: A
66) The U.S. balance of payments for 2010 shows ________.
A) that automobiles and auto parts were the largest component of U.S. merchandise exports
B) the leading import for the U.S. was consumer electronics
C) the U.S. had a negative balance on services trade
D) the U.S. exports more goods to its major trading partners than it imports
Answer: A
67) Carmen is a vice president at TechWorks, an MNE that manufactures computer chips.
TechWorks is considering expansion, and Carmen is responsible for identifying potential
locations. Which of the following would best help Carmen assess the competitiveness of a
country's manufacturing sector?
A) balance on services
B) balance on goods and services
C) balance on merchandise trade
D) official settlements balance
Answer: C
68) Carmen is a vice president at TechWorks, an MNE that manufactures computer chips.
TechWorks is considering expansion, and Carmen is responsible for identifying potential
locations. Which of the following would best help Carmen identify a country's unilateral
transfers and income generated by past investments?
A) current account balance
B) official settlements balance
C) balance on merchandise trade
D) balance on goods and services
Answer: A
69) Executives at Octagon Telecom, a global telecommunications firm, are considering
investing in a telephone company located in Rwanda. However, many stockholders have
expressed concerns about the political risk involved in such an investment. Which of the
following would most likely provide political risk insurance to Octagon?
A) International Development Association
B) African Development Bank
C) International Monetary Fund
D) Multilateral Investment Guarantee Agency
Answer: D
70) Country X paid a quota to the IMF worth the equivalent of $50 million. Now, Country
X needs to borrow money from the IMF. What is the maximum amount that Country X
may borrow? A) $7.5 million
B) $12.5 million
C) $25 million
D) $100 million
Answer: B
71) Which of the following was NOT a key element of the Baker Plan?
A) rescheduling debt
B) imposing monetary controls
C) reducing debts of developed countries
D) continuing to lend to debtor countries
Answer: C
72) Executives at FDX Industries, an MNE that manufactures automotive parts, want to
expand into emerging markets. Which of the following would most likely identify potential
emerging markets and indicate reductions in a country's foreign-exchange reserves?
A) BOP statistics
B) IMF conditionality
C) par value
D) gold standard
Answer: A
73) Country X, a member of the IMF, needs to borrow money from the IMF. The IMF has
agreed to the loan if Country X agrees to close insolvent merchant banks and lower tariffs
on many goods. Which term refers to the restrictions imposed on the loan?
A) IMF hard loan details
B) World Bank pegging
C) IMF conditionality
D) BOP provisions
Answer: C
74) Todd, an analyst for the U.S. government, has been given the task of assessing the
economic performance of Country X in the international marketplace. Todd will most
likely review the ________ of Country X.
A) BOP statistics
B) IMF quotas
C) portfolios
D) FDI
Answer: A
75) Dell Computers invests excess cash balances overnight in a London bank to earn a
higher interest rate than it could earn in a New York bank. Dell is most likely making a(n)
________.
A) international currency investment
B) short-term portfolio investment
C) long-term portfolio investment
D) foreign direct investment
Answer: B

Chapter 8 : Foreign Exchange and International

Financial Markets
A.MULTIPLE CHOICE
1) The rising value of the Canadian dollar relative to the U.S. dollar has all of the following
effects EXCEPT that ________ .
A) Canadian exports to the U.S. are down
B) Canadian vacationers pay higher costs for trips to the U.S.
C) Canadian consumers pay lower prices for U.S.-made goods
D) Canadian retailers in border towns lose customers to U.S. stores
Answer: B
2) What most likely happens when the price of yen falls?
A) the quantity of yen demanded goes down
B) the demand curve slopes downward
C) the demand curve slopes upward
D) the value of yen fluctuates
Answer: C
3) Which of the following is NOT an example of a participant in the foreign exchange
market?
A) Pakistani tourists exchanging rupees for British pounds at a bank in London
B) British retailer Marks and Spenser purchasing appliances from a British supplier
C) The U.S. government arranging a multimillion-dollar loan to Mexico
D) Toyota exporting cars to Canada from factories in Japan
Answer: B
4) A call option ________.
A) is a privately traded currency vehicle available only through stockbrokers
B) grants the right to buy a specified amount of foreign currency at a set price
C) allows the holder to buy foreign exchange at the wholesale rate
D) is another term for currency future
Answer: B
5) ________ is a commodity that consists of currencies issued by countries other than one's
own.
A) Eurozone
B) Foreign exchange
C) Floating exchange
D) International monetary fund
Answer: B
6) If the British pound is selling at $1.7775 spot on September 3, and at a 90-day forward
rate of $1.7661, then ________.
A) the pound is selling at a forward premium
B) the pound is selling at a forward discount
C) an investor should buy a call option
D) speculators should buy put options
Answer: B
7) The price of foreign exchange is set by ________.
A) the international monetary fund
B) the gold standard
C) demand and supply in the marketplace
D) administrators of the World Bank
Answer: C
8) A(n)________ shows the demand for a currency that is derived from foreigners' desire to
acquire the country's goods, services, and assets.
A) direct quote
B) indirect quote
C) derived demand curve
D) upward sloping curve
Answer: C
9) Which term refers to the price of the foreign currency in terms of the home currency?
A) direct exchange rate
B) indirect quote
C) indirect exchange rate
D) direct spot price
Answer: A
10) Tyler, a U.S. citizen, received a quote on the dollar/yen relationship of ¥108.21/$1. Tyler
most likely received a(n) ________ quote.
A) indirect
B) direct
C) yen
D) dollar
Answer: A
11) A(n) ________ is the price of the home currency in terms of the foreign currency.
A) direct exchange rate
B) direct quote
C) indirect exchange rate
D) indirect rate price
Answer: C
12) Carol, an American banker, received a quote between the U.S. dollar and the Japanese
yen of $.00924/¥1. Carol most likely received a(n) ________ quote.
A) indirect
B) direct
C) dollar
D) yen
Answer: B
13) Worldwide volume of foreign exchange trading is about ________ per day.
A) $2 billion
B) $50 billion
C) $2 trillion
D) $4 trillion
Answer: D
14) The world's largest trading markets include all of the following except ________.
A) London
B) Frankfurt
C) Tokyo
D) Singapore
Answer: B
15) What percentage of all foreign-exchange trading involves the U.S. dollar?
A) 25%
B) 47%
C) 70%
D) 85%
Answer: D
16) Which of the following is not a type of client of foreign-exchange departments of
banks?
A) commercial customers
B) speculators
C) arbitrageurs
D) individuals
Answer: D
17) All of the following are common activities of a bank's commercial customers EXCEPT
________,
A) exporting goods
B) importing services
C) receiving dividends from foreign sources
D) conducting short-term sales of foreign currency
Answer: D
18) ________ assume exchange rate risks by acquiring positions in a currency and hoping
that they can correctly predict changes in the currency's market value.
A) Commercial customers
B) Speculators
C) Arbitrageurs
D) Individuals
Answer: B
19) ________ attempt to exploit small differences in the price of a currency between
markets by buying currencies in lower-priced markets and selling in higher-priced
markets.
A) Commercial customers
B) Speculators
C) Arbitrageurs
D) Individuals
Answer: C
20) Currencies that are freely tradable are called ________.
A) hard currencies
B) soft currencies
C) foreign currencies
D) inconvertible currencies
Answer: A
21) Which of the following is not considered a hard currency?
A) Swiss franc
B) Mexican peso
C) Canadian dollar
D) U.S. dollar
Answer: B
22) An inconvertible currency ________.
A) is a foreign exchange transaction that is consummated immediately
B) is a foreign exchange transaction that occurs sometime in the future
C) involves currencies that are not freely tradable
D) involves a transaction in which the same currency is bought and sold simultaneously
Answer: C
23) The ________ consists of foreign-exchange transactions that are to be consummated
immediately.
A) soft currency market
B) spot market
C) hard currency market
D) forward market
Answer: B
24) The ________ consists of foreign-exchange transactions that are to occur sometime in
the future.
A) soft currency market
B) spot market
C) hard currency market
D) forward market
Answer: D
25) In the world of spot markets, what is the meaning of immediately?
A) two days after the trade date
B) four business days after the trade date
C) on the trade date
D) simultaneous due to electronic transfers
Answer: A
26) What percentage of all foreign exchange transactions take place in the spot market?
A) 10 percent
B) 24 percent
C) 33 percent
D) 47 percent
Answer: C
27) A spot transaction ________.
A) is a foreign exchange transaction that is consummated immediately
B) is a foreign exchange transaction that occurs sometime in the future
C) involves currencies that are not freely tradeable
D) involves a transaction in which the same currency is bought and sold simultaneously
Answer: A
28) A forward transaction ________.
A) is a foreign exchange transaction that is consummated immediately
B) is a foreign exchange transaction that occurs sometime in the future
C) involves currencies that are not freely tradeable
D) involves a transaction in which the same currency is bought and sold simultaneously
Answer: B
29) A swap transaction ________.
A) is a foreign exchange transaction that is consummated immediately
B) is a foreign exchange transaction that occurs sometime in the future
C) involves currencies that are not freely tradeable
D) involves a transaction in which the same currency is bought and sold simultaneously
Answer: D
30) A ________ is a contract for a standard amount on a standard delivery date.
A) forward contract
B) currency future
C) currency option
D) call option
Answer: B
31) What is a currency selling at if the forward price is less than the spot price?
A) forward premium
B) forward discount
C) par value
D) swap price
Answer: B
32) A ________ allows, but does not require, a firm to buy or sell a specified amount of
foreign currency at a specified price at any time up to a specified date.
A) forward swap
B) currency option
C) call option
D) discount put
Answer: B
33) Apex Enterprises wants the right to buy a foreign currency at a specified price at any
time up to a specified date. Apex most likely needs a ________.
A) forward premium
B) forward discount
C) call option
D) put option
Answer: C
34) Moffet Manufacturing wants the right to sell a foreign currency at a specified price at
any time up to a specified date. Moffet most likely needs a ________.
A) forward premium
B) forward discount
C) call option
D) put option
Answer: D
35) What is a currency selling at if the forward price is higher than the spot price?
A) forward premium
B) forward discount
C) par value
D) swap value
Answer: A
36) The ________ represents the marketplace's aggregate prediction of the spot price of the
currency rate in the future.
A) forward price
B) spot price
C) exchange rate
D) par value
Answer: A
37) The currencies of countries suffering from balance of payment trade deficits or high
inflation rates are more likely to sell at a ________.
A) spot discount
B) spot premium
C) forward discount
D) forward premium
Answer: C
38) If a currency is selling at a forward premium it most likely means that the foreign-
exchange market believes that the ________.
A) currency will depreciate over time
B) country's economy is weak
C) currency will appreciate over time
D) country's economy is strong
Answer: C
39) The currencies of countries enjoying BOP trade surpluses or low inflation rates are
more likely to sell at a ________.
A) spot discount
B) spot premium
C) forward discount
D) forward premium
Answer: D
40) If a currency is selling at a forward discount it means that the foreign-exchange market
most likely believes that the ________.
A) currency will depreciate over time
B) country's economy is weak
C) currency will appreciate over time
D) country's economy is strong
Answer: A
41) ________ is the riskless purchase of a product in one market for immediate resale in a
second market in order to profit from a price discrepancy.
A) Commercial exchange
B) Foreign exchange
C) Arbitrage
D) Parity
Answer: C
42) The theory of ________ states that the prices of tradable goods, when expressed in a
common currency, will tend to equalize across countries as a result of exchange rate
changes.
A) supply and demand
B) purchasing power parity
C) arbitrage
D) competitive advantage
Answer: B
43) ________ suggests that arbitrage activities will continue until the price of the good is
identical in both markets.
A) Purchasing power parity
B) The law of one price
C) Equilibrium pricing
D) Two-point arbitrage
Answer: B
44) Euroloans are quotes at which of the following rates?
A) LIBOR
B) the euro rate
C) prime plus 2 percent
D) prime plus .5 percent
Answer: A
45) Which of the following is not a common form of financial arbitrage?
A) two-point arbitrage
B) three-point arbitrage
C) Internet arbitrage
D) geographic arbitrage
Answer: C
46) Which form of arbitrage involves profiting from price differences in two distinct
markets?
A) geographic arbitrage
B) three-point arbitrage
C) covered interest
D) arbitrage of goods
Answer: A
47) Suppose £1 is trading for $2.00 in New York City and $1.80 in London. A foreign
exchange trader could take $1.80 and buy £1 in London's financial exchange market and
then sell it for $2.00 in New York's financial exchange market. What is this an example of?
A) two-point arbitrage
B) three-point arbitrage
C) covered interest
D) arbitrage of goods
Answer: A
48) Two-point arbitrage is also known as ________.
A) equilibrium arbitrage
B) forward arbitrage
C) discount arbitrage
D) geographic arbitrage
Answer: D
49) ________ is profitable whenever the cost of buying a currency directly differs from the
cross rate of exchange.
A) Two-point arbitrage
B) Three-point arbitrage
C) Covered interest
D) Arbitrage of goods
Answer: B
50) The ________ is an exchange rate between two currencies calculated through the use of
a third currency.
A) forward rate
B) call rate
C) cross rate
D) covered interest rate
Answer: C
51) The ________ is the primary third currency used in calculating cross rates.
A) euro
B) U.S. dollar
C) Japanese yen
D) Swiss franc
Answer: B
52) What kind of arbitrage occurs when the difference between two countries' interest rates
is not equal to the forward discount/premium on their currencies?
A) two-point arbitrage
B) three-point arbitrage
C) covered interest
D) geographic arbitrage
Answer: C
53) Which form of arbitrage is considered the most important in the foreign-exchange
market?
A) two-point arbitrage
B) three-point arbitrage
C) covered interest
D) arbitrage of goods
Answer: C
54) ________ suggests that national differences in expected inflation rates yield differences
in nominal interest rates among countries.
A) Two-point arbitrage
B) Three-point arbitrage
C) The international Fisher effect
D) The law of one market price
Answer: C
55) According to the Big Mac Index, ________.
A) the euro is undervalued
B) Russia's rouble is overvalued
C) China's yuan is undervalued
D) the peso is overvalued
Answer: C
56) Which of the following is not a method of establishing an overseas banking operation?
A) subsidiary bank
B) branch bank
C) affiliated bank
D) correspondent bank
Answer: D
57) When an overseas banking operation is separately incorporated from the parent bank,
what is it called?
A) subsidiary bank
B) branch bank
C) affiliated bank
D) correspondent bank
Answer: A
58) When an overseas banking operation is not separately incorporated from the parent
bank, what is it called?
A) subsidiary bank
B) branch bank
C) affiliated bank
D) correspondent bank
Answer: B
59) When an overseas banking operation is jointly owned by a parent bank and a local or
foreign partner, what is it called?
A) subsidiary bank
B) branch bank
C) affiliated bank
D) correspondent bank
Answer: C
60) What is a Eurodollar?
A) a euro held by an American
B) a U.S. dollar deposited in a European bank
C) a euro deposited in a U.S. bank.
D) any currency deposited in a country other than the country of issue
Answer: B
61) What term refers to a currency on deposit outside its country of issue?
A) Eurocurrency
B) Eurodollar
C) Euroyen
D) Europound
Answer: A
62) Which of the following is the LEAST likely reason that the Euroloan market is the low-
cost source of loans for large, credit worthy borrowers?
A) Euroloans are free of government banking regulations.
B) The average cost of making Euroloans is lower.
C) Euroloans tend to involve only small transactions.
D) The risk premium charged on Euroloans is lower.
Answer: C
63) On the basis of which interest rate are Euroloans often quoted?
A) United States Prime Rate
B) European Central Bank Offer Rate
C) London Interbank Offer Rate
D) International Monetary Fund Interest Rate
Answer: C
64) The international bond market is a major source of debt financing for all of the
following EXCEPT ________.
A) foreign governments
B) international firms
C) large corporations
D) small businesses
Answer: D
65) A(n) ________ is a large, liquid financial asset that can be traded anywhere at any
time.
A) international stock
B) global bond
C) global equity
D) Eurodollar
Answer: B
66) ________ focus on offering banking and other financial services to nonresident
customers.
A) Subsidiary banks
B) Branch banks
C) Affiliated banks
D) Offshore financial centers
Answer: D
67) A bond that is issued by Nestle, a Swiss company, that is denominated in yen and sold
to residents of Japan is most likely a ________.
A) Eurobond
B) global bond
C) foreign bond
D) country fund
Answer: C
68) Which of the following countries is not an important offshore financial center?
A) Switzerland
B) Singapore
C) South Korea
D) Bermuda
Answer: C
69) Which of the following is a characteristic of most offshore financial centers?
A) political instability
B) services for residents
C) accounting expertise
D) communication inefficiencies
Answer: C
70) A ________ is a mutual fund that specializes in investing in a given country's firms.
A) country fund
B) global equity fund
C) high-risk fund
D) localization fund
Answer: A
71) The primary purpose of the foreign-exchange market is to ________.
A) encourage globalization
B) assist developing countries
C) facilitate currency conversions
D) stabilize the currency exchange rate
Answer: C
72) The foreign-exchange market is most likely shifting towards electronic trading for the
purpose of ________.
A) discouraging speculators
B) lowering transaction costs
C) establishing more hard currencies
D) meeting international requirements
Answer: B
73) Ross Manufacturing wants to sell foreign exchange on a spot basis and contracts with
an international bank to handle the transaction. What is the most likely reason that Ross
uses an international bank in this case?
A) The bank can customize the spot to meet Ross' needs.
B) Laws require that banks handle spot transactions.
C) The bank will not charge Ross a service fee.
D) Ross is a U.S. organization.
Answer: A
74) Rowland Enterprises wants to hedge the foreign-exchange risks involved in
international transactions. Which of the following would be LEAST appropriate for
Rowland?
A) currency futures
B) forward market
C) currency options
D) spot market
Answer: D
75) Which of the following would most likely help international businesspeople to forecast
future changes in exchange rates?
A) swap transaction
B) forward price
C) put option
D) spot price
Answer: B