Test Bank for International Business: The New Realities, 5th Edition

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1International Business: The New Realities, 5e(Cavusgil)Chapter 1Introduction: What Is International Business?1) International business is defined as the performance of ________ activities by firms acrossnational borders.A) marketing and fiduciaryB) trade and investmentC) finance and operationalD) accounting and auditingAnswer: BDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge2) International business is alsoknown as which of the following?A) born global businessB) laissez-faire businessC) cross-border businessD) multi-hub businessAnswer: CDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge3) Which of the following best characterizes the development of international business?A) It has existed in some form for centuries.B) It first started in Europe.C) It developed after the year 2000.D) Its development has slowed in recent years.Answer: ADiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge4) A few decades ago, international business was largely the domain of ________.A) service firmsB) multinational firmsC) smaller firmsD) all of the theseAnswer: BDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge

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25) Which of the following is another term for importing?A) capital investmentB) supply side developmentC) global sourcingD) unilateral procurementAnswer: CDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge6) Which ofthe following is subject to importing and exporting?A) both finished products and intermediate goodsB) finished products but not intermediate goodsC) intermediate goods but not raw materialsD) raw materials and components, but not finished productsAnswer: ADiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge7) ________ refers to the transfer of assets to another country or the acquisition of assets in thatcountry.A)International investmentB) International tradeC) ImportingD) ExportingAnswer: ADiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge8) Each of the following represents afactor of production EXCEPT ________.A) manufacturing infrastructureB) technologyC) government regulationsD) managerial talentAnswer: CDiff: 2: ModerateSkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge

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39) Which of the following would NOT be considered an example of foreign direct investment(FDI)?A) cross-border purchase of a textile plantB) cross-border purchase of stocksC) purchase of capital assets of a foreign companyD)purchase of foreign land for business operationsAnswer: BDiff: 2: ModerateSkill: ApplicationObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge10) ________ is the total value of products and services produced in a country over the course ofa year.A) GDPB) CADC) FDID) PPPAnswer: ADiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge11) Which of the following bestexplains why export growth has outpaced the growth ofdomestic production during the last few decades?A) Both world exports and domestic production have grown significantly over the past 30 years.B) The cost to import products is generally higher than the cost to produce domestic products.C) Growth in gross domestic product in most countries has steadily increased since 1970.D) Advanced economies now source many of their consumable products from low-costmanufacturing nations.Answer: DDiff: 3: HardSkill: Critical ThinkingObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking

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412) Each of the following has contributed to the rapid growth of trade among nations EXCEPT________.A) the growth of emerging market countriesB) the increase in trade barriersC) advances in information technologyD) the liberalization of marketsAnswer: BDiff: 2: ModerateSkill: ApplicationObjective:1-1: Describe thekey concepts in international businessAACSB: Application of KnowledgeFreehold Investment Corp. (Scenario)Dan Freehold and his business partner, Bethany Quinn, are successful investors engaged in avariety of enterprises. Recently Dan and Bethany have decided to expand their foreign investingoperations. They hold a meeting for individuals interested in participating in certain overseasventures.13) At the meeting, Dan explains to the attendees that Freehold direct investment projects differfrom international trade in that ________.A) the firm itself iscrossing international borders to purchase foreign assetsB) the firm is restricting its investments to stocks and does not purchase mutual fundsC) the firm has chosen to focus strictly on the technology sectorD) the firm is engaging in the transfer of products across national bordersAnswer: ADiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge14) Dan discusses an investment opportunity that involves the purchase of selected securitiesfrom the Chinese stock market. This opportunity represents which type of internationalinvestment?A) indirect productionB) international portfolioC) foreign directD) domestic securitiesAnswer: BDiff: 2: ModerateSkill: ApplicationObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking

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515) Bethany presents another opportunity that involves the purchase of a manufacturing plant inSouth Korea. She explains that this type of strategy will involve ________ ownership on the partof the firm.A) indirectB) passiveC) short-termD) activeAnswer: DDiff: 2: ModerateSkill: ApplicationObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking16) Phillip Hardy, one of the potential investors, expresses the desire to purchase only thosetypes of assets in which he can maintain a relatively short-term interest. Which of the followinginvestment opportunities would be most suited for Mr. Hardy?A) a venture that gives investors ownership of the equipment used by multiple South Africanmining companiesB) an initiative to purchase the technology assets of an Indian consulting firmC) the Freehold Eastern Growth Fund, which purchases Eastern European growth stocksD) the Freehold World Climb Project, which maintains partial ownership of an Australian hikingequipment production plantAnswer: CDiff: 2: ModerateSkill: ApplicationObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical ThinkingInternational Trade Summit (Scenario)An international trade summit is held in Geneva, Switzerland. The purpose of the summit is tocooperatively develop policies that promote international trade. Representatives from 50different countriesattend the summit.17) One of the attendees represents a leading nation in the international merchandise trade. Thisattendee is most likely from which of the following countries?A) New ZealandB) GermanyC) KenyaD) Saudi ArabiaAnswer: BDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking

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618) One of the attendees represents a leading nation in the international services trade. Thisattendee is most likely from which of the following countries?A) BrazilB) GreeceC) SingaporeD) South AfricaAnswer: CDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking19) One summit attendee pointed out that the total value of her country's products trade typicallyaccounted for more than 100 percent of her nation's GDP. This attendee most likely represents________.A) JapanB) United KingdomC) FranceD) NetherlandsAnswer: DDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking20) International business is performed not just by individual firms, but also governments andinternational agencies.Answer: TRUEDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge21) The globalization of markets refers to the growing independence and self-sufficiency ofcountries worldwide.Answer: FALSEDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge22) International business today is predominantly the domain of large, multinational companies.Answer: FALSEDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge

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723) Exporting is an entry strategy involving the sale of products or services to customers locatedabroad.Answer: TRUEDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge24) A country's economic assets are also known as factors of production.Answer: TRUEDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge25) The two primary types of international investment are portfolio investment and foreign directinvestment.Answer: TRUEDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge26) Over the last few decades, export activity by nations has grown more quickly than hasdomestic production.Answer: TRUEDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge27) In the past, international trade and investment activities were mainly conducted bycompanies that sold services.Answer: FALSEDiff: 1: EasySkill: ConceptObjective:1-1: Describethekey concepts in international businessAACSB: Application of Knowledge28) Although services trade is growing rapidly, the value of merchandise trade is still muchlarger.Answer: TRUEDiff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge

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829) In a short essay, explain the four trends that provide evidence for the globalization ofmarkets. Provide an example to illustrate one of the trends.Answer: In practical terms, the globalization of markets is evident in several related trends. Firstis the unprecedented growth of international trade. For example, in 1960, cross-border trade wasmodest—about $300 billion per year. Today, it accounts for a substantial proportion of the worldeconomy, with world exports alone amounting to some $16 trillion annually—that is,$16,000,000,000,000! Second, trade between nations is accompanied by substantial flows ofcapital, technology, and knowledge. In 2004, total cross-border bandwidthin digital data transferand communications was practically zero. Today, total cross-border bandwidth flows nowexceed 400,000 gigabits per second. Virtually every type of international transaction nowincludes a digital component. The third trend is the development of highly sophisticated globalfinancial systems and mechanisms that facilitate the cross-border flow of products, money,technology, and knowledge. Fourth, globalization has brought about a greater degree ofcollaboration among nations throughsuch organizations as the World Trade Organization andthe International Monetary Fund.Diff: 2: ModerateSkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking30) In a short essay, explain the main differences between international portfolio investment andforeign direct investment.Answer:a. Types of assets purchased-The first main difference between the two types of investmentsconcerns the types of assets purchased. Portfolio investment involves the purchase of foreignsecurities, such as stocks and bonds, for the purpose of gaining financial returns. Foreign directinvestment involves the purchase of productive assets, such as capital, technology, labor, land,plants, and equipment.b. Types of ownership-The second main difference concerns the level or type of ownership.Portfolio investment refers to passive ownership, with no active management of or control overthe assets purchased. Foreign direct investment, on the other hand, gives investors partial or fullownership of a productive enterprise typically dedicated to manufacturing, marketing, ormanagement activities.c. Interest timeline-The third main difference between the two types of strategies involves thelength of interest maintained by investors. In international portfolio investment, investors have arelatively short-term interest in the ownership of their assets. In foreign direct investment, firmsusually have a long-term investing interest.Diff: 2: ModerateSkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge

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931) What is meant by the term "entrepôt economies"? In a short essay, explain the concept andprovide an example.Answer: Entrepôt is from the French for "intermediate depot." Such countries import a largevolume of products, some of which they process into higher value-added products and some theysimply re-export to other destinations. For example, Singapore is a major entrepôt for SoutheastAsia, e.g.,for transshipping petroleum products that it receives from the Middle East. HongKong is an entrepôt for China. The Netherlands is an entrepôt for the greater European Union.Diff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge32) In a short essay, describe the major trends in the growth of foreign direct investment (FDI)since the 1980s.Answer: The dollar volume of FDI has grown immensely since the 1980s, especially indeveloped (advanced) economies such as Japan, Europe, and North America. FDI inflows to thedeveloping economies began to surpass those to the advanced economies in about 2010. FDIinflows were interrupted in 2001 as investors panicked following the September11 terroristattacks in the United States. The inflows were interrupted again in 2008 by the global recession,but then rose sharply in subsequent years. These dips underscore the importance of maintainingstability in the world economy. Despite these setbacks, the overall trend remains strong andgrowing over time. Particularly significant is the growth of FDI into developing economies,much of which results from their need for modern industrial infrastructure. It reflects theimportance of developing economies and emerging markets as target markets and sourcingbases.Diff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking33) What are the main differences between products and services? In a short essay, explain thedifference between the two and provide three examples of each. Which sector has seen thegreatest growth in international trade in recent years?Answer: Products are defined as tangible merchandise, such as clothing, computers, and cars.Services, by contrast, are intangible deeds, performances, or efforts performed directly by peopleworking in firms in the services sector. Some examples of services are creating advertisingcampaigns, underwriting mortgages, and managingrestaurant operations. In recent years,services trade has been growing faster than products trade. International trade in servicesaccounts for about one-quarter of all international trade and is growing rapidly.Diff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge

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1034) In a short essay, identify three sectors in the service industry that are internationalizingrapidly. Explain the types of activities conducted within each sector, and provide examples ofthree companies that operate in each.Answer:a. Architectural, construction, and engineering-Activities within this sector include construction,electric power utilities, design, and engineering services for airports, hospitals, and dams.Companies within this sector include ABB, Bechtel Group, Halliburton, Kajima, PhilipHolzman, and Skanska AB.b. Banking, finance, and insurance-Activities within this sector include banking services,insurance provision, risk evaluation, and financial management. Companies within this sectorinclude CIGNA, Barclays, HSBC, and Ernst & Young.c. Education, training, and publication-Activities within this sector include management training,technical training, and English language training. Companies within this sector include Berlitz,Kumon Math & Reading Centers, NOVA, Pearson, and Elsevier.Diff: 1: EasySkill: ConceptObjective:1-1: Describe thekey concepts in international businessAACSB: Application of Knowledge35) In a short essay, explain the meaning of international trade. Describe the two major formsthrough which international trade takes place.Answer: International trade describes the exchange of products and services across nationalborders. Trade involves both products (merchandise) and services (intangibles). Exchange canoccur through exporting, an entry strategy involving the sale of products or services to customerslocated abroad, from a base in the home country or a third country. Exchange also can take theform of importing or global sourcing—the procurement of products or services from supplierslocated abroad for consumption in the home country or a third country. While exportingrepresents the outbound flow of products and services, importing is an inbound activity. Bothfinished products and intermediate goods (for example, raw materials and components) can beimported and exported.Diff: 1: EasySkill: SynthesisObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking

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1136) What is international business, and how has it transformed the world economy?Answer: International business refers to the performance of trade and investment activities byfirms across national borders. Because it emphasizes crossing national boundaries, we also referto international business as cross-border business. Firms organize, source, manufacture, market,and conduct other value-adding activities on an international scale. They seek foreign customersand engage in collaborative relationships with foreign business partners.International business is transforming the world as never before. In the last 50 years,international trade and investment have experienced unprecedented growth. Since the 1980s,emerging markets have provided new impetus to worldwide economic interconnectedness. Thesefast-growth developing economies—some thirty countries, including Brazil, Russia, India, andChina, the so-called BRICs—are experiencing substantial market liberalization, privatization,and industrialization, which are fueling global economic transformation.Along with market globalization,advances in technologyis another megatrend helping totransform the global economy. The rise of information and communication technologies, as wellas production and processtechnologies, has dramatically reduced the cost of conducting businesswith customers located around the world. E-commerce makes international business increasinglyimperative for firms of all sizes and resource levels. Technological advances are allowingglobalization to progress more rapidly. Globalization, in turn, is accelerating the development ofthe latest technologies.Diff: 2: ModerateSkill: SynthesisObjective:1-1: Describe thekey concepts in international businessAACSB: Analytical Thinking37) Which of the following types of risk is also known as political risk?A) currency riskB) cross-cultural riskC) commercial riskD) country riskAnswer: DDiff: 1: EasySkill: ConceptObjective: 1-2: Understand how international business differs from domestic businessAACSB: Analytical Thinking38) Which of the following is NOT an example of a cross-cultural risk factor?A) negotiation patternsB) decision-making stylesC) costs of productionD) ethical practicesAnswer: CDiff: 2: ModerateSkill: ApplicationObjective: 1-2: Understand how international business differs from domestic businessAACSB: Analytical Thinking

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1239) Fluctuating exchange rates are an example of which of the following?A) country riskB) political riskC) currency riskD) cross-cultural riskAnswer: CDiff: 1: EasySkill: ApplicationObjective: 1-2: Understand how international business differs from domestic businessAACSB: Analytical ThinkingOverseas Expansion (Scenario)Whittaker Semiconductors has recently decided to expand its operations overseas. AmandaQuan, Vice President of International Business, assigned a team of investigators to analyze therisks faced by the company in making this move. Of particular interest were the risks that mightaffect the success of a new production plant to be located in one of three potential countries.40) Philip Baxter reported on the risks associated with establishing the plant in Country A. Themost significant risk, in his view, was posed by the government's complex bureaucratic structure.Philip reported the likelihood of significant administrative delays in opening the plant. The riskidentified by Philip is an example of which of the following?A) country riskB) commercial riskC) currency riskD) cross-cultural riskAnswer: ADiff: 2: ModerateSkill: ApplicationObjective: 1-2: Understand how international business differs from domestic businessAACSB: Analytical Thinking41) LeShaun Golding researched the risks linked to establishing the plant in Country B. He citedgovernment intervention, lack of local managerial talent, and unethical business practices as themost prominent risks for this location. LeShaun noted all of the following types of risksEXCEPT ________.A) currency riskB) political riskC) country riskD) cross-cultural riskAnswer: ADiff: 2: ModerateSkill: ApplicationObjective: 1-2: Understand how international business differs from domestic businessAACSB: Analytical Thinking

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1342) Rosa Suarez reported on her analysis of cross-culturalrisks involved with establishing theplant in Country C. Each of the following was most likely discussed in her report EXCEPT________.A) language barriersB) lifestyle differencesC) religious beliefsD) the level of national debtAnswer: DDiff: 2: ModerateSkill: ApplicationObjective: 1-2: Understand how international business differs from domestic businessAACSB: Analytical Thinking43) The level of government intervention in commercial activities is similar across mostcountries.Answer: FALSEDiff: 1: EasySkill: ConceptObjective: 1-2: Understand how international business differs from domestic businessAACSB: Analytical Thinking44) Currency risk refers to the risk posed by adverse fluctuations in exchange rates.Answer: TRUEDiff: 1:EasySkill: ConceptObjective: 1-2: Understand how international business differs from domestic businessAACSB: Analytical Thinking45) For internationalizing firms, the consequences of poor business management decisions areusually more costly when mistakes occur abroad than when they occur at home.Answer: TRUEDiff: 1: EasySkill: ConceptObjective: 1-2: Understand how international business differs from domestic businessAACSB: Analytical Thinking

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1446) In a short essay, explain the cross-cultural risk faced by internationalizing firms. What causesthis type of risk? Why might it pose a problem for internationalizing firms?Answer: Cross-cultural risk refers to a situation or event where a cultural miscommunicationputs some human value at stake. Cross-cultural risk arises from differences in language,lifestyles, mind-sets, customs, and religion. Values unique to a culture tend to be long-lasting andtransmitted from one generation to the next. These values influence the mind-set and work styleof employees and the shopping patterns of buyers. Foreign customer characteristics differsignificantly from those of buyers in the home market.Language is a critical dimension of culture. In addition to facilitating communication, languageis a windowon people's value systems and living conditions. When translating from onelanguage to another, it is often difficult to find words that convey the same meanings. Suchchallenges impede effective communication and cause misunderstandings. Miscommunicationdue to cultural differences gives rise to inappropriate business strategies and ineffective relationswith customers.Diff: 2: ModerateSkill: ConceptObjective: 1-2: Understand how international business differs from domestic businessAACSB: Application of Knowledge47) In a short essay, discuss how international firms manage the four types of internationalbusiness risk. Provide an example that illustrates the process of risk management.Answer: When they undertake international business, companiesare routinely exposed to fourmajor types of risk. These are: cross-cultural risk, country risk, currency risk, and commercialrisk:1. Cross-cultural risk: A situation or event where a cultural misunderstanding puts some humanvalue at stake.2. Countryrisk: Potentially adverse effects on company operations and profitability caused bydevelopments in the political, legal, and economic environment in a foreign country.3. Currency risk: Risk of adverse fluctuations in exchange rates.4. Commercial risk: Firm's potential loss or failure from poorly developed or executed businessstrategies, tactics, or procedures.The four types of international business risks are omnipresent; the firm may encounter themaround every corner. Some international risks are extremely challenging. One example is globalfinancial disruptions. The Greek debt crisis has now lingered on for several years and affects notonly the European Union but creditors elsewhere.Although risk cannot be avoided, it can be anticipated and managed. Experienced internationalfirms constantly assess their environments and conduct research to anticipate potential risks,understand their implications, and take proactive action to reduce their effects.Diff: 1: EasySkill: ConceptObjective: 1-2: Understand how international business differs from domestic businessAACSB: Application of Knowledge

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1548) Businesses that directly initiate international business transactions are known as ________.A) focal firmsB) fiscal enterprisesC) fiduciary trustsD) business affiliatesAnswer: ADiff: 1: EasySkill: ConceptObjective: 1-3: Identify major participants in international businessAACSB: Analytical Thinking49) The Coca-Cola Company is an example of a(n) ________.A) born global firmB) SMEC) multinational enterpriseD) NGOAnswer: CDiff: 1: EasySkill: ConceptObjective: 1-3: Identify major participants in international businessAACSB: Analytical Thinking50) Which of the following countries hosts the greatest number of MNEs?A) GermanyB) JapanC) NetherlandsD) United StatesAnswer: DDiff: 1: EasySkill: ConceptObjective: 1-3: Identify major participants in international businessAACSB: Analytical Thinking51) Each of the following types of organizations is active in international business EXCEPT________.A) MNEB) SMEC) RNDD) NGOAnswer: CDiff: 1: EasySkill: ConceptObjective: 1-3: Identify major participants in international businessAACSB: Analytical Thinking

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