Global Business Environment
Exam Answer Key
Course Introduction
Global Business Environment explores the dynamic and interconnected landscape in which businesses operate across international borders. This course examines the economic, political, cultural, and legal factors that influence global trade and investment, focusing on the challenges and opportunities presented by globalization. Students will analyze the roles of multinational enterprises, international organizations, and economic blocs, while developing a critical understanding of cross-cultural management, global market entry strategies, and the impact of technological advancements on international business. The course equips students with analytical tools and frameworks to navigate and succeed in the complex world of global commerce.
Recommended Textbook
International Business Competing in the Global Marketplace 12th Edition by
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Page 2
Charles W. L. Hill
Chapter 1: Globalization
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Sample Questions
Q1) Explain the trends in world trade and foreign direct investment since 1950.
Answer: Since 1950, the volume of world merchandise trade has grown faster than the world economy. In particular, there has been acceleration in world trade since 1980. This trade and investment pattern implies that firms are dispersing parts of their production to different locations around the world to drive down production costs and increase product quality, that the economies of the world's nation-states are becoming more intertwined, that foreign direct investment is playing an increasing role in the global economy as firms increase their cross-border investments, and that the world has become significantly wealthier since 1990. The implication is that rising trade is the engine that has helped pull the global economy along. Evidence also suggests that foreign direct investment is playing an increasing role in the global economy as firms increase their cross-border investments.
Q2) Which of the following is a consequence of globalization?
A) decreasing interdependence between national economies
B) increasing outsourcing of services
C) differentiating of material culture
D) increasing barriers to cross-border trade
Answer: B
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Page 3
Chapter 2: National Differences in Political, Economic, and Legal Systems
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Sample Questions
Q1) In which of the following economies would the government be most likely to take into state ownership troubled firms whose continued operation is thought to be vital to national interests?
A) market economies
B) laissez-faire economies
C) liberal economies
D) mixed economies
Answer: D
Q2) Most modern democratic states practice representative democracy.
A)True
B)False
Answer: True
Q3) In several Western democracies, the poor performance of state-owned enterprises, because of protection from competition and guaranteed government financial support, led to
A) privatization.
B) nationalization.
C) liberalization.
D) socialization of production.
Answer: A
Page 4
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Chapter 3: National Differences in Economic Development
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Q1) To improve airport security following a major terrorist attack, the government of a country takes over the airport security industries This is an example of privatization.
A)True
B)False
Answer: False
Q2) In Sen's view, development is an economic process that should be assessed primarily by material output measures such as GNI per capita.
A)True
B)False
Answer: False
Q3) A free market economy in which property rights are protected leads to subsequent economic growth that often leads to the establishment of A) a democratic regime.
B) a planned economy.
C) government-owned enterprises.
D) a socialist economy.
Answer: A
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Page 5
Chapter 4: Differences in Culture
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Q1) Hofstede's research has been criticized because it was culturally bound.
A)True
B)False
Q2) Class-based conflict between workers and management in class-conscious societies can lead to
A) increased costs of doing business.
B) decreased costs of doing business.
C) companies going out of business.
D) workers looking for new jobs in other businesses.
Q3) Several studies have shown that economic advancement and ________ are important factors in societal change.
A) individualism
B) collectivism
C) improved technology
D) globalization
Q4) A society's social structure refers to its
A) system of values and norms.
B) basic social organization.
C) religious practices.
D) educational infrastructure.
Page 6
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Chapter 5: Ethics, Corporate Social Responsibility, and Sustainability
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Q1) Why are expatriate managers at a greater risk of violating their personal code of ethics?
Q2) According to ________, the social responsibility of business is to increase profits, so long as the company stays within the rules of law.
A) the naive immoralist
B) the righteous moralist
C) cultural relativism
D) the Friedman doctrine
Q3) According to the naive immoralist,
A) a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries.
B) the social responsibility of business is to increase profits, so long as the company stays within the rules of law.
C) ethics are nothing more than the reflection of a culture.
D) if firms in a host nation do not follow ethical norms then the manager of a multinational should not follow ethical norms there either.
Q4) Should a multinational feel free to pollute in a developing nation?
Q5) What are ethical dilemmas? Why do they exist?
Page 7
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Chapter 6: International Trade Theory
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Sample Questions
Q1) Explain Ricardo's theory of comparative advantage.
Q2) Explain the dynamic gains that are generated by opening an economy to trade.
Q3) According to Ricardo's theory of comparative advantage, a country should produce goods
A) for which it has access to raw materials.
B) that it produces most efficiently.
C) that have the highest domestic demand.
D) for which it has an absolute advantage.
Q4) The variety of goods that a country can produce is limited by the size of the market in industries where ________ are important.
A) factor endowments
B) current account deficits
C) economies of scale
D) current account surpluses
Q5) Heckscher-Ohlin theory stresses that comparative advantage arises from differences in productivity.
A)True
B)False
Q6) Explain the concept of free trade.
Q7) Identify a major disadvantage of the product life-cycle theory.
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Chapter 7: Government Policy and International Trade
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Q1) Which of the following is a reason for the pressure for greater protectionism that occurred during the 1980s and early 1990s?
A) The U.S. Congress erected an enormous wall of tariff barriers.
B) Japanese economic failure strained the world trading system.
C) The persistent trade surplus in the United States strained the world trading system.
D) Many countries found ways to get around GATT regulations.
Q2) According to the strategic trade policy argument,
A) government intervention is not required because firms can borrow money from the capital markets to finance the required investments.
B) selling goods in a foreign market at below their "fair" market value is legally and ethically justified.
C) government support can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors.
D) a government should use subsidies to support promising firms that are active in old, established industries.
Q3) What has been the experience of the WTO to date? What does the future look like for the organization?
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Chapter 8: Foreign Direct Investment
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Q1) Discuss why firms selling products with low value-to-weight ratios choose FDI over exporting.
Q2) The country of Manystan has adopted neither a radical policy nor a free market policy, but rather one that posits that FDI has both benefits and costs. This is best described as
A) pragmatic nationalism.
B) postmodernism.
C) the free market view.
D) the noninterventionist principle.
Q3) In which of the following situations would FDI improve the current account of the host country's balance of payments?
A) if the foreign subsidiary imports a substantial number of its inputs from abroad
B) if the FDI reduces existing employment opportunities
C) if the FDI is a substitute for imports of goods or services
D) if the FDI results in substitution of products produced domestically
Q4) Discuss the trends in FDI over the past 30 years. Be sure to differentiate between the stock of FDI and the flow of FDI.
Q5) Describe the situations when licensing is not a good option for a firm.
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Chapter 9: Regional Economic Integration
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Sample Questions
Q1) The United States, Canada, and Mexico are member nations of
A) CAFTA.
B) Mercosur.
C) the Andean Pact.
D) NAFTA.
Q2) Political turmoil in several African nations has persistently impeded any meaningful progress in economic integration.
A)True
B)False
Q3) The Council of the European Union is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states.
A)True
B)False
Q4) Mercosur originated as ________ between Brazil and Argentina in 1988.
A) a common market
B) a free trade pact
C) a customs union
D) an economic union
Q5) What is ASEAN? What is its basic goal? How successful is ASEAN?
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Chapter 10: The Foreign Exchange Market
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Q1) Although a foreign exchange transaction can involve any two currencies, most transactions involve ________ on one side.
A) pounds
B) yen
C) dollars
D) euros
Q2) Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?
Q3) An American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8 percent on its investment?
A) The Hungarian forint rises in value against the dollar.
B) Interest rates in the United States move down.
C) Short-term interest rates in Hungarian money markets shoot up.
D) The dollar appreciates against the Hungarian forint.
Q4) With the help of an example, explain how a tourist participates in the foreign exchange market.
Q5) What is the law of one price?
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Chapter 11: The International Monetary System
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Q1) How can international companies reduce their economic exposure in a world of constantly fluctuating exchange rates?
Q2) Firms cannot utilize the forward exchange market when they are faced with uncertainty about the future value of currencies.
A)True
B)False
Q3) Recent policies of the International Monetary Fund have drawn a lot of criticism. Discuss these criticisms.
Q4) In 2002, the IMF stepped in to help stabilize the value of the Brazilian currency on foreign exchange markets by lending it foreign currency. This constitutes a foreign debt crisis.
A)True
B)False
Q5) Which of the following arguments is against the use of fixed exchange rates?
A) Monetary discipline is the most important determinant of a strong economy.
B) Each country has the freedom to choose its own inflation rate.
C) Market speculation can cause fluctuations in exchange rates.
D) Governments are likely to expand the monetary supply far too rapidly due to political pressures.
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Chapter 12: The Global Capital Market
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Sample Questions
Q1) ________ perform a direct connection function in capital markets.
A) Insurance brokers
B) Investment banks
C) Pension fund managers
D) Commercial banks
Q2) Which of the following is true of fixed-rate bonds?
A) Returns from fixed-rate bonds are dependent on the profitability of the issuing company.
B) Investors get back the face value of the bond at maturity of fixed-rate bonds.
C) Fixed-rate bonds issue cash payoffs only at maturity of fixed-rate bonds.
D) Investors get a share of the company's profit when using fixed-rate bonds.
Q3) Economist Martin Feldstein has coined the term "hot money" to pertain to long-term capital flows.
A)True
B)False
Q4) The global capital market often lacks information about the fundamental quality of foreign investments.
A)True
B)False
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Chapter 13: The Strategy of International Business
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Sample Questions
Q1) When companies disperse different stages of the value chain to those locations around the world where perceived value is maximized or where the costs of value creation are minimized, companies create
A) a differentiated organization.
B) a location economy curve.
C) economies of scale.
D) a global web of value creation activities.
Q2) ________ is measured by the percentage increase in net profits over time.
A) Profit growth
B) Value
C) Profitability
D) Operational economy
Q3) Discuss the evolution of strategy. How does cost become important in the long term?
Q4) ________ include the design, creation, and delivery of a product.
A) Primary activities
B) Core competencies
C) Support activities
D) Universal needs
Q5) What is the difference between profitability and profit growth?
Page 15
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Chapter 14: The Organization of International Business
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Sample Questions
Q1) Centralization and decentralization differ because centralization
A) hinders coordination, while decentralization facilitates coordination.
B) prevents top-level managers from making required organizational changes, while decentralization gives top-level managers greater power to make organizational changes.
C) ensures that decisions are consistent with organizational objectives, while decentralization can result in decisions at variance with organizational goals.
D) promotes flexibility, while decentralization reduces flexibility.
Q2) Firms pursuing a global standardization strategy must cope with a higher level of ________, and this raises their costs of control.
A) vertical differentiation
B) cultural division
C) horizontal differentiation
D) performance ambiguity
Q3) It is difficult to ascertain accountability in the global matrix structure.
A)True
B)False
Q4) What are the basic principles for successful organizational change?
Q5) Explain the five reasons a firm should decentralize its decision making.
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Chapter 15: Entry Strategy and Strategic Alliances
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Sample Questions
Q1) A large-scale entrant is more likely than a small-scale entrant to be able to capture first-mover advantages associated with A) scale economies.
B) diseconomies of scale.
C) pioneering costs.
D) diseconomies of scope.
Q2) Compare and contrast licensing agreements and franchising agreements.
Q3) In a ____, the firm owns 100 percent of the stock.
A) joint venture
B) wholly owned subsidiary
C) turnkey project
D) franchising agreement
Q4) Explain the idea of a turnkey project. Why should a firm use this arrangement to expand internationally? In what industries are turnkey arrangements most common?
Q5) An advantage of forming a strategic alliance is that it helps firms
A) protect their procedures and technologies.
B) reduce the level of conflicts that occur within an organization.
C) share the risks of developing new products or processes.
D) increase the cultural similarities between employees.
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Chapter 16: Exporting, Importing, and Countertrade
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Q1) What is a common difficulty that traders face when exporting goods or services to other countries?
A) Small firms tend to be more aggressive than larger firms in global trade.
B) Governments do not provide much assistance to exporters.
C) Growth opportunities are often limited in global markets.
D) Exporters often face voluminous paperwork and complex formalities.
Q2) Describe the 14 steps in a typical international trade transaction.
Q3) What problems do novice exporters typically face when trying to export?
Q4) A ________ allows for a delay in payment.
A) bill of lading
B) time draft
C) sight draft
D) letter of credit
Q5) ________ denotes a range of barter-like agreements and its principle is to trade goods and services for other goods and services when they cannot be traded for money.
A) Countertrade
B) Cross-selling
C) Matchmaking
D) Letter of credit
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Chapter 17: Global Production and Supply Chain Management
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Q1) An advantage of a ________ allows a firm to hedge against currency risks.
A) low TQM
B) low minimum efficient scale
C) high TQM
D) high minimum efficient scale
Q2) Explain how the strategic role of foreign factories evolves over time.
Q3) Just-in-time systems reduce product quality although it brings about huge cost savings.
A)True
B)False
Q4) According to the concept of economies of scale, as plant output expands
A) productivity declines.
B) total costs decrease.
C) unit costs decrease.
D) utilization of capital declines.
Q5) In the context of a tube of toothpaste, the box in which the toothpaste is shipped to the store from the warehouse is the primary packaging.
A)True
B)False
Q6) Define the term logistics. Compare and contrast production and logistics. Page 19
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Chapter 18: Global Marketing and R&D
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Sample Questions
Q1) In a country where competition is limited,
A) prices will be low.
B) there will be low elasticity of demand.
C) prices will be high.
D) consumers' bargaining power rises.
Q2) Which of the following statements about barriers to international communication is true?
A) Source effects occur when the receiver of the message evaluates the message on the basis of the location of the sender.
B) The best way for a firm to overcome cultural barriers is to use local input.
C) Source effects and country of origin effects are always negative.
D) Noise is extremely high in highly developed countries such as the United States.
Q3) In highly developed countries, in the context of communication, noise tends to be low.
A)True
B)False
Q4) Explain briefly the regulatory influences on pricing.
Q5) What is Theodore Levitt's contribution to international business?
Q6) What factors affect the rate of new-product development in countries?
Page 21
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Chapter 19: Global Human Resource Management
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Sample Questions
Q1) In polycentric firms, the lack of managers' mobility among national operations implies that pay can and should be kept country-specific.
A)True
B)False
Q2) Mendenhall and Oddou's "others-orientation" dimension, in their study on what predicts success in foreign jobs postings, refers to the
A) expatriate's self-esteem, self-confidence, and mental well-being.
B) expatriate's ability to interact effectively with host-country nationals.
C) expatriate's ability to understand why people of other countries behave the way they do.
D) relationship between the country of the assignment and how well an expatriate adjusts to a particular posting.
Q3) ________ makes it difficult to evaluate the performance of expatriate managers objectively.
A) Unintentional bias
B) Lack of proximity
C) Intentional bias
D) Inadequate hard data
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Chapter 20: Accounting and Finance in the International Business
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Q1) What are the nine possible combinations of the three exchange rates proposed by Lessard and Lorange in the control process?
Q2) ________ costs are incurred every time a firm changes cash from one currency into another currency.
A) Dividend
B) Capital
C) Fixed
D) Transaction
Q3) The connection between cash flows to the parent and the source of financing must be recognized when performing capital budgeting for an international business.
A)True
B)False
Q4) Transfer price refers to the
A) price at which goods and services are transferred to a subsidiary.
B) price at which the title of products is transferred to a customer.
C) price at which a supplier provides raw materials to a firm.
D) cost incurred when goods or services are transferred from one place to another.
Q5) What are the shortcomings of IASB?
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