International Economics
Final Test Solutions
Course Introduction
International Economics explores the economic interactions between countries, focusing on theories and policies related to international trade and finance. The course covers topics such as comparative advantage, trade policy instruments, the balance of payments, exchange rates, and the effects of globalization. Students will analyze both the benefits and challenges of open economies, evaluate the impact of international economic institutions, and examine the role of economic integration and development in the global marketplace. Real-world case studies and contemporary issues provide practical insights into how international economics shapes national and global prosperity.
Recommended Textbook
International Business Environments Operations 14th Edition by John Daniels
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Page 2
Chapter 1: Globalization and International Business
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Q1) Which of the following statements would most likely NOT be supported by an advocate of offshoring?
A) Offshoring increases the number of high-value jobs in the home countries of offshoring companies.
B) Offshoring is fundamentally better for workers than the introduction of labor-saving technologies.
C) Workers displaced due to offshoring are able to find new jobs as easily as those displaced by technology.
D) There are upper limits to offshoring because of the lack of skilled workers willing to work permanently for low wages.
Answer: B
Q2) The ownership of foreign bonds is an example of a portfolio investment.
A)True
B)False
Answer: True
Q3) A joint venture is an example of a portfolio investment.
A)True
B)False
Answer: False
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Page 3
Chapter 2: The Cultural Environments Facing Business
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Q1) The lack of cultural guidebooks and research specifically for international managers poses a significant problem for global firms.
A)True
B)False
Answer: False
Q2) Most people's basic value system is ________.
A) modified significantly between childhood and adulthood
B) altered during adulthood through imposition
C) affected primarily by teenage peer pressure
D) acquired mainly during early childhood
Answer: D
Q3) Raj,an engineer,works long hours and takes full responsibility for both his good and bad work performance. Raj most likely believes in ________.
A) self-determination
B) low power distance
C) collectivism
D) fatalism
Answer: A
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Chapter 3: The Political and Legal Environments Facing Business
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Sample Questions
Q1) Which of the following is NOT a component of modern legal systems?
A) constitutional law
B) criminal law
C) commercial law
D) private law
Answer: D
Q2) Countries with a ________ legal system tend to encourage precise,detailed contracts,whereas countries with a ________ legal system tend to encourage shorter and less specific contracts.
A) theocratic; mixed
B) common; civil
C) civil; customary
D) customary; common
Answer: B
Q3) In some collectivist systems,such as Venezuela,politicians control media outlets and limit individual property rights in order to acquire power in the business environment.
A)True
B)False
Answer: True
Page 5
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Chapter 4: The Economic Environments Facing Businesses
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Q1) The ________ starts with the same accounting framework used to calculate GDP but then adjusts for values assigned to environmental quality,population health,livelihood security,equity,free time,and educational attainment.
A) Gross National Index
B) Net National Product
C) Genuine Progress Indicator
D) Human Development Index
Q2) ________ typically results when demand decreases and supply increases.
A) Inflation
B) Chronic inflation
C) Reflation
D) Deflation
Q3) Between 2000 and 2008,China's economy grew at a faster rate than Japan's economy.
A)True
B)False
Q4) What issues complicate international economic analysis?
Q5) What is gross national income? How is it calculated? Illustrate your answer with a specific example.
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Chapter 5: Globalization and Society
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Q1) The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)________.
A) allows rich countries to produce generic versions of patented drugs without having to pay royalties to the patent holder
B) permits developing countries to import generic products from other countries if they don't have the capacity to produce generic drugs
C) requires pharmaceutical companies to provide low-cost vaccines and HIV/AIDS medications to developing countries
D) requires tiered pricing for most essential drugs
Q2) Firms that operate in countries that have adopted the Kyoto Protocol are required to either reduce emissions or ________.
A) purchase carbon credits from other firms
B) file petitions to appeal the requirement
C) cease manufacturing operations
D) pay fines to the U.N.
Q3) Explain why the argument that "anything that is legal is ethical" is insufficient.
Q4) What is extraterritoriality? Why is the concept controversial?
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Chapter 6: International Trade and Factor Mobility Theory
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Q1) A strategic trade policy is one that develops industries to lessen dependence on foreign military goods.
A)True
B)False
Q2) Countries with large land areas are generally less dependent on trade than countries with small land areas because of ________.
A) highly restricted economic scales
B) self-sufficiency with natural resources
C) higher transportation costs related to foreign trade
D) the development of unique products that have a limited demand
Q3) The factor proportions theory holds that countries should concentrate production on those products that use their most abundant production factors.
A)True
B)False
Q4) In a short essay,discuss the theory of mercantilism,and discuss favorable and unfavorable balances of trade as they apply to international business.
Q5) As an international business manager,how can you benefit from an understanding of international trade theories?
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Chapter 7: Governmental Influence on Trade
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Q1) List and define the types of nontariff barriers that limit the quantity of goods traded: quotas,embargoes,buy local legislation,standards and labels,specific permission requirements,administrative delays,and reciprocal requirements.
Q2) Why should managers have an understanding of trade protectionism?
A) Trade protectionism targets factor endowments, thus affecting the best country to locate production.
B) Trade protectionism affects a company's ability to sell abroad and ability to compete at home.
C) Trade protectionism affects the number of people permitted to practice a specific profession.
D) Trade protectionism prevents companies' enactment of merger and acquisition agreements.
Q3) Import trade controls,but not export trade controls,can be used as a weapon of foreign policy.
A)True
B)False
Q4) What is the difference between import substitution policies and export-led development policies? What are the potential effects of each?
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9
Chapter 8: Cross-National Cooperation and Agreements
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Q1) Korman Industries is a foreign multinational that recently established operations in the European Union. What is the most likely advantage for Korman as a result?
A) Governance processes are streamlined because local governments have been eliminated.
B) Market size is larger because of the elimination of internal tariff barriers.
C) Differential external tariff barriers exist for product shipments.
D) The EU uses English as its official language.
Q2) Which of the following members of the European Union has NOT adopted the euro?
A) United Kingdom
B) Estonia
C) Germany
D) Greece
Q3) The European Commission is the European Union's ultimate decision-making body and is composed of the different ministers of the member countries.
A)True
B)False
Q4) Describe the different types of regional economic integration and give an example of each type.
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10
Chapter 9: Global Foreign-Exchange Markets
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Q1) If the forward rate for a foreign currency is less than the spot rate,the foreign currency is selling at a forward premium.
A)True
B)False
Q2) Why would companies become involved in arbitrage? What is the difference between arbitrage and interest arbitrage?
Q3) The interbank market in foreign exchange is where ________.
A) electronic brokerage systems are required
B) banks trade currency with each other C) reporting dealers set exchange terms
D) remittance payments are made
Q4) Companies use the foreign exchange market to convert money for use in financial transactions.
A)True
B)False
Q5) Arbitrage is the purchase of foreign currency on one market for immediate resale on a foreign market in order to profit from a price discrepancy.
A)True
B)False
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Chapter 10: The Determination of Exchange Rates
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Q1) The global financial crisis has pushed China closer to ________.
A) operating independently from the central banks of other countries
B) discontinuing its relationship with the Bank for International Settlements
C) liberalizing its currency
D) controlling its currency
Q2) Which of the following is used as an illustration of the PPP theory for estimating exchange rates?
A) the Composition of Official Foreign Exchange Reserves (COFER)
B) the black market rate
C) the import licensing ratio
D) the Big Mac Index
Q3) The Big Mac Index perfectly explains the relative size of economies.
A)True
B)False
Q4) The ________ theory seeks to define the relationship between currencies based on relative inflation.
A) inflation growth rate
B) revaluation
C) purchasing power parity
D) interest rate
Page 12
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Chapter 11: The Strategy of International Business
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Sample Questions
Q1) Which of the following is NOT a factor driving local responsiveness among global firms?
A) cross-national differences in distribution channels
B) diverging consumer tastes and preferences
C) cross-national differences in product standards
D) host government support of freer international trade
Q2) Firms that compete in the global marketplace typically face the asymmetric forces of pressures for ________ and ________.
A) global integration; local responsiveness
B) price reductions; cost reductions
C) politically sensitivity; market leadership
D) cost reductions; customer satisfaction
Q3) Which of the following is LEAST likely to trigger the standardization of consumer preferences?
A) intrinsic functions of money
B) global access to common media
C) increasing nationalism
D) improved communications technologies
Q4) What is the Industry Organization (IO)paradigm? Discuss the underlying assumptions of this model.
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Chapter 12: Country Evaluation and Selection
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Q1) A company should probably use a concentration strategy for international expansion when there are ________.
A) high needs for product adaptation and low growth in each market
B) short competitive lead time and low spillover effects
C) high growth rate and long competitive lead time
D) low sales stability and short competitive lead time
Q2) Gucci,a maker of luxury fashion and leather goods,plans to expand its sales market. The firm needs to compare countries for the market potential of its products. Which of the following is the best indicator for Gucci to use?
A) per capita income in each country
B) population size of each country
C) the number of millionaires in each country
D) gross domestic product for each country
Q3) When comparing economic and demographic variables among countries,one should consider that consumers in developing countries do not necessarily follow the same historical patterns as those in more developed countries.
A)True
B)False
Q4) What is scanning? What opportunities and risks are most relevant to scanning?
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Chapter 13: Export and Import
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Q1) What is the difference between exporting and importing? What are the unique characteristics of service exports and service imports?
Q2) Exporters employ an export management company as part of an indirect exporting strategy.
A)True
B)False
Q3) One advantage of importing is that an importer can diversify its operating risks by developing alternative suppliers.
A)True
B)False
Q4) What are some reasons that firms decide to export their products or services? What does a firm need to consider when developing an export plan?
Q5) In what is known as direct exporting,the exporter sells goods directly to or through an independent domestic intermediary in the exporter's home country that then exports the products to foreign markets.
A)True
B)False
Q6) What difficulties of exporting can be minimized by customs brokers?
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Chapter 14: Direct Investment and Collaborative Strategies
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Q1) When a company wants to be compensated in a foreign subsidiary beyond its contribution in capital and managerial resources,it often ________.
A) licenses intangible property to its subsidiary
B) negotiates a special agreement with the host government
C) establishes a management contract
D) sets up an equity alliance
Q2) The more a company engages in international collaborative arrangements as opposed to wholly owned foreign operations,the more it is likely to ________.
A) decrease its exposure to political risk
B) increase its control over foreign operations
C) learn rapidly about foreign environments
D) protect its core assets
Q3) What are the various types of collaborative arrangement options available to international businesses? How can firms most effectively manage international collaborative arrangements?
Q4) The use of management contracts has been significant in hotel operations.
A)True
B)False
Q5) Explain how franchising agreements differ from licensing agreements.
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Chapter 15: The Organization of International Business
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Q1) The benefits of managerial visits to foreign subsidiaries can easily be replicated with frequently submitted and reviewed operational reports and schedules.
A)True
B)False
Q2) The primary benefit of neoclassical structures is the ability of MNEs to coordinate responses and maintain effective control of various units.
A)True
B)False
Q3) In reality,the organizational charts of ________ MNEs neatly depict a functional,divisional,or matrix structure.
A) no
B) few
C) most
D) all
Q4) Horizontal differentiation is concerned with how the managers of a firm decide to divide the company into discrete subunits.
A)True
B)False
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Chapter 16: Marketing Globally
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Q1) Gap analysis may show that the combined market potential among several countries may justify product development costs.
A)True
B)False
Q2) Passive exports involve the filling of unsolicited orders from abroad.
A)True
B)False
Q3) A company would most likely export at a price lower than its production and distribution costs in order to ________.
A) use a skimming strategy abroad before using one domestically
B) test a market before making a big commitment
C) use a cost-plus strategy globally
D) encourage gray market sales
Q4) Why are MNEs criticized for exporting to developing countries the same products they sell in developed countries?
A) The prices of the products are too low in developing countries.
B) Many of the products are deemed to be unnecessary for low income consumers.
C) The sales enhance local company failures in developing countries.
D) Developing countries need local production rather than imports.
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Chapter 17: Global Manufacturing and Supply Chain Management
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Q1) Offshore manufacturing is attractive because it offers high labor costs,cheap materials and components,and proximity to markets.
A)True
B)False
Q2) The use of JIT does not depend on the quality of incoming parts or the time of their arrival.
A)True
B)False
Q3) The Japanese approach to quality is total quality management (TQM),which stresses which of the following principles?
A) employee involvement, commitment to international standards, and customer satisfaction
B) customer satisfaction, continuous improvements, and warranties
C) customer satisfaction, employee involvement, and continuous improvements
D) employee involvement, continuous improvements, and commitment to international quality standards
Q4) What has been the influence of Japan on supply chain management? In your answer,discuss the concepts of industrial clustering and quality.
Page 19
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Chapter 18: International Accounting Issues
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Q1) The International Accounting Standards Board is composed of international securities regulators and is attempting to harmonize accounting standards through issuing International Financial Reporting Standards.
A)True
B)False
Q2) Translation of foreign currency financial statements is the process of restating foreign currency financial statements from one currency into another.
A)True
B)False
Q3) In a brief essay,discuss the concepts of transfer pricing and hedging.
Q4) What metrics are used to measure the performance of an MNE? How is the balanced scorecard approach unique?
Q5) The balanced scorecard approach is a preferred method for measuring performance among U.S. firms,but the EU does not allow its usage.
A)True
B)False
Q6) How do exchange rates affect budgets used to evaluate performance in MNEs?
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Page 20
Chapter 19: The Multinational Finance Function
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Q1) A negotiable certificate issued by a U.S. bank to represent the underlying shares of a foreign corporation's stock is called a(n)________.
A) Euroequity
B) American Depositary Receipt
C) Global Depositary Receipt
D) European Depositary Receipt
Q2) The principle by which the tax authorities allow firms to reduce their tax liability by the amount of income taxes paid to a foreign government is known as a tax credit.
A)True
B)False
Q3) What are the major sources of external funds for an MNE's normal operations? Why do MNEs use offshore financial centers to raise funds?
Q4) What is the main challenge companies face in listing ADRs in the United States?
A) paying costly fees and tariffs
B) complying with SEC reporting requirements
C) listing shares in U.S. dollars instead of Eurodollars
D) conducting time-consuming performance evaluations
Q5) What is an offshore financial center? What are the main characteristics of OFCs?
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Chapter 20: International Human Resources
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Q1) What are the current trends in expatriate allowances? What are the reasons for these changes?
Q2) Which of the following most accurately describes the current state of HRM efforts to staff international operations?
A) Fewer women are accepting international assignments.
B) The length of permanent assignments is rising among middle-managers.
C) There are historic shortages of executive talent for international assignments.
D) Third-country nationals are quickly being replaced by localized expatriates.
Q3) Shelly,a sales manager at Best Computers,has recently moved from Dallas to Hong Kong for an expatriate assignment. Shelly is feeling disoriented,irritable,and stressed about her new job and living arrangements in Hong Kong,which means that she is most likely experiencing ________.
A) uncertainty dislocation
B) melancholy
C) culture shock
D) cultural transition
Q4) List and compare the three common methods of implementing a balanced compensation plan.
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Page 22