INTERNATIONAL SCHOOL OF ASIA AND THE PACIFIC

Alimannao Hills, Penablanca, Cagayan

C OLLEGE OF B USINESS A DMINISTRATION AND A CCOUNTANCY

Subject Code : B.A. 406

Subject Title : International Business
Term : Midterm Examination
Semester : Second Semester School Year: 2018- 2019

Name: ________________________________________ Course/Year&Section:_________________

Proctor: _______________________________________ Exam Score:___________________

I. Key Terms — Match the terms on the left with the definition in the column on the right. (20 points)

1. free trade _____ a. goods and services bought by people in one

2. tariff country that are produced in other countries
3. international specialization _____ b. international trade that is not limited by
4. quota protectionist government policies such as tariffs
5. absolute advantage and quotas
6. reciprocity _____ c. a country’s ability to produce a good using fewer
7. comparative advantage resources than are used by the country it trades
8. General Agreement on Tariffs with
and Trade _____ d. a country’s ability to produce a good at a lower
9. imports opportunity cost than the country with which it
10. customs union trades
11. exports _____ e. exporting a good or service at a price below its
12. European Economic cost of production
13. terms of trade _____ f. a trade agreement to negotiate reductions in tariffs
14. free trade area and other trade barriers
15. dumping _____ g. the use of a country’s resources to produce
16. North American Free Trade specific goods and services
Agreement (NAFTA) _____ h. an organization of European nations committed to
17. European Union economic and political integration
18. World Trade Organization _____ i. a limit on the quantity of a specific good that can
Community (EEC) be imported
19. Trade _____ j. goods and services produced by people in one
20. External trade country that are sold in other countries
_____ k. a set of countries that agree to free trade among
themselves but are free to pursue independent
trade policies with other countries
______ l. an international organization dealing with the
rules of trade between nations
______ m. a free trade area consisting of Canada, the
United States, and Mexico
______ n. a group of countries that agree to free trade
among themselves and a common policy for all
other countries
______ o. a customs union comprised of 16 European
countries
______ p. the amount of a good or service (export) that
must be given up to buy a unit of another good or
service (import)
______ q. a tax on an imported good
______ r. an agreement between countries in which trading
privileges granted by one to the others are the
same as those granted to it by the others
______ s. The exchange of goods and services
______ t. Trade between two countries
I. TRUE OR FALSE: Read each statement below carefully. Write TRUE after the statement if you think a statement it
TRUE. Place FALSE after the statement if you think the statement is FALSE. If you have questions, raise your hand and
ask your proctor. (2 points each)

1) There is general agreement that innovation is the engine of long-run economic growth. T
2) In the most general sense, the long-run monetary benefits of doing business in a country are a function of the
management of the market, the present wealth of consumers in that market, and the likely future wealth of
consumers. F
3) Mores are norms that are seen as central to the functioning of a society and to its social life. T
4) Most of the world's ethical systems are the product of religions. T
5) The main tenant of mercantilism was that it is in a country's best interest to maintain a trade deficit, to import more
than its exports. F
6) The basic message of the theory of comparative advantage is that potential world production is greater with
unrestricted free trade then it is with restricted trade. T
7) The most common political argument for government intervention into international trade policy is that it is
necessary for protecting jobs and industries from foreign competition. T
8) Most economists would probably argue that the best interests of international business are served by a laissez-faire
stance. F
9) The most common political argument for government intervention into international trade policy is that it is
necessary for protecting jobs and industries from foreign competition. T
10) Most economists would probably argue that the best interests of international business are served by a laissez-faire
stance. F
11) Firms involved in international trade exert a strong influence on government policy toward trade. (T)
12) Mercantilists argued that it was in a country's best interests to run a balance-of-trade surplus. They viewed trade as
a lump-sum game, in which one country's gains cause losses for other countries. (F)
13) Foreign direct investment occurs when a firm invests directly in facilities to produce a product in a foreign country.
It also occurs when a firm buys an existing enterprise in a foreign country. (T)
14) High transportation costs and/or tariffs imposed on imports help explain why many firms prefer horizontal FDI or
licensing over exporting. (T)
15) The market imperfections approach suggests that vertical FDI is a way of reducing a firm's exposure to the risks
that arise from investments in specialized assets. (T)

II. MULTIPLE CHOICE. Read each question carefully before answering. Encircle the letter of your choice. If you think
there’s no possible answer, write X. Erasures and any form of alteration means wrong. (50 points)

1. The two main components of globalization are:

a) the globalization of finance and the globalization of accounting
b) the globalization of markets and the globalization of production
c) the globalization of advertising and the globalization of services
d) the standardization of technology and the globalization of markets

2. Which of the following statements is not an accurate depiction of the impact of the World Wide Web on international
trade?
a) the web has been used successfully by large firms, but is of little use to smaller firms
b) the web frees firms from some of the constraints of location, scale, and time zones
c) the web allows businesses to expand their global presence, at a lower cost than ever before
d) the web makes it easier for buyers and sellers to find each other

3. The last major communist power left in the world is:

a) Hungary c) India
b) Brazil d) China

4. The four broad types of economic systems are:
a) market economy, command economy, mixed today. These are:
economy, and state-directed economy
b) market economy, collective economy, production
economy, and political economy
c) collective economy, production economy, mixed
economy, and politically-controlled economy
d) market economy, production economy,
politically-controlled economy, and command
economy
5. There are two main legal traditions found in the world
a) administrative law system and civil law system
b) common law system and mutual law system
c) common law system and civil law system
d) D. interdependent law system and independent law
system
a) community
b) cadre

5. The most widely spoken language in the world is:

a) English c) French
b) German d) Spanish
6. __________ occurs when a government does not attempt to influence through quotas or duties what its citizens
can buy from another country or what they can produce and sell to another country.
a) Clear commerce c) Unrestrained exchange
b) Free trade d) Unencumbered commerce

7. The __________ argues that in many industries, because of substantial economies of scale, there are increasing
returns to specialization.
a) new trade theory c) Heckscher-Ohlin theory
b) product life-cycle d) D. theory of the comparative advantage

8. Tariffs fall into two categories. These are:

a) general tariffs and specific tariffs c) specific tariffs and ad valorem tariffs
b) global tariffs and domestic tariffs d) flexible tariffs and ad valorem tariffs

9. In the context of international trade, __________ is variously defined as selling goods in a foreign market at below
their costs of production, or as selling goods in a foreign market at below their "fair" market value.
a) subsidizing c) slicing
b) slashing d) dumping

10. The __________ was a multilateral agreement whose objective was to liberalize trade by eliminating tariffs,
subsidies, import quotas, and the like.
a) Multinational Agreement on Globalization
b) United Nations Charter on Free Trade
c) World Agreement on Trade and Free Commerce
d) General Agreement on Trade and Tariffs

11. The _______ of FDI refers to the total amount of FDI undertaken over a given time period (normally a year).
a) stock c) flow
b) register d) portfolio

12. A(n) __________ is an industry composed of a limited number of large firms (i.e. an industry in which four firms
control 80 percent of a domestic market).
a) syndicate c) cartel
b) oligopoly d) monopoly

13. __________ is essentially the service-industry version of licensing - although it normally involves much longer-term
commitments than licensing.
a) Franchising c) Outsourcing
b) Exporting d) FDI

14. A distinctive aspect of __________ is the tendency to aggressively court FDI believed to be in the national interest
by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants.
a) the dogmatic view c) the radical view
b) the conservative view d) pragmatic nationalism

15. When a German consumer purchases a Canadian chain saw, this transaction is recorded as a:
a) debit on the German capital account c) debit on the German current account
b) credit on the Canadian current account d) credit on the Canadian capital account

16. Which of the following is not a policy designed to encourage FDI?

a) the manipulation of tax rules to try to c) tax incentives
encourage investment at home d) D. foreign risk insurance
b) capital assistance

17. Which of the following systems is a part of the political economy?

a) Religious system c) Demographic system
b) Value system d) Legal system

18. Which of the following statements is true about political systems?

a) The political system of a country is independent of its economic and legal systems.
b) The political system of a country is of no importance to international business.
c) It is not possible to have democratic societies that emphasize a mix of collectivism and
individualism.
d) It is possible to have totalitarian societies that are not collectivist.
24. The country of Maracon downplays individual goals and emphasizes the collective goals of the country. Maracon’s
political system is most likely an example of
a) democracy c) individualism
b) collectivism d) capitalism

25. In the country of Normian Republic, an individual's right to own land is restricted to a large extent on the basis
that it runs counter to "the common good." In this context, which of the following is most likely to be the political
system adopted by Normian Republic?
a) individualism c) collectivism
b) democracy d) capitalism

26. For centuries, Somariya was a capitalist country where the rich became richer and the poor became poor. A group
calling itself the “Change Brotherhood” sought to convert Somariya into a socialist country by democratic means. The
“Change Brotherhood” is an example of
a) communists c) republicans
b) democrats d) social democrats

27. International Trade is most likely to generate short-term unemployment in:

a) Industries in which there are neither imports nor exports
b) Import-competing industries
c) Industries that sell to domestic and foreign buyers.
d) Industries that sell to only foreign buyers

28. Nations conduct international trade because:

a) Some nations prefer to produce one thing while others produce other things.
b) Resources are not equally distributed among all trading nations.
c) Trade enhances opportunities to accumulate profits.
d) Interest rates are not identical in all trading nations

29. Most international trade takes place

a) among the industrially developed countries, which trade primarily with each other
b) between the industrially developed countries, which export, and the less-developed countries (LDCs), which import
c) between the LDCs who export raw materials and the industrialized countries which import raw materials
d) among the LDCs because they are mostly young, dynamic economies, such as Korea and Hong Kong

30. One way for a small developing economy to benefit rapidly from a freer trade environment is to
a) make certain that tariffs remain high on imports that compete with domestically- produced goods
b) impose strict quotas on imports that compete with domestically- produced goods
c) encourage foreign multinationals to enter the economy to speed capital formation and spur exports
d) use tax revenues to subsidize exports

ESSAY QUESTIONS:

1. How have changes in technology contributed to the globalization of markets and production? Would the
globalization of production and markets have been possible without these technological changes?

2. How might the Internet and the associated World Wide Web affect international business activity and the
globalization of the world economy?

3.

Prepared by: Noted by:

BRIAN S. INCOGNITO, MBA CB RONIE E. SUGAROL, MPBM

Program Coordinator, CBA Dean, Business Education/ / School Overseer

Reviewed by: Approved by:

DAN PAOLO E. RAMOS, MSHM PRESENITA C. AGUON, PhD.

QA for Academics and Administration Vice President for Academic Affairs