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7 A measure of value of final production that
occurs within a country's borders without
regard to whether the production is done
by domestic or foreign factors of production
is commonly referred to as:

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Y Y Analyze each of the following transactionsY Indicate
whether it generates a credit/debit and the US BOP account
balance it affects ( =" =# =   )
Y he Chinese bought $45m worth of US beefY
Y An American bought a hotel in Japan for $55m
3Y British investors bought $30m of US bondsY
4Y Americans bought $60m worth of Iraqi oilY
5Y Microsoft sold $3m worth of software to Mexico
6Y Japanese visitors spent $5m at Orlando heme Parks
7Y he French invested $5m in US CDs
8Y US residents gave $ 5m to their relatives in Mexico
9Y Sunrust paid $5m in interest to Italian investors
0Y US doctors received $ 0m in service fees from Brazil
aY Identify the theory that points to international business
engagement as a natural stage in the evolution of new
products from introduction to growth, maturity and
eventual decline
bY Name the theory that identifies non-transferability of
resources as an explanation for international business
cY Name a theory that identifies risk diversification as the
motivation for international businessY
dY Which theory identifies specialization as a motivation
for international businessY
eY Firms engage in global exploitation of their proprietary
technologies while protecting them from third partiesY
his reflects the theory of --- ?
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3Y7 When a company's product is technologically
complex, it is most apt to handle the foreign
expansion of that product through:

aY LicensingY
bY urnkey operationsY
cY Its own facilities/subsidiaries
dY Joint venturesY
eY Management contracts
3Y8 Which of the following theories identifies
specialization as the driving force for
international business activities:

aY Product life cycle theoryY

bY heory of diversificationY
cY heory of comparative advantageY
dY heory of absolute advantageY
eY Both c and d
3Y9 Under mercantilism, central governments
sought to influence trade by:

aY Setting bilateral trade agreements

with other countriesY
bY Limiting exportsY
cY Encouraging the development of
manufacturing in coloniesY
dY Limiting imports and subsidizing
or encouraging exportsY
3Y 0Y Adam Smith in ³he Wealth of Nations´
stated that the real wealth of a country consists of:

aY he goods and services available to its citizens

bY Its reserves
cY Its holdings of treasure - gold, silver, YY
dY he capacity as measured by its natural and
acquired advantagesY
eY he number territories it owns
* || he fact that most world trade today
consists of manufactured goods and services
is an indication that the production location
is due largely to:

aY Labor costsY
bY Natural advantagesY
cY Acquired advantagesY
dY Comparative advantageY
eY Location advantages
* | >       

aY Produce different components or

different portions of their product line
in different parts of the worldY
bY Are characterized by ethnocentric
management practicesY
cY Incur very high costs of production for
their most profitable productsY
dY ire engineers to analyze the entire
production process and institute a total
quality management (M) programY
* * (     

aY Earn income from the sale of the

bY Earn income from the sale of the
products of the technologyY
cY License it to others for profitY
dY Protect it from encroachment by other firmsY
eY Both b and d above
* |/ 2           

aY Of the negative effect on the balance of tradeY

bY Foreign companies may make decisions
that conflict with the national interests
of the host countryY
cY Unemployment usually rises as foreign
the economy
dY Foreign investment impairs governments'
ability to taxY
* |,       

aY as different demand intensities in different

bY as higher transport action costs in some
parts of the world than in othersY
cY Might be produced by different methodsY
dY Is priced differently in different countriesY
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3Y 7Y Comparative advantage theory holds that there is a
basis for trade between countries A and B when B:



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4Y5 Which of the following is most likely to cause
a strain on a joint venture ?

aY he partners have similar corporate culturesY

bY he partners' contributions differ in relation to the
benefits they receive from the ventureY
cY he partners have either complementary or the same
objectives for the joint ventureY
dY Both partners agree that day-to-day operating control
will be ceded to one of themY
/ 7     D    

aY Partner is dissatisfied with the ventureY

bY Of government expropriationY
cY hey become too big to manageY
dY Partners replace them with managementsY
/ : (   
. !

aY ConstructionY
bY Industrial equipment manufactureY
cY Airline manufactureY
dY Security systems
4Y8Y 0         

aY he granting of rights on intangible property in

return for royaltiesY
bY An agreement for the use of a trademark and
assistance with business operationsY
cY A contract for the construction of operating facilities
for a feeY
dY An agreement to manage a business for a feeY
4Y9Y ______are the means by which a company
may transfer talent by using part of its
management personnel to assist a foreign
company for a specified period for a feeY

aY Management contracts
bY urnkey operationsY
cY Joint venturesY
dY Equity alliance
4Y 0Y A turnkey operation is:

aY he granting of rights on intangible property in

return for royaltiesY
bY An agreement to manage a business for a feeY
cY An agreement for the use of trade mark and
assistance with business operationsY
dY A contract for the construction of operating
facilities for a feeY
4Y Y Franchising can be defined as:

aY An agreement for the use of a trademark and

assistance with business operationsY
bY A company owned by two other companiesY
cY An agreement to manage a business for a feeY
dY A contract for the construction of operating
facilities for a feeY
4Y Y A licensing agreement is a contract between
the licensor and the licensee, where the
licensee pays a royalty to the licensor in
exchange for the granting of the:

aY ights to sell intangible property in the licensor's

home countryY
bY ights on intangible property for a specified periodY
cY ights on tangible property for a specified periodY
dY ights on tangible property for an indefinite periodY
4Y 3Y All of the following are examples of intangible
property that is commonly licensed except:

aY Patents, inventions, and formulas

bY rademarks, trade names, and brand names
cY Copyrights and literary and artistic compositions
dY Management contracts, turnkey operations, and
swap contractsY
4Y 4Y For companies that are short on resources
for expansion, international collaborative
arrangements may:
aY Free up domestic resources that can then be
shifted abroad
bY Enable companies to produce with fewer resources
because of hiring more efficient management
cY Allow a company to expand internationally while
using most of its scare resources domestically
dY Allow a company to expand domestically while
using most of its scare resources internationally
4Y 5Y he transfer of technology is usually cheaper
when transferred:

aY o an unrelated company
bY Within the existing corporate family (internalization)
cY From parent company to parent company
dY o a government entity
4Y 6Y he more a company depends on
international collaborative arrangements:

aY he less likely it is to lose control over operations

bY he less likely it is to operate abroad
cY he more likely it is to lose control over operations
dY he more likely it is to use its headquarters
personnel to manage operations abroad
4Y 7Y Which of the following best describes a
motive for collaborative arrangements that
would usually apply only to international

aY Secure horizontal linkages

bY Conform with laws requiring ownership sharing
cY Specializing in one¶s own competencies
dY Secure vertical linkage
4Y 8Y A company may minimize its resource
commitments while still expanding abroad by
engaging in:

aY Internalization
bY Collaborative arrangement
cY Multidomestic practice
dY Foreign direct investment
4Y 9Y Which of the following basic methods of
payments is the least secure in term of security
to the exporter?

aY Letter of credit
bY Draft of bill of exchange
cY Open account
dY Cash in advance
4Y0Y he «YY, Japanese equivalent word for
trading company can trace its roots back to
the late nineteenth century, when Japan
embarked on an aggressive modernization

aY Chaebol
bY Sogo shosha
cY Cooperatives
dY Maquiladora
4Y Y Korean trading companies are part of the
large Korean business groups called:

aY Sogo Shosha
bY Cooperatives
cY Maquiladora
dY Chaebol
4YY A document that is a receipt for goods
delivered to the common carrier for
transportation, a contract for the services
rendered by the carriers, and a document of
title is known as a /an:

aY Export license
bY Commercial invoice
cY Consular invoice
 Bill of lading
4Y3Y he document that indicates where products
originate so that the applicable specific tariff
schedule can be determined is called:

aY Commercial invoice
bY Shipper¶s export declaration
cY Bill of lading
dY Certificate of origin
4Y4Y Which of the following is typically true of an
Export Management Company (EMC) ?

aY Most EMCs the United States are large,

representing a wide range of products, and a large
number of companiesY
bY It is usually a division of a manufacturing company
cY It operates on a contractual basis for a manufacturer
by helping obtain orders for its clients¶ productY
dY It usually takes title to products rather than acts as
4Y5Y Exporter use an export management
company as part of:

aY A direct selling strategy

bY isk enhancement strategy
cY An indirect selling strategy
dY Forwarding strategy
4Y6Y As a company designs its export strategy,
it must:

aY Avoid becoming entangled in government agencies

as they rarely provide help
bY Determine if it has the production capacity to
deliver the product
cY Use UYSY custom to determine how to get products
to foreign market
dY Identify several markets in which to concentrate its
efforts so that it does not put all its eggs in a few baskets
4Y7Y A UYSY government agency that provides
service assistance to companies interested in
export is:

aY he Department of Defense

bY UYSY Customs
cY he Export rade Agency
dY he International rade Administration
eY he Ministry of rade and Industry (MII)
4Y8Y ____ is the percentage of total revenues
coming from exports:

aY Import intensity
bY Export intensity
cY Manufacturing intensity
dY Alliance intensity
/ ?   

aY Depends on whether or not the company

establishes a international division
bY Is usually higher for smaller companies, as they
are less preoccupied with the domestic market and
make decisions faster
cY Is independent of the size of the company
dY Increases with the size of the company
4Y30Y A major pitfall in exporting is:

aY hat managers tend to increase their foreign travel

experience and interest in foreign culture, leading
to an increase in costs
bY An over-commitment by top management to
exporting, which tends to get too many people
cY An unwillingness to modify products to meet other
countries¶ regulations or cultural preferences
dY An over-reliance on exports when the domestic
market booms
4Y3 Y All of the following are mistakes companies
new to exporting most frequently make except

aY Failure to obtain qualified export counseling and to

develop a master international marketing plan before
starting an export business
bY Insufficient commitment by top management to
overcome the initial difficulties and financial
requirements of exporting
cY Neglecting domestic business when export business booms
dY Failure to print service, sale, and warranty messages in
locally-understood language
,| Based on the theory that exchange rates are
determined by current international flows
between countries, if the domestic income
level rises faster than foreign income levels,
the domestic currency will:

aY 0ppreciate against foreign currenciesY

bY Depreciate against foreign currenciesY
cY Fluctuate within narrower bandsY
dY Become inconvertibleY
eY Be unaffected by national income differences
,  #   

appreciate against foreign currencies

bY depreciate against foreign currencies
cY be unaffected by real interest rate differences
dY fluctuate within wider bands
eY become inconvertible
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aY $ Y5437
bY $3Y000
cY $ Y4575
dY none of the above

aY UYSY DollarY
bY Japanese YenY
cY he British Pound
dY he SD
eY he Euro
fY None of the above
,, 0     
% &    |-- |-,  
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  . + - ! 0   

aY the mark is worth less dollarsY
bY the mark is worth more dollarsY
cY the mark is worth the same in dollarsY
dY the purchasing parity theory deals with
interest rates and not exchange rates
,7 0 

aY he International Fisher Equation

bY Purchasing Power ParityY
cY he Fisher EffectY
dY Interest ate ParityY
eY Inflation heory
,: 0   &  0 

aY the UY SY dollar was allowed to float freelyY

bY the UYSY dollar was revalued against gold
and most major currenciesY
cY exchange rate flexibility was widenedY
dY countries resorted to trade restrictions to
reduce trade deficits rather than rely on
changes in currency valuesY
, <"   ('3  

aY Pegged at a certain value and allowed to fluctuate

within a Y5 percent bandY
bY Not allowed to change value rapidly due to the
neutralizing action of governmentsY
cY Currencies that float more or less independentlyY
dY Not allowed to be influenced by government actionY
,? #   0     


aY fixed exchange rates whereby each IMF

member country established a par value
of is currency based on goldY
bY fixed exchange rates that were allowed to
vary within Y5 percent of a fixed par valueY
cY variable exchange rates, determined by
market forces
dY fixed, but adjustable exchange rates that were
allowed to vary within +/- percent of par
values established in terms of the dollar which
was fixed in goldY
, |- 0    #   0 

aY the Special Drawing ight (SD) became the

international unit of account
bY the dollar became the world¶s benchmark for
trading currencyY
cY the United States was forced to redeem dollars
for goldY
dY an international system of floating exchange
rates was establishedY
, || & )  >   

aY in GoldY
bY by a basket of sixteen currenciesY
cY by a basket of five currencies and goldY
dY by a basket of five currenciesY
eY by UYSY dollar and goldY
fY by a basket of four currenciesY
, | (' 6        


aY differences in domestic and foreign nominal interest

rates equal differences in exchange ratesY
bY differences in domestic and foreign inflation rates
equal differences in domestic and foreign nominal
interest ratesY
cY the International Fisher Equation holds
dY the Purchasing power Parity holds
eY the Law of One Price holds
, |*0  
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BG+? -      
BG+: :*% &        

aY he ong Kong dollar is undervalued

bY he ong Kong dollar is overvalued
cY he ong Kong dollar is correctly valued
dY You can buy a Big Mac for more UYSY dollars in
ong Kong than you can in UYSY
eY Purchasing Power Parity holds true between
K$ and US$Y
, |/0   #   + *- 
% &  H| <| % G (  
   +=HI| /7.    

aY Undervalued relative to the dollar

bY Overvalued relative to the dollar
cY Correctly valued relative to the dollar
dY It costs more in dollars to buy Big Mac in the UYKY
eY Both b and d
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  .     .  
 2    .  .  
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Y International business has recently grown at such
a rapid pace because of:

aY Stricter government policies on cross-border movementsY

bY Development of institutions to support / facilitate tradeY
cY Decreasing global competitionY
dY Companies¶ increased concerns with terrorismY
3Y echnology has had a tremendous impact on
international business in all of the following
ways except:

aY the demand for new products and services has

bY the number of international business transactions has
cY the managers¶ ability to control foreign operations
has been improved
dY it has raised the cost of doing business abroadY
4Y Which of the following best describes the mode of
international business used by most companies?

aY mixed ventures
bY foreign direct investment
cY joint venturesY
dY exporting and importing
5Y «««««« are tangible products shipped
out of a countryY

aY Merchandise exports
bY Merchandise imports
cY Service exports
dY Service imports
eY Current accounts
6Y Which of the following best describes the two
form of foreign investment?

aY Direct and portfolio

bY Indirect and common
cY Direct and common
dY Mixed and indirect
eY Direct and indirect
7Y A company that takes a global approach to
foreign markets and productions is called a:

aY Multinational enterpriseY
bY Multi±global companyY
cY Cross±transnational companyY
dY Mixed venture companyY
eY Unilateral enterprise
8Y At an early stage of international involvement,
««« require (s) the least formal commitment
and pose the least risk to the company¶s resourcesY

aY foreign direct investment

bY joint ventures
cY importing and exporting
dY wholly owned subsidiaries
9Y he «««« records a country¶s international
economic transactions within a given period of

aY balance of payments
bY surplus of payments
cY deficit of payments
dY International reserves
0Y he sale of state ± owned enterprises to the
private domestic or foreign sector is:

aY internalizationY
bY externalizationY
cY privatization
dY expropriation
Y A favorable balance of trade indicates which of
the following?

aY A country is importing more than it is exportingY

bY he country is importing products and services it
cannot produce itselfY
cY A country is exporting more than it is importing
dY he country is growing economicallyY
Y According to the theory of absolute advantage,
specialization enables countries to increase their
efficiency for all of the following reasons except:

aY labor can become more skilled by repeating the same

bY developing countries reduce their dependence on
former colonizing countries
cY labor does not lose time by switching from the
production of one kind of product to another
dY long production runs provide incentives for the
development of more effective working methods
3Y An assumption that underlies theories of
specialization in international trade is that:

Countries without an absolute advantage in product

should specialize in transporting productsY
bY esources are domestically mobile from the
production of one product to another
cY esources are internationally mobile from the
production of one product to another
dY Producers and countries have objectives other than
economic efficiencyY
4Y If it costs more to transport goods internationally
than is saved through specialization, then:

aY he advantages of trade are positively correlatedY

bY Countries will import transportation servicesY
cY he advantages of trade are negatedY
dY Companies will divert resources to the development
of more efficient transportationY
5Y Bigger countries, as opposed to smaller
countries, tend to:

aY Export a larger portion of their output and import

a larger part of their consumptionY
bY ave lower transport costs for foreign tradeY
cY ave less variety of resourcesY
dY Export a smaller portion of output and import a
smaller part of consumptionY
6Y According to which of the following theories would
countries with large land areas be more apt to have
varied climates and an assortment of natural
resources than smaller countries would, thus making
them more self±sufficient?

aY country size
bY mercantilism
cY absolute advantage
dY comparative advantage
7Y According to the «««««Y, factors in
relative abundance are cheaper than factors
in relative scarcityY

aY theory of mercantilism
bY theory of absolute advantage
cY factor proportions theory
dY theory of comparative advantage
eY internalization theory
8Y Which of the following theories indicates that
differences in countries¶ endowments of labor
compared to their endowments of land or capital
explain differences in the cost of production factors?

aY mercantilism
bY absolute advantage
cY comparative advantage
dY factor proportions
eY internalization theory
9Y Factor±proportions theory holds that if labor
were abundant in comparison to land and
capital, then:

aY Labor costs would be low relative to land and

capitol costs
bY Labor costs would be high relative to land and
capital costsY
cY Labor has immigrated from abroadY
dY It is the result of using labor saving technologyY
0Y he factor±proportions analysis becomes more
complicated when:

aY labor is homogeneous
bY the same products can be produced by different
cY product life cycles are shortY
dY companies depend primarily on export marketsY
 Y Most new products are produced in and
exported from:

aY high±income industrial countriesY

bY middle±income developing countriesY
cY emerging economies
dY developing countriesY
eY economies in transition
Y Almost all new technology that results in new
products and production methods originates in
which of the following?

aY developing countries
bY industrial countries
cY emerging economies
dY large countries
3Y According to the ««««« the production for
many products moves from one country to another
as they go from introduction through declineY

aY factor proportions theory

bY theory of mercantilism
cY theory of absolute advantage
dY product life cycle theory
4Y According to the product life cycle theory,
developing countries have their best
production advantage in:

aY ighly standardized products

bY New productsY
cY Products in their growth stageY
dY Products with rapidly changing technologiesY
5Y he introduction stage of the international
product life cycle is marked by all of the
following except:

aY Innovation in response to observed need

bY Innovating country becoming the net importer
cY Exporting by the innovative country
dY Evolving product characteristics
6Y he production of a product in the introduction
stage of the international product life cycle is
most likely to occur in:

aY developing countriesY
bY emerging economiesY
cY industrial countries
dY large countriesY
7Y Most trade theories emphasize that differences
among countries create a basis for tradeY hese
differences are base on all of the following

aY climate
bY factor endowment
cY innovative capability
dY country culture
8Y he fact that so much trade takes place among
industrial countries is due to the growing
importance of «YY as opposed to «YY in world

aY acquire advantage, natural advantage

bY natural advantage, acquired advantage
cY absolute advantage, acquired advantage
dY neo-mercantilism, mercantilism
9Y he «YY says that once a company has developed
a new product in response to observed market
conditions in the home market, it will turn to
markets it sees as most similar to those at homeY

aY factor-proportions theory
bY theory of mercantilism
cY country-similarity theory
dY theory of absolute advantage
30Y In a situation of «««, a country would
have no reliance on other countries for any
goods, services, or technologiesY

aY independence
bY dependence
cY interdependence
dY unilateralism
eY socialism
3 Y Which of the following was organized to
promote exchange rate stability and facilitate the
international flow of currencies?

aY he International Monetary Fund

bY he World Bank
cY he Federal eserve Bank
dY he Bank for International Settlements
eY he International Finance Corporation
3Y Which of the following is not a major objective
of the International Monetary Fund?

aY to facilitate the expansion and balanced growth of

international trade
bY to regulate inflation rates among under developed
cY to promote exchange-rate stability
dY to establish a multilateral system of payments
33Y he ««Y lends money to countries to help
ease balance of payments difficultiesY

aY United nations
bY World Bank
cY Federal eserve Bank
dY International Monetary Fund
eY Bank for International Settlements
34Y Which of the following is likely to exist when
people are willing to pay more for dollars than
the official rate?

aY gray market
bY black market
cY gold market
dY exchange market
35Y Which of the following is the central bank of
the United States?

aY the Federal eserve Bank

bY the Bank of AmericaY
cY the Bank for International Settlement
dY the Central Bank of Washington
36Y he « is the most widely used currency as a
central bank reserve asset, with about 68% of
the total in 00 Y

aY Euro
bY Japanese yen
cY British pound
dY UYSY dollar
37Y Which of the following best describes the type
of currencies that respond to supply-and-
demand condition free from government

aY currencies that are pegged to stronger currencies

bY currencies that float freely
cY currencies that are fixed
dY currencies that are tied to treasury bills
38Y A strengthening of Japanese yen would result in
which of the following outcomes?

aY igher unemployment in Japanese import industry

bY Greater competition in Japanese domestic market
cY igher unemployment in Japanese export industry
dY igher employment in Japanese export industry
eY Both b and cY
39Y A strengthening of UYSY real interest rate
relative to Japanese rate would result in a:

aY Strengthening of the dollar and a weakening of the yen

bY Strengthening of the yen and weakening of the dollar
cY Strengthening of the Mexican peso in comparison to
the Japanese yen
dY Strengthening of the Japanese yen in comparison to
the Mexican peso
40Y A drop in UYSY real interest rate relative to
European rate would result in a:

aY Strengthening of the dollar and weakening of the euro

bY A weakening of the dollar and a strengthening of the euro
cY No change in the dollar or the euro
dY A weakening of both the dollar and the euro
4 Y Which of the following theories of exchange rate
determination is based on relative inflation rates
between countries?

aY he Fisher Effect

bY he International Fisher effect
cY he Purchasing Power Parity
dY he Interest ate Parity heory
4Y he «YY is the real interest rate plus inflation:

aY Compound interest rate

bY Prime interest rate
cY Global interest rate
dY Nominal interest rate
43Y Because real interest rates are equalized among
countries by arbitrage, which of the following is

aY Country with higher interest rate should have higher

bY he country with the higher interest rate should have
lower inflation
cY he country with the higher interest rate should have
lower taxes
dY he country with the higher interest rate should have
higher tax
45Y he theory that the interest rate differential is an
unbiased predictor of future changes in the spot
exchange rate is called the:

aY Interest ate Parity

bY Purchasing Power Parity
cY International Fisher Effect
dY Foreign Exchange Parity
46Y «YYY forecasting method uses trends/changes in
macro economic variables to predict future
exchange ratesY

aY echnical
bY Fundamental
cY Exponential
dY Multidimensional
47Y Which of the following types of forecasting
methods uses past trends in exchange rate
movement to predict future trends?

aY Fundamental
bY Exponential
cY echnical
dY Market-based
eY andom walk
48Y he strengthening of a country¶s currency value
could result in which of the following?

aY Create a problems for importers

bY aise the inflation rate
cY Create problems for exporters
dY aise the tax rate
49Y Exchange rates can affect financial decisions in
all of the following areas except:

aY Increasing productivity among workers

bY Sourcing financial resources
cY emittance of funds across national borders
dY eporting of financial results
50Y he purchase of UYSY Commercial Paper by a
French investor shows up on the UYSY BOP as:

aY A credit on trade accountY

bY A credit on long-term capital accountY
cY A debit on current accountY
dY A debit on short-term capital accountY
eY A credit on short-term capital accountY