_____ 1. Which of the following best defines “International Business?”
a. It includes all economic flows between two or more countries.
b. It includes all private economic flows between two or more countries.
c. It includes all business transactions involving two or more countries, whether the transactions are conducted by private or governmental organizations.
d. It includes all business transactions involving two or more countries, provided that the transactions are conducted by private organizations.
_____ 2. An advantage that an international company may have over a purely domestic one is that it
a. can take advantage more easily of cheaper resources to use in production
b. can secure cheaper rates from transportation companies
c. can more easily control its operating units
d will deal with fewer government regulations
_____ 3. Why do firms face increasing global competition?
a. Advancement in transport and communications make people more aware of business developments elsewhere and enable them to take advantage of opportunities.
b. There are fewer wars and insurrections to interrupt business than in earlier periods of history.
c. More countries now publish balance of payment accounts
_____ 4. The term “favorable balance of trade” means that a country
a. exports labor intensive products and imports capital intensive products
b. imports raw materials and exports finished goods
c. exports more than it imports
d. imports more than it exports
_____ 5. The theory of absolute advantage is based on the assumptions that
a. different countries produce different goods more efficiently than others
b. prices of raw materials rise generally more slowly than prices of manufactured goods
c. some countries must export more than they import
__B__ 6. The ability of countries like Sri Lanka to grow tea more efficiently than the United States is most likely due to
a. acquired advantage
b. natural advantage
c. dependency
_____ 7. The theory of comparative advantage holds that a country will gain from trade
a. even though it can produce al goods more efficiently than other countries
b. when it exports products for which it has an acquired advantage and imports products for which another country has a natural advantage
c. if it manages to export more than it imports
_____ 8. In addition to protection, tariffs serve to
a. influence international transportation routes
b. subsidize exports
c. subsidize imports
d. generate revenues
_____ 9. Aggressive reasons for international business firms to go abroad include all of the following except:
a. open up new markets
b. protect foreign markets
c. acquire products for the home market
d. obtain greater profits
e. satisfy management’s desire for expansion
_____ 10. The number of units of one currency that must be given to acquire one unit of another currency is
a. the balance of trade
b. usually low in inflationary countries
c. the exchange rate
d. a function of economic rather than political variables
_____ 11. The foreign production operations of the firm may not be carried out by
a. exporting
b. Licensing
c. Joint Ventures
d. Contract Manufacturing
_____ 12. The most complete tool for regulation of foreign trade is:
a. Tariffs
b. Exchange controls
c. Import Quotas
_____ 13. Companies import for a number of different reasons. Which of the following is not one of the common reasons?
a. Get cheaper supplies
b. Acquire products to complements their sales’ lines
c. Take advantage of domestic tax incentives for importing
d. Spread the supply risk (Minimize risk of non supply)
_____ 14. Which of the following is NOT a reason often given for the imposition of import restrictions?
a. A desire for more income for the government
b. Reap more of the gains from trade vis a vis other countries
c. To satisfy the needs of some group in society
d. To attain a more efficient utilization of resources
_____ 15. Trade restrictions are used to
a. raise prices in foreign markets
b. raise prices in the domestic market
c. lower prices in the domestic market
d. All of the above
_____ 16. In addition to setting the total amount to be traded, quotas are sometimes also allocated on the basis of
a. price b. country c. quality d. currency of payment
_____ 17. A firm that buys merchandise from manufacturers for international distribution is
a. foreign freight forwarder b. a consortium bank
c. an export management company d. a maquiladora
_____ 18. A firm that normally operates on a commission basis rather than taking title to the product in an export sale is
a. an agent b. a foreign distributor c. an outsourcer
_____ 19. Alleviating excess production is a strategy for a firm to become involved in
a. exporting b. importing c. contract manufacturing
_____ 20. The truly experiences firm with a global orientation will usually make use of
a. licensing arrangement b. import and/or export operations
c. foreign investment d. most international operating forms worldwide
_____ 21. As firms gain more experience internationally, there is usually a tendency for them to
a. move from direct to indirect handling of the foreign operations
b. locate a larger portion of their resources at home
c. handle their foreign operations through fewer types of operating forms
d. move from indirect to direct handling of their foreign operations
_____ 22. Foreign assembly operations have an advantage over complete local manufacturing in that
a. a firm can control the technology and key components at home
b. there are lower marketing costs
c. they offer greater marketing penetration
d. all of the above
_____ 23. The International Monetary Fund
a. is concerned with providing financing infrastructure development in developing countries
b. focuses on problems of Second World rather than Third World countries
c. provides support for countries suffering severe balance of payment problems
d. all of the above
_____ 24. The World Bank
a. is concerned with providing financing for infrastructure development in developing countries.
b. focuses on problems of Second World rather than Third World countries.
c. provides support for countries suffering severe balance of payment problems.
d. all of the above
_____ 25. A balance of trade surplus occurs when
a. imports exceed exports
b. imports are paid for by foreign aid
c. exports exceed imports
d. exports and imports are equal, but unrequited transfers are positive
_____26. A hard currency
a. is relatively difficult to convert
b. operates outside government control
c. is generally convertible to residents and non residents
d. is generally convertible only to non residents
_____ 27. A currency that residents of a country are able to exchange for currencies of other countries is a
a. black market currency b. convertible currency
c. soft currency d. floating currency
_____ 28. If an exchange rate is quoted for delivery within two business days, it is the
a. forward rate b. spot rate c. direct quote d. cross rate
_____ 29. The forward exchange rate
a. does not have to be honored if the future spot rate is significantly different from the forward rate
b. is the exchange rate quoted by an exporter to an importer for the price of products sold in the future
c. is the rate quoted for delivery of foreign currency in the future
d. is the same as the future spot rate
_____ 30. The method by which governments require that all foreign exchange transactions be regulated and controlled by application is called
a. multiple exchange rates b. import deposit requirements
c. parallel controls d. licensing
_____ 31. In a freely fluctuating exchange rate system, if the inflation in
Country A rises in relation to inflation in Country B, what will the currency in country A do in relation to the currency in country B?
a. It will strengthen b. It will weaken c. It will stay the same
_____ 32. When the Brazilian Real changes from 1000 Real per U.S. Dollar to 1500 Real per U.S. Dollar, the Real is
a. devalued b. revalued c. unchanged, unless the government intervenes
d. strong
_____ 33. A balance of trade surplus occurs when
a. imports exceed exports
b. imports are paid for by foreign aid
c. exports exceed imports
d. exports and imports are equal, but unrequited transfers are positive
Part 2 – True or False (7 points)
_____ 34. Political influences on trade can be seen from an examination of world trade patterns.
_____ 35. Comprehensive exchange control always means that foreign exchange is in short supply.
_____ 36. Population figures themselves are usually a sufficient guide to market size.
_____ 37. The climate may have an effect on people in their roles as consumers and workers.
_____ 38. Generally there is no relationship between the level of economic development and the infrastructure.
_____ 39. A trade surplus occurs when a nation’s imports exceed its exports.
_____ 40. When the U.S. Dollar is very strong against major foreign currencies, foreign made products are cheaper and more attractive to Americans.
Part 3 – Exchange Rate Exercise (20 points)
A small Canadian company has contracted to purchase 100,000 cases of balloons at 10 Euros per case from a German company. The Canadians have agreed to pay in Euro’s. The Canadians have also agreed to sell the balloons to a U.S. company for US$ 5.50 per case but plans to convert these revenues to Canadian Dollars. The Canadian company estimates its marginal costs (warehousing, travel and so on) at C$ 0.60 per case of balloons.
Exchange rates at the time of signing the agreements are as follows:
Canadian $1 = US$ 0.80
Canadian $1 = Euro 1.85
1. Is this a good deal for the Canadian company? Why or Why Not? Compute the profit or loss per case for the Canadian Company.
2. What impact would a devaluation of the U.S. Dollar relative to the Canadian Dollar have on the Canadian company’s profits?
3. What impact would a devaluation of the Euro relative to the Canadian Dollar have on the Canadian company’s profits?
4. If exchange rates changed to the following, what impact would this have on the Canadian company’s profits?
Canadian $1 = US$.90
Canadian $1 = Euro 1.00
Part 4 – Essays (Answer all 4 questions 10 points/each)
1. List and discuss (compare and contrast) the various methods by which a firm may engage in international business (as discussed in class). Your response should include some of the advantages and disadvantages of each of the various options.
2. It seems that free and unrestricted international trade in which each nation produces and exports products for which it has a comparative advantage will enable everyone to have a higher level of living. Why, then, does every country have import duty restrictions?
3. What influence would a fluctuation in an exchange rate have on the level of trade? What impact would a strong U.S. dollar versus the currency of another country have on the level of trade. What would the advantages and disadvantages be of a strong dollar. What impact would a weak U.S. Dollar?
4. What is culture and what aspects of culture are important to the international business? List some examples to show their importance in work situations.
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