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Test Bank for International Business: The New Realities, 5th Edition

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    1 International Business: The New Realities, 5e (Cavusgil) Chapter 1 Introduction: What Is International Business? 1) International business is defined as the performance of ________ activities by firms across national borders. A) marketing and fiduciary B) trade and investment C) finance and operational D) accounting and auditing Answer: B Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 2) International business is also known as which of the following? A) born global business B) laissez - faire business C) cross - border business D) multi - hub business Answer: C Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Applic ation of Knowledge 3) Which of the following best characterizes the development of international business? A) It has existed in some form for centuries. B) It first started in Europe. C) It developed after the year 2000. D) Its development has slowed in r ecent years. Answer: A Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 4) A few decades ago, international business was largely the domain of ________. A) service firms B) multinational firms C) smaller firms D) all of the these Answer: B Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge

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    2 5) Which of the following is another term for impor ting? A) capital investment B) supply side development C) global sourcing D) unilateral procurement Answer: C Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 6) Which of the following is subject to importing and exporting? A) both finished products and intermediate goods B) finished products but not intermediate goods C) intermediate goods but not raw materials D) raw materials and components, but not finished products An swer: A Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 7) ________ refers to the transfer of assets to another country or the acquisition of assets in that country. A) International investment B) International trade C) Importing D) Exporting Answer: A Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 8) Each of the following represents a factor of production EXCEPT ________. A) manufacturing infrastructure B) technology C) government regulations D) managerial talent Answer: C Diff: 2: Moderate Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: A pplication of Knowledge

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    3 9) Which of the following would NOT be considered an example of foreign direct investment (FDI)? A) cross - border purchase of a textile plant B) cross - border purchase of stocks C) purchase of capital assets of a foreign company D) purchase of foreign land for business operations Answer: B Diff: 2: Moderate Skill: Application Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 10) ________ is the total value of products and servic es produced in a country over the course of a year. A) GDP B) CAD C) FDI D) PPP Answer: A Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 11) Which of the following best explains why export growth has outpaced the growth of domestic production during the last few decades? A) Both world exports and domestic production have grown significantly over the past 30 years. B) The cost to import products is generally higher than t he cost to produce domestic products. C) Growth in gross domestic product in most countries has steadily increased since 1970. D) Advanced economies now source many of their consumable products from low - cost manufacturing nations. Answer: D Diff: 3: Hard Skill: Critical Thinking Objective: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinking

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    4 12) Each of the following has contributed to the rapid growth of trade among nations EXCEPT ________. A) the growth of emerging ma rket countries B) the increase in trade barriers C) advances in information technology D) the liberalization of markets Answer: B Diff: 2: Moderate Skill: Application Objective: 1 - 1: Describe the key concepts in international business AACSB: Applicati on of Knowledge Freehold Investment Corp. (Scenario) Dan Freehold and his business partner, Bethany Quinn, are successful investors engaged in a variety of enterprises. Recently Dan and Bethany have decided to expand their foreign investing operations. Th ey hold a meeting for individuals interested in participating in certain overseas ventures. 13) At the meeting, Dan explains to the attendees that Freehold direct investment projects differ from international trade in that ________. A) the firm itself is crossing international borders to purchase foreign assets B) the firm is restricting its investments to stocks and does not purchase mutual funds C) the firm has chosen to focus strictly on the technology sector D) the firm is engaging in the transfer of p roducts across national borders Answer: A Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 14) Dan discusses an investment opportunity that involves the purchase of selec ted securities from the Chinese stock market. This opportunity represents which type of international investment? A) indirect production B) international portfolio C) foreign direct D) domestic securities Answer: B Diff: 2: Moderate Skill: Application O bjective: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinking

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    5 15) Bethany presents another opportunity that involves the purchase of a manufacturing plant in South Korea. She explains that this type of strategy will invo lve ________ ownership on the part of the firm. A) indirect B) passive C) short - term D) active Answer: D Diff: 2: Moderate Skill: Application Objective: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinking 16) Phillip H ardy, one of the potential investors, expresses the desire to purchase only those types of assets in which he can maintain a relatively short - term interest. Which of the following investment opportunities would be most suited for Mr. Hardy? A) a venture th at gives investors ownership of the equipment used by multiple South African mining companies B) an initiative to purchase the technology assets of an Indian consulting firm C) the Freehold Eastern Growth Fund, which purchases Eastern European growth stock s D) the Freehold World Climb Project, which maintains partial ownership of an Australian hiking equipment production plant Answer: C Diff: 2: Moderate Skill: Application Objective: 1 - 1: Describe the key concepts in international business AACSB: Analy tical Thinking International Trade Summit (Scenario) An international trade summit is held in Geneva, Switzerland. The purpose of the summit is to cooperatively develop policies that promote international trade. Representatives from 50 different countries attend the summit. 17) One of the attendees represents a leading nation in the international merchandise trade. This attendee is most likely from which of the following countries? A) New Zealand B) Germany C) Kenya D) Saudi Arabia Answer: B Diff: 1: Ea sy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinking

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    6 18) One of the attendees represents a leading nation in the international services trade. This attendee is most likely from which of the f ollowing countries? A) Brazil B) Greece C) Singapore D) South Africa Answer: C Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinking 19) One summit attendee pointed out that the to tal value of her country's products trade typically accounted for more than 100 percent of her nation's GDP. This attendee most likely represents ________. A) Japan B) United Kingdom C) France D) Netherlands Answer: D Diff: 1: Easy Skill: Concept Object ive: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinking 20) International business is performed not just by individual firms, but also governments and international agencies. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 21) The globalization of markets refers to the growing independence and self - sufficiency of countries worldwide. Answer: FALSE Diff: 1: Easy Skill: Co ncept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 22) International business today is predominantly the domain of large, multinational companies. Answer: FALSE Diff: 1: Easy Skill: Concept Objec tive: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge

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    7 23) Exporting is an entry strategy involving the sale of products or services to customers located abroad. Answer: TRUE Diff: 1: Easy Skill: Concept Object ive: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 24) A country's economic assets are also known as factors of production. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concept s in international business AACSB: Application of Knowledge 25) The two primary types of international investment are portfolio investment and foreign direct investment. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key conce pts in international business AACSB: Application of Knowledge 26) Over the last few decades, export activity by nations has grown more quickly than has domestic production. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key co ncepts in international business AACSB: Application of Knowledge 27) In the past, international trade and investment activities were mainly conducted by companies that sold services. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 28) Although services trade is growing rapidly, the value of merchandise trade is still much larger. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the ke y concepts in international business AACSB: Application of Knowledge

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    8 29) In a short essay, explain the four trends that provide evidence for the globalization of markets. Provide an example to illustrate one of the trends. Answer: In practical terms, th e globalization of markets is evident in several related trends. First is the unprecedented growth of international trade. For example, in 1960, cross - border trade was modest — about $300 billion per year. Today, it accounts for a substantial proportion of t he world economy, with world exports alone amounting to some $16 trillion annually — that is, $16,000,000,000,000! Second, trade between nations is accompanied by substantial flows of capital, technology, and knowledge. In 2004, total cross - border bandwidth in digital data transfer and communications was practically zero. Today, total cross - border bandwidth flows now exceed 400,000 gigabits per second. Virtually every type of international transaction now includes a digital component. The third trend is the d evelopment of highly sophisticated global financial systems and mechanisms that facilitate the cross - border flow of products, money, technology, and knowledge. Fourth, globalization has brought about a greater degree of collaboration among nations through such organizations as the World Trade Organization and the International Monetary Fund. Diff: 2: Moderate Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinking 30) In a short essay, explain the m ain differences between international portfolio investment and foreign direct investment. Answer: a. Types of assets purchased - The first main difference between the two types of investments concerns the types of assets purchased. Portfolio investment inv olves the purchase of foreign securities, such as stocks and bonds, for the purpose of gaining financial returns. Foreign direct investment involves the purchase of productive assets, such as capital, technology, labor, land, plants, and equipment. b. Type s of ownership - The second main difference concerns the level or type of ownership. Portfolio investment refers to passive ownership, with no active management of or control over the assets purchased. Foreign direct investment, on the other hand, gives inve stors partial or full ownership of a productive enterprise typically dedicated to manufacturing, marketing, or management activities. c. Interest timeline - The third main difference between the two types of strategies involves the length of interest maintai ned by investors. In international portfolio investment, investors have a relatively short - term interest in the ownership of their assets. In foreign direct investment, firms usually have a long - term investing interest. Diff: 2: Moderate Skill: Concept O bjective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge

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    9 31) What is meant by the term "entrepôt economies"? In a short essay, explain the concept and provide an example. Answer: Entrepôt is from the French fo r "intermediate depot." Such countries import a large volume of products, some of which they process into higher value - added products and some they simply re - export to other destinations. For example, Singapore is a major entrepôt for Southeast Asia, e.g., for transshipping petroleum products that it receives from the Middle East. Hong Kong is an entrepôt for China. The Netherlands is an entrepôt for the greater European Union. Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in int ernational business AACSB: Application of Knowledge 32) In a short essay, describe the major trends in the growth of foreign direct investment (FDI) since the 1980s. Answer: The dollar volume of FDI has grown immensely since the 1980s, especially in dev eloped (advanced) economies such as Japan, Europe, and North America. FDI inflows to the developing economies began to surpass those to the advanced economies in about 2010. FDI inflows were interrupted in 2001 as investors panicked following the September 11 terrorist attacks in the United States. The inflows were interrupted again in 2008 by the global recession, but then rose sharply in subsequent years. These dips underscore the importance of maintaining stability in the world economy. Despite these set backs, the overall trend remains strong and growing over time. Particularly significant is the growth of FDI into developing economies, much of which results from their need for modern industrial infrastructure. It reflects the importance of developing eco nomies and emerging markets as target markets and sourcing bases. Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinking 33) What are the main differences between products and servic es? In a short essay, explain the difference between the two and provide three examples of each. Which sector has seen the greatest growth in international trade in recent years? Answer: Products are defined as tangible merchandise, such as clothing, comp uters, and cars. Services, by contrast, are intangible deeds, performances, or efforts performed directly by people working in firms in the services sector. Some examples of services are creating advertising campaigns, underwriting mortgages, and managing restaurant operations. In recent years, services trade has been growing faster than products trade. International trade in services accounts for about one - quarter of all international trade and is growing rapidly. Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge

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    10 34) In a short essay, identify three sectors in the service industry that are internationalizing rapidly. Explain the types of activities conducted within each sec tor, and provide examples of three companies that operate in each. Answer: a. Architectural, construction, and engineering - Activities within this sector include construction, electric power utilities, design, and engineering services for airports, hospit als, and dams. Companies within this sector include ABB, Bechtel Group, Halliburton, Kajima, Philip Holzman, and Skanska AB. b. Banking, finance, and insurance - Activities within this sector include banking services, insurance provision, risk evaluation, an d financial management. Companies within this sector include CIGNA, Barclays, HSBC, and Ernst & Young. c. Education, training, and publication - Activities within this sector include management training, technical training, and English language training. Com panies within this sector include Berlitz, Kumon Math & Reading Centers, NOVA, Pearson, and Elsevier. Diff: 1: Easy Skill: Concept Objective: 1 - 1: Describe the key concepts in international business AACSB: Application of Knowledge 35) In a short essay , explain the meaning of international trade. Describe the two major forms through which international trade takes place. Answer: International trade describes the exchange of products and services across national borders. Trade involves both products (me rchandise) and services (intangibles). Exchange can occur through exporting, an entry strategy involving the sale of products or services to customers located abroad, from a base in the home country or a third country. Exchange also can take the form of im porting or global sourcing — the procurement of products or services from suppliers located abroad for consumption in the home country or a third country. While exporting represents the outbound flow of products and services, importing is an inbound activity . Both finished products and intermediate goods (for example, raw materials and components) can be imported and exported. Diff: 1: Easy Skill: Synthesis Objective: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinking

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    11 36 ) What is international business, and how has it transformed the world economy? Answer: International business refers to the performance of trade and investment activities by firms across national borders. Because it emphasizes crossing national boundarie s, we also refer to international business as cross - border business. Firms organize, source, manufacture, market, and conduct other value - adding activities on an international scale. They seek foreign customers and engage in collaborative relationships wit h foreign business partners. International business is transforming the world as never before. In the last 50 years, international trade and investment have experienced unprecedented growth. Since the 1980s, emerging markets have provided new impetus to w orldwide economic interconnectedness. These fast - growth developing economies — some thirty countries, including Brazil, Russia, India, and China, the so - called BRICs — are experiencing substantial market liberalization, privatization, and industrialization, wh ich are fueling global economic transformation. Along with market globalization, advances in technology is another megatrend helping to transform the global economy. The rise of information and communication technologies, as well as production and process technologies, has dramatically reduced the cost of conducting business with customers located around the world. E - commerce makes international business increasingly imperative for firms of all sizes and resource levels. Technological advances are allowing globalization to progress more rapidly. Globalization, in turn, is accelerating the development of the latest technologies. Diff: 2: Moderate Skill: Synthesis Objective: 1 - 1: Describe the key concepts in international business AACSB: Analytical Thinki ng 37) Which of the following types of risk is also known as political risk? A) currency risk B) cross - cultural risk C) commercial risk D) country risk Answer: D Diff: 1: Easy Skill: Concept Objective: 1 - 2: Understand how international business differ s from domestic business AACSB: Analytical Thinking 38) Which of the following is NOT an example of a cross - cultural risk factor? A) negotiation patterns B) decision - making styles C) costs of production D) ethical practices Answer: C Diff: 2: Moderate Skill: Application Objective: 1 - 2: Understand how international business differs from domestic business AACSB: Analytical Thinking

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    12 39) Fluctuating exchange rates are an example of which of the following? A) country risk B) political risk C) currency ri sk D) cross - cultural risk Answer: C Diff: 1: Easy Skill: Application Objective: 1 - 2: Understand how international business differs from domestic business AACSB: Analytical Thinking Overseas Expansion (Scenario) Whittaker Semiconductors has recently d ecided to expand its operations overseas. Amanda Quan, Vice President of International Business, assigned a team of investigators to analyze the risks faced by the company in making this move. Of particular interest were the risks that might affect the suc cess of a new production plant to be located in one of three potential countries. 40) Philip Baxter reported on the risks associated with establishing the plant in Country A. The most significant risk, in his view, was posed by the government's complex bu reaucratic structure. Philip reported the likelihood of significant administrative delays in opening the plant. The risk identified by Philip is an example of which of the following? A) country risk B) commercial risk C) currency risk D) cross - cultural ris k Answer: A Diff: 2: Moderate Skill: Application Objective: 1 - 2: Understand how international business differs from domestic business AACSB: Analytical Thinking 41) LeShaun Golding researched the risks linked to establishing the plant in Country B. H e cited government intervention, lack of local managerial talent, and unethical business practices as the most prominent risks for this location. LeShaun noted all of the following types of risks EXCEPT ________. A) currency risk B) political risk C) count ry risk D) cross - cultural risk Answer: A Diff: 2: Moderate Skill: Application Objective: 1 - 2: Understand how international business differs from domestic business AACSB: Analytical Thinking

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    13 42) Rosa Suarez reported on her analysis of cross - cultural risks involved with establishing the plant in Country C. Each of the following was most likely discussed in her report EXCEPT ________. A) language barriers B) lifestyle differences C) religious beliefs D) the level of national debt Answer: D Diff: 2: Mo derate Skill: Application Objective: 1 - 2: Understand how international business differs from domestic business AACSB: Analytical Thinking 43) The level of government intervention in commercial activities is similar across most countries. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 1 - 2: Understand how international business differs from domestic business AACSB: Analytical Thinking 44) Currency risk refers to the risk posed by adverse fluctuations in exchange rates. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 1 - 2: Understand how international business differs from domestic business AACSB: Analytical Thinking 45) For internationalizing firms, the consequences of poor business management decisions are usually more costly when m istakes occur abroad than when they occur at home. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 1 - 2: Understand how international business differs from domestic business AACSB: Analytical Thinking

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    14 46) In a short essay, explain the cross - cult ural risk faced by internationalizing firms. What causes this type of risk? Why might it pose a problem for internationalizing firms? Answer: Cross - cultural risk refers to a situation or event where a cultural miscommunication puts some human value at sta ke. Cross - cultural risk arises from differences in language, lifestyles, mind - sets, customs, and religion. Values unique to a culture tend to be long - lasting and transmitted from one generation to the next. These values influence the mind - set and work styl e of employees and the shopping patterns of buyers. Foreign customer characteristics differ significantly from those of buyers in the home market. Language is a critical dimension of culture. In addition to facilitating communication, language is a window on people's value systems and living conditions. When translating from one language to another, it is often difficult to find words that convey the same meanings. Such challenges impede effective communication and cause misunderstandings. Miscommunication due to cultural differences gives rise to inappropriate business strategies and ineffective relations with customers. Diff: 2: Moderate Skill: Concept Objective: 1 - 2: Understand how international business differs from domestic business AACSB: Applicat ion of Knowledge 47) In a short essay, discuss how international firms manage the four types of international business risk. Provide an example that illustrates the process of risk management. Answer: When they undertake international business, companies are routinely exposed to four major types of risk. These are: cross - cultural risk, country risk, currency risk, and commercial risk: 1. Cross - cultural risk: A situation or event where a cultural misunderstanding puts some human value at stake. 2. Country risk: Potentially adverse effects on company operations and profitability caused by developments in the political, legal, and economic environment in a foreign country. 3. Currency risk: Risk of adverse fluctuations in exchange rates. 4. Commercial risk: F irm's potential loss or failure from poorly developed or executed business strategies, tactics, or procedures. The four types of international business risks are omnipresent; the firm may encounter them around every corner. Some international risks are ex tremely challenging. One example is global financial disruptions. The Greek debt crisis has now lingered on for several years and affects not only the European Union but creditors elsewhere. Although risk cannot be avoided, it can be anticipated and manag ed. Experienced international firms constantly assess their environments and conduct research to anticipate potential risks, understand their implications, and take proactive action to reduce their effects. Diff: 1: Easy Skill: Concept Objective: 1 - 2: U nderstand how international business differs from domestic business AACSB: Application of Knowledge

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    15 48) Businesses that directly initiate international business transactions are known as ________. A) focal firms B) fiscal enterprises C) fiduciary trusts D) business affiliates Answer: A Diff: 1: Easy Skill: Concept Objective: 1 - 3: Identify major participants in international business AACSB: Analytical Thinking 49) The Coca - Cola Company is an example of a(n) ________. A) born global firm B) SME C) mu ltinational enterprise D) NGO Answer: C Diff: 1: Easy Skill: Concept Objective: 1 - 3: Identify major participants in international business AACSB: Analytical Thinking 50) Which of the following countries hosts the greatest number of MNEs? A) Germany B ) Japan C) Netherlands D) United States Answer: D Diff: 1: Easy Skill: Concept Objective: 1 - 3: Identify major participants in international business AACSB: Analytical Thinking 51) Each of the following types of organizations is active in internationa l business EXCEPT ________. A) MNE B) SME C) RND D) NGO Answer: C Diff: 1: Easy Skill: Concept Objective: 1 - 3: Identify major participants in international business AACSB: Analytical Thinking

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