Multiple Choice Answers
Question: How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible?
A By taking opposing positions in the forward foreign exchange market to maintain a zero exposure stance at all points in time
B By allowing its exchange rate to fluctuate against other currencies within a target zone
C By holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the domestic currency issued
D By having no separate legal tender of its own
Question: The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the consumer captures some of that value in the form of what economists call _____.
A Firm value
B A consumer surplus
C Customer loyalty
D Firm deficit
Question: The amount of value created by a firm is measured by
A Calculating the difference between the previous year’s profitability and the current year’s profitability
B Dividing the market price of its products by the price that customers are actually willing to pay
C Estimating the difference between its costs of production and the value that consumers perceive in its products
D Dividing the net profits of the firm by total invested capital
Question: The case for floating exchange rates has two main elements. These are
A Monetary policy autonomy and automatic trade balance adjustments
B Sporadic trade balance adjustments and high growth rates
C The merits of the gold standard and fiscal policy autonomy
D Monetary policy control and fiscal policy autonomy
Question: Which of the following is one of the factors that determine the value an international business can create in a foreign market?
A The product’s success in the home market
B The availability of raw material
C The inflation rates in the country
D The suitability of its product offering to that market
Question: Your company would like to capitalize on the valuable know-how it possesses in petroleum refining technology. However, the governments of many oil-rich countries have set out to build their own petroleum refining industries and have consequently restricted FDI in their oil and refining sectors. These countries lack petroleum-refining technology, though. Which of the following strategies would enable your company to export its process technology to the oil-rich countries?
A Joint venture strategy
B Greenfield investments
C Mergers and acquisitions
D Turnkey strategy
Question: Critics of floating exchange rates question the closeness of the link between the exchange rate and the trade balance. They claim trade deficits are determined by the
A Balance between savings and investment in a country
B External value of the currency of a country
C Expansionist monetary policies adopted by a country
D Extent of government control of industries in a country
Question: Which of the following is true of the IBRD scheme of the World Bank?
A Resources to fund IBRD loans are raised through subscriptions from wealthy members
B IBRD loans go only to the poorest countries
C Borrowers pay the bank’s cost of funds plus a margin for expenses
D Borrowers have 50 years to repay at an interest rate of 1 percent a year
Question: According to the Plaza Accord of 1985, the Group of Five major industrial countries pledged to
A Intervene in the foreign exchange markets to sell dollars
B Let their currencies depreciate against the U.S. dollar
C Revert to a system of fixed exchange rates
D Donate more funds to the IDA scheme of the World Bank
Question: Which of the following is true of IMF lending facilities?
A IMF supervision of a country’s macroeconomic policies was not envisaged whatever be the extent of drawings
B Most IMF loans were for periods of 10–15 years to help members tide over balance-of-payments deficits
C Member countries were not allowed to borrow any amount from the IMF without adhering to any specific agreements
D IMF funds were meant to buy time for countries to bring down their inflation rates and reduce their balance-of-payments deficits
Question: Which of the following countries has no separate legal tender of its own?
A Great Britain
Question: Which of the following is a drawback of the currency board system?
A The ease with which governments can set and manipulate interest rates acts as a dampener
B Higher domestic inflation rates compared to the country to which the currency is pegged can make the currency uncompetitive
C The currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it, thus arresting liquidity
D It has all the disadvantages of a floating exchange rate regime
Question: Which of the following is not a strategy for a firm to achieve profitability?
A Raising costs
B Expanding internationally
C Selling more products in existing markets
D Entering new markets
Question: Which of the following partly helps explain the rise in the value of the dollar between 1980 and 1985 despite a large trade deficit?
A Political stability and peace in all other parts of the world
B Heavy capital outflows from the United States
C Low real interest rates in the United States
D Slow economic growth in the developed countries of Europe
Question: One of the ways in which the _____ function in a firm can create value is by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs.
B Marketing and sales
C Human resources
Question: Which of the following is one of the reasons that consumers are able to capture consumer surpluses?
A Because the firm is a monopoly supplier
B Because it is difficult to segment a market to reflect reservation prices of all customers
C Because value creation results in a corresponding reduction in costs of production
D Because the value perceived of a product by consumers is difficult to quantify
Question: Which of the following observations about the International Development Association (IDA) scheme of the World Bank is true?
A Money is raised through bond sales in the international capital market
B Borrowers have 50 years to repay at an interest rate of 1 percent a year
C Borrowers pay rates slightly lower than commercial banks’ market rate
D Loans are offered to governments of all underdeveloped nations
Question: For a service organization, at which stage does production typically occur?
A When the service involves production of tangibles
B When the service is paid for by the customer
C When the service is designed in-house
D When the service is delivered to the customer
Question: Which of the following was responsible for shifting the focus of the World Bank from Europe to third world nations?
A Truman doctrine
B Berlin blockade
C Korean war
D Marshall Plan
Question: Which of the following is associated with monetary contraction in a system of fixed exchange rates?
A It requires lowering of interest rates
B It will increase the demand for money
C It will put downward pressure on a fixed exchange rate
D It will lead to an inflow of money from abroad
Question: Most economists trace the breakup of the fixed exchange rate system to the
A S. macroeconomic policy package of 1965–1968
B Formation of the European Community in the late 1950s
C Marshall Plan, under which the United States lent money heavily to European nations
D Failure of the International Monetary Fund to impose monetary discipline
Question: Which of the following is an advantage of a localization strategy?
A It increases cost reductions of mass producing
B It reduces duplication of functions
C It involves longer production runs
D It makes sense if added value supports higher pricing
Question: Firms that pursue a(n) _____ strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
D Global standardization
Question: Which of the following is true of economies of scale?
A It increases average unit cost by channeling fixed costs toward defined volumes
B A firm may not be able to attain an efficient scale of production unless it serves global markets
C The ability to spread variable costs over a large volume is a source of economies of scale
D Global sales decreases a firm’s bargaining power with suppliers as they are more dependent on their services
Question: Which of the following is an argument presented by commentators claiming that demands for local customization are on the decline worldwide?
A Local and indigenous industries are increasingly filling up available demand
B High costs of local customization are deterring companies from doing so
C Governments across the world are standardizing procedures
D Customer tastes have converged worldwide
Question: In which of the following tasks will the learning effects be most significant?
A Pizza delivery for a fast-food major
B Data entry for a loan recovery center
C Network administration for a data analytics center
D Sewing buttons onto shirts in a garment factory
Question: Firms that compete in the global marketplace typically face two types of competitive pressures: pressures for _____ and pressures to _____. OK
A Increasing investment; minimize plant utilization
B Labor skill enhancement; globalize
C Cost reductions; be locally responsive
D Global promotions; move up the experience curve
Question: Superior value creation relative to rivals requires a firm to
A Differentiate their products so that consumers do not have to pay a premium for it
B Have the lowest cost structure in the industry
C Create the most valuable product in the eyes of consumers
D Ensure that the gap between value and cost of production be greater than the gap attained by competitors
Question: Significant strategic commitments
A Should be avoided when considering entry to new markets
B Rarely translate into action
C Are neither unambiguously good nor bad
D Improve the company’s strategic flexibility
Question: Which of the following constrains a firm’s ability to increase its profitability and profit growth by expanding globally?
A The imperative of localization
B The realization of location economies
C The realization of cost economies
D The leveraging of skills developed in foreign operations
Question: Which of the following would happen to interest rates under a strict currency board system? ok
A They adjust automatically
B They will be controlled by the government
C They will usually remain high
D They will usually remain low
Question: What was considered an Achilles’ heel of the Bretton Woods system? ok
A It could be wrecked by heavy borrowings from the World Bank and IMF
B It could not work if the U.S. dollar was under speculative attack
C It could not help countries in a situation of fundamental disequilibrium
D It forced monetary discipline on participating nations
Question: The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally ok
A Increased cost pressures
B Decreased the demand for local responsiveness
C Decreased pressures for cost reduction
D Increased competition on nonprice factors
Question: The greater the value offered by a product to a certain market the
A Higher the costs of production
B More time it will take to build sales volume
C Higher the prices that can be charged
D Less suited the product is to that market
Question: Which of the following is a position taken by advocates of a floating exchange rate system?
A Each country should be allowed to choose its own inflation rate
B Speculation can cause unnecessary fluctuations in exchange rates
C Unpredictability of exchange rate movements has made business planning difficult
D Removal of the obligation to maintain exchange rate parity would destroy a government’s monetary control
Question: The _____ entrant is more likely than the _____ entrant to be able to capture the first-mover advantages associated with demand preemption, scale economies, and switching costs. ok
A New; established
B Early; late
C Large scale; small scale
D Domestic; foreign
Question: The gold standard was abandoned in
Question: Which of the following could be the most appropriate strategy for MTV, given the business imperative that their programming provides a good match to tastes and preferences in different national markets? ok
A International strategy
B Global standardization strategy
C Localization strategy
D Transnational strategy
Question: A global car manufacturer wants to set up shop in China. While catering to local responsiveness, what can the firm do to reap scale economies?
A Recruit skilled candidates with sufficient industry experience
B Use common vehicle platforms and components across many different models
C Shorten the production runs for each component
D Increase the duplication of functions required for each operation
Question: The Bretton Woods conference of 1944 established the basic framework for the
B Post-World War II monetary system
C Global Agreement on Tariffs and Trade
D Floating exchange rate system
Question: Which of the following firms or products will have intense pressures for cost reduction?
C Designer clothes
Question: When MTV engages in the creation, programming, and broadcasting of content, such as music videos and thematic shows, it is carrying out the function of
A Marketing and sales
D Human resource management
Question: In August 1971, U.S. President Nixon made the following two announcements: (1) a new 10 percent tax on imports would remain in effect until the trading partners of the U.S. agreed to revalue their currency against the dollar and (2) the ok
A U.S. planned to call for a second Bretton Woods conference
B U.S. would no longer support the World Bank
C U.S. planned to devalue its currency by 20 percent
D Dollar was no longer convertible into gold
Question: Why is the current foreign exchange system thought of as a dirty-float system?
A Because of the frequency of government intervention in the foreign exchange market
B Because of the extreme volatility in the foreign exchange market
C Because it is essentially a system of fixed foreign exchange rates
D Because of absolute government control of exchange rates
Question: Labor productivity increases over time as individuals learn the most efficient ways to perform particular tasks. Equally important, in new production facilities, management typically learns how to handle the new operation more efficiently over time. This demonstrates how production costs eventually decline due to increasing labor productivity and management efficiency because of
A Diminishing returns
B Economies of scale
C Learning effects
D Task segmentation
Question: Which of the following is a first-mover advantage?
A Ability to create switching costs that tie customers into their products or services
B Avoiding pioneering costs that a later entrant has to bear
C Increased probability of surviving in a foreign market
D Opportunity to observe and learn from the mistakes of other entrants
Question: Which of the following is a way in which a fixed exchange rate regime imposes discipline?
A The need to maintain a fixed rate puts a brake on competitive devaluations
B It imposes fiscal discipline on countries, thereby reducing market activity
C It increases demand for products and services, thereby increasing productivity
D It imposes monetary discipline by making governments set exchange rates
Question: For an international business, which of the following is a necessary outcome of threats of protectionism and nationalism?
A Attractiveness of location economies
B Pressures for localization
C Standardization of products or services
D Pressures for cost reductions