Chapter 2

1. As more firms engage in international business, the world economy is quickly

becoming an interdependent system, a process called _____.
a. promulgation
b. negotiation
c. globalizationd. democratization
2. Which of the following is a group of countries found in the low-income group as
defined by the World Bank?
a. China and Indiab. United States and Canada
c. Australia and New Zealand
d. Israel and Singapore
3. The _____ is the flow of money into or out of a country.
a. balance of trade
b. exchange rates
c. balance of paymentsd. strategic alliances
4. As the value of the Canadian dollar declines relative to the value of the U.S.
dollar, which of the following is a likely result?
a. Americans will buy more Canadian goods and services.b. Americans will buy fewer Canadian goods and services.
c. Canadians will buy more U.S. goods and services.
d. Trade between the two countries will remain constant.

5. A nation has _____ when it also possesses healthy factors of production, strong
demand conditions, strong suppliers and industrial customers, and firms that stress
cost reduction, quality, and productivity.
a. absolute advantage
b. comparative advantage
c. national competitive advantaged. none of the above

6. Which of the following statements is NOT true?

a. Products successful in one country may be useless in another.
b. Foreign demand for a product may be greater than domestic demand.
c. Companies can generally assume that products that are successful in the
domestic market will succeed abroad.d. There is great demand in many foreign markets for the American culture of
movies and music.
7. A(n) _____ buys products in foreign markets and imports them for
resale at home.
a. licenser
b. smuggler
c. exporter
d. importer8. An ________ agent is a foreign individual or organization that represents an
exporter in foreign markets and often acts as sales representatives.
a. independent
b. illicit
c. illegal
d. organizational
9. A(n) _____ is imposed strictly to raise money for governments.
a. quota
b. revenue tariff
c. embargo
d. protectionist tariff

10. A(n) _____ is a government payment to help a domestic business compete with
foreign firms.
a. loan
b. euro
c. hand-out
d. subsidy

11. To qualify as a high-income country from the World Bank, a country's per capita
income must be at least what?
a. 7,206
b. 5,206
c. 12,206
d. 9,206
12. To qualify as a middle income country by the World Bank, its "per capita income"
must be above what amount?
a. 745
b. 475
c. 457
d. 547
13. An absolute advantage exists when _____.
a. a country can make almost all products more efficiently than other countries
b. a country can produce a product more cheaply and/or of higher quality than
any other country
c. a country has lower labor costs than all other countries
d. a country has more natural resources than all other countries
e. a country has a superior political system
14. _____ derives from factor conditions; demand conditions; related and supporting
industries; and strategies, structures, and rivalries.
a. Absolute advantage
b. Monopolistic competition
c. Comparative advantage
d. Exchange rates
e. National competitive advantage
15. The flow of money into or out of a country is referred to as the _____.
a. trade deficit
b. trade surplus
c. comparative advantage
d. balance of payments
e. trade balance

16. When IBM produces computers in the United States and sells them in foreign
markets, it is acting as a _____
a. importer
b. exporter
c. financier
d. investment banker
e. multinational firm
17. Which of the following best describes an international firm?
a. a firm that designs, produces, and markets products in many nations
b. a firm that buys products in foreign markets and resells them in its home
country
c. a firm that produces products in their home country for sale abroad
d. a firm that conducts a significant portion of its business in foreign
countries
e. a firm with at least 50% of its employees residing outside its country of
origin
18. Using a(n) _____ strategy, the company finds a partner in the country in which it
would like to conduct business
a. branch office
b. replication
c. strategic alliance
d. independent agency
e. direct investment
19. A(n) _____ is a government order forbidding exportation and/or importation of a
particular product from a particular country.
a. tariff
b. embargo
c. subsidy
d. local content law
e. quota
20. _____ is the practice of protecting domestic business at the expense of free market
competition.

a. Encompass
b. Globalization
c. Partisan
d. Protectionism
e. Advantage
21. What forces have combined to spark and sustain globalization
a. The awareness of governments and businesses of the benefits of globalization
to businesses and shareholders.
b. New technologies that have made international travel, communication, and
commerce much faster and cheaper.
c. Competitive pressures.
d. All of the above.
22. A result in NAFTA's first-year of operation was:
a. U.S. exports to Mexico decreased by about 20%.
b. NAFTA created more jobs than proponents had hoped.
c. direct foreign investment increased.
d. U.S. exports from Mexico and Canada rose even faster than rates in the
opposite direction.
23. When a country's exports exceed its imports, the country enjoys a:
a. trade deficit.
b. negative balance of trade.
c. trade surplus.
d. negative balance of payments.
24. The balance of payments is affected by:
a. money spent by tourists.
b. money spent on foreign-aid programs.
c. money exchanged by buying and selling currency on international money
markets.
d. all of the above.
25. After deciding to go international, a firm must determine the level of its
involvement. A(n) _________ is basically a domestic company that conducts a
significant portion of its business in foreign countries.

a. exporter.
b. importer.
c. international firm.
d. multinational firm.
26. In what organizational structure does a company find a partner in the country in
which it wants to do business?
a. Independent agent.
b. Licensing agreement.
c. Branch office.
d. Strategic alliance.
27. In what organizational structure does a company buy or establish tangible assets
in another country?
a. Foreign direct investment.
b. Independent agent.
c. Licensing arrangement.
d. Strategic alliance.
28. Which of the following restricts the number of products of a certain type that can
be imported and, by reducing supply, raises the prices of these imports?
a. Tariff.
b. Quota.
c. Subsidy.
d. Business practice laws.

-:True or False
1. In light of globalization, most countries are pursuing protectionist policies to
protect domestic business.
2. The World Bank uses per capita income as a measure to categorize countries
into one of four groups.
3. As a result of NAFTA, Mexico has decreased its manufacturing output.
4. The European Union (EU) is composed of the formerly communist nations
of Eastern Europe.

5. A country has a comparative advantage in goods that it can produce more

efficiently or better than other goods.
6. Brazil enjoys an absolute advantage in the exporting of coffee beans.
7. Ford and IBM are considered domestic firms.
8. Foreign direct investment (FDI) involves buying or establishing tangible
assets in another country.
9. Quotas between countries are often determined by treaty.
10. Business practice laws require that products sold in a country to be at least
partly made there.
11. Global competition is one of the main drivers of globalization. T
12. The world economy is slowly becoming a single, interdependent system. F
13. Exporting means selling domestic products abroad. T
14. It is possible that foreign markets can affect our local market. T
15. Low Income Countries have per capita income of less than $575. F
16. In less than a decade, English language speakers on the web will far exceed
Asian speakers. F
17. Comparative Advantage happens when one country can produce certain
goods or services more efficiently and effectively than others. T
18. Absolute Advantage is when one country can produce a product cheaper
and\or higher quality than any other country. T
19. Company production costs directly affects the firm's profit level. T
20. Customer valuation of the product is not important when determining profit
level. F
21. When a firm earns persistently higher rate of profit over its rivals, we say the
company has a competitive advantage. T
22. Low cost strategy is the only way to achieve competitive advantage. F
23. Balance of Payments is the total flow of money into or out of a company. F
24. Balance of Trade is the difference between the value of exports and imports.
T
25. Domestic companies may move production to cheaper sites in foreign
countries when local currency is strong. T
26. Domestic companies find it harder to export products when its currency is
weak. F
27. Foreign companies find it harder to import products when the currency is
weak. T
28. The U.S. Economy has a growing trade surplus. F
29. Companies choose to be global depending on haphazard information. F
30. The ability of the firm's product to attract international demand encourages it
to go global. T

31. Firms must be efficiently prepared before making the giant leap of being
global. T
32. It is considered a major weakness for companies to stay domestic. F
33. International firms have a domestic market and international operations. T
34. Multinational firms do not have headquarter because they are concerned
with local market. F
35. Foreign investment requires a high level of involvement. T
36. Strategic Alliances can succeed without being involved in the process. F
37. Barriers to international trade can be easily dealt with. F
38. Economic differences can sometimes act as an obstacle in the face of
expanding internationally.
39. The North American Free Trade Agreement (NAFTA) removes tariffs and
other trade barriers among the United States, Canada, Mexico, and Central
America.
40. The World Bank uses household income as a measure to divide countries
into one of three income groups.
41. China, the most densely populated country in the world, is now the world's
third largest economy, behind the United States and only slightly behind
Japan.
42. Absolute advantage is a theory that has become widely accepted as a model
of why nations engage in international trade.
43. A nation's balance of trade refers to the flow of money into or out of a
country.
44. The euro is the common currency among all of the members of the European
Union (EU).
45. A trade deficit occurs when exports exceed imports.
46. Products that are successful in one country may be useless in another.
47. An importer makes products in one country to distribute and sell in others.
48. Branch offices allow a firm to have more direct control over its foreign
operations than it does over agents or license holders.
49. Success in foreign markets is more dependent on economic differences than
it is on social and cultural and legal and political differences.
50. "Per capita income" is measured by dividing a country's "gross domestic
product" by its population.
51. Often the single most important piece of information needed by international
businesses about a country is its' population.