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Q:
QFresh, a brand for energy drinks, launched a healthy lime-based drink without preservatives. Immediately after this another brand, Fast Fizz, which manufactures energy drinks, also announced the launch of a new refreshing drink without preservatives. Then Ignite, a third brand of energy drinks, reduced the price of its apple-based drink. Which of the following is most likely to happen in this oligopolistic market setup?
A.QFresh and Fast Fizz will reduce the prices of their respective drinks.
B.Fast Fizz will launch another new drink.
C.QFresh will link up with Ignite to launch a completely new product.
D.Fast Fizz and Ignite will collaborate against QFresh.
E.QFresh will have an increased domestic consumption.
Q:
The interdependence between firms in an oligopoly leads to:
A.trade wars.
B.a decrease in the supply.
C.imitative behavior.
D.higher demand.
E.increased domestic consumption.
Q:
If one firm in an oligopoly cuts prices, then most likely, its competitors will:
A.make profits.
B.also respond with similar price cuts.
C.correspondingly raise prices.
D.capture additional market share.
E.not be impacted by the price cuts.
Q:
A critical competitive feature of an oligopoly is the:
A.lack of interaction among the major players.
B.presence of a domestic market which is open for foreign firms.
C.desire of all the major players to avoid the phenomenon of diminishing returns.
D.interdependence of the major players.
E.lack of imitative behavior among the major players.
Q:
The cement market in Erbia is dominated by four firms. These firms control 85 percent of selling and buying of the domestic market. Which of the following terms explains the market structure of the cement industry in Erbia?
A.Perfect competition
B.Monopoly
C.Oligopoly
D.Dual monopoly
E.Monopsony
Q:
The strategic behavior theory:
A.explains the constraints of exporting and licensing.
B.seeks to explain the challenges faced by a firm during the establishment of a new operation in a foreign country.
C.seeks to explain the patterns of FDI flows based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace.
D.reviews the theories that have been used to explain foreign direct investment.
E.explains how greenfield investments are better than FDI.
Q:
A firm is most likely to favor foreign direct investment over exporting when:
A.the firm wants its technological know-how to be widely disseminated.
B.the firm wishes to maintain control over its operations and business strategy.
C.the transportation costs are low.
D.there are no trade barriers.
E.the firm wants to customize its products as per the tastes and preferences of foreign consumers.
Q:
According to internalization theory, one of the drawbacks of licensing is that:
A.it may result in a firm's technological know-how being restricted to a limited knowledge base and stifles any future development.
B.it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.
C.when a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.
D.its use is restricted by the government through the imposition of tariffs and quotas.
E.it is less cost-effective than FDI.
Q:
According to internalization theory:
A.licensing gives a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.
B.licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor.
C.licensing has no major drawbacks as a strategy for exploiting foreign market opportunities.
D.a problem with licensing arises when the firm's competitive advantage is based much on its products rather than on the management, marketing, and manufacturing capabilities that produce those products.
E.licensing is more profitable than FDI.
Q:
The market imperfections approach seeks to explain:
A.the disadvantages associated with the adoption of a completely free market view.
B.why different nations import goods from other countries even when they are more capable of producing them efficiently.
C.the preference for FDI over licensing by firms as a strategy to enter foreign markets.
D.the benefits of exercising protectionism coupled with partial adoption of free market approach.
E.the pattern of sale of products from one country to another.
Q:
The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the:
A.comparative advantage theory.
B.distribution theory.
C.new trade theory.
D.internalization theory.
E.licensing theory.
Q:
Governments impose quotas to limit:
A.FDI.
B.importing.
C.franchising.
D.outsourcing.
E.licensing.
Q:
A firm that does not want to bear the costs of establishing production facilities in a foreign country should avoid:
A.exporting.
B.FDI.
C.licensing.
D.franchising.
E.outsourcing.
Q:
Which of the following products has a low value-to-weight ratio?
A.Electronic components
B.Personal computers
C.Medical equipment
D.Computer software
E.Cement
Q:
A firm will favor FDI over exporting as an entry strategy when:
A.the costs of establishing production facilities are high.
B.the transportation costs or trade barriers are high.
C.there are problems associated with doing business in a different culture.
D.the products involved have a high value-to-weight ratio.
E.the firm wants to occupy a position that falls inside the efficiency frontier.
Q:
Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting?
A.The presence or threat of trade barriers
B.The costs of acquiring a foreign enterprise
C.The costs of establishing production facilities in a foreign country
D.The risk of giving away valuable technological know-how to a potential foreign competitor
E.The possibility of diminishing returns
Q:
The viability of an exporting strategy is often constrained by transportation costs, particularly of products that can be produced in almost any location and have a:
A.high local content requirement.
B.low total landed cost.
C.low value-to-weight ratio.
D.low licensing tariff.
E.high marginal cost.
Q:
FDI is risky because of the problems associated with:
A.sharing a valuable technological know-how with a potential competitor.
B.an increase in transportation costs, especially for those products that have a low value-to-weight ratio.
C.doing business in a different culture where the rules of the game may be very different.
D.the possibility of an increase in trade barriers such as import tariffs or quotas.
E.increased production costs.
Q:
Which of the following involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold?
A.Outsourcing
B.Exporting
C.Licensing
D.Diverging
E.Hedging
Q:
3M, an American firm, manufactures adhesive tapes in St. Paul, Minnesota, and ships the tapes to South Korea for sale. According to this information, which of the following is being done by 3M?
A.Exporting
B.Licensing
C.Franchising
D.Insourcing
E.Outsourcing
Q:
Which of the following states that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI, and it also requires the firm to establish production facilities where those foreign assets or resource endowments are located?
A.Strategic trade policy
B.Integration approach
C.Scramble theory
D.Eclectic paradigm
E.Infant industry argument
Q:
Which of the following involves producing goods at home and then shipping them to the receiving country for sale?
A.Outsourcing
B.Licensing
C.Franchising
D.Exporting
E.Diversifying
Q:
Mergers and acquisitions differ from greenfield investments in that:
A.greenfield investments are quicker to execute than mergers and acquisitions.
B.greenfield investments are undertaken to take advantage of valuable strategic assets, such as brand loyalty and trademarks or patents, of a foreign competitor.
C.the majority of FDI flows into developed nations are in the form of greenfield investments rather than mergers and acquisitions.
D.the majority of FDI flows into developing nations are in the form of cross-border mergers and acquisitions.
E.the percentage of mergers and acquisitions is lower than greenfield investments in developing nations.
Q:
Countries such as the United States, the United Kingdom, France, Germany, the Netherlands, and Japan dominate in the share of total global stock of FDI and FDI outflows and in rankings of the world's largest multinationals because they:
A.were the most developed countries postwar and home to the largest and best capitalized enterprises.
B.pursued a policy of blocking or restricting FDI inflow into their own economies.
C.provided subsidies for their domestic firms to protect them from foreign competition.
D.control much of the operating structure of the WTO which governs international trade.
E.were the governing body of the International Monetary Fund.
Q:
Which of the following is true regarding the inflow of FDI?
A.Even though developing nations still account for the largest share of FDI inflows, FDI into developed nations has increased markedly.
B.Africa has historically been the largest recipient of inward FDI.
C.The United Kingdom and France have historically been the smallest recipients of inward FDI.
D.There has been an increase in the importance of China as a recipient of FDI.
E.Latin America is the least important region in the developing world for FDI inflows.
Q:
The United States has been an attractive target for FDI partly because of its:
A.abundance of cheap and skilled labor.
B.stable and dynamic economy.
C.commitment to environmental issues.
D.low corporate tax rates.
E.high trade barriers.
Q:
Why has FDI grown more rapidly than world trade?
A.The decline in trade barriers has erased the fear of protectionist pressures.
B.Executives of business firms see FDI as a way of circumventing future trade barriers.
C.There has been a general shift toward radical and totalitarian political institutions.
D.Privatization has made developing nations less attractive for multinational enterprises.
E.There has been a general shift toward centrally planned command economies.
Q:
Which of the following statements is true regarding foreign direct investment?
A.The flow of FDI refers to the total accumulated value of foreign-owned assets at a given time.
B.FDI has grown more rapidly than world trade and world output.
C.The general shift toward democratic political institutions has discouraged FDI.
D.Generally, free market economies oppose FDI.
E.The globalization of the world economy is having a negative effect on the volume of FDI.
Q:
The stock of foreign direct investment refers to:
A.the total accumulated value of foreign-owned assets at a given time.
B.the number of shares of a foreign firm held by the local investors.
C.the amount of FDI undertaken over a given time period (normally a year).
D.the dividend amount paid by the foreign firm to local investors.
E.the flow of foreign direct investment out of a country.
Q:
Which of the following refers to the amount of FDI undertaken over a given period (normally a year)?
A.Portfolio
B.Flow
C.Status
D.Stock
E.Fragment
Q:
Which of the following indicates that a firm has a full outright stake in an acquisition?
A.Anderson Corporations acquires at least 75 percent of a company.
B.Sheffield Enterprises acquires at least 60 percent of a company.
C.Arthur Enterprises acquires 98 percent of a company.
D.Maximus Corporations acquires 100 percent of a company.
E.Dream Animax acquires at least 85 percent of a company.
Q:
Which of the following is most likely to involve establishment of a new operation in a foreign country?
A.Consolidation
B.Greenfield investment
C.Acquisition
D.Licensing agreement
E.Mass customization
Q:
Once it undertakes FDI, a firm becomes a(n):
A.outsourcer.
B.retail chain.
C.offshore company.
D.multinational enterprise.
E.national corporation.
Q:
According to the U.S. Department of Commerce, which of the following, occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity?
A.Multilateral investment
B.Foreign direct investment
C.Reciprocal foreign investment
D.International divestment
E.Asset divestment
Q:
A computer manufacturing firm from the United States invests in a microprocessor manufacturing plant in Taiwan. This is an example of:
A.insourcing.
B.stock consolidation.
C.foreign direct investment.
D.product differentiation.
E.market segmentation.
Q:
A firm's bargaining power is low when the host government places a low value on what the firm has to offer.
Q:
Despite the move toward a free market stance in recent years, many countries still have a rather pragmatic stance toward FDI.
Q:
Franchising is essentially the service-industry version of licensing, although it normally involves much longer-term commitments than licensing.
Q:
Licensing is not a good option if the competitive advantage of a firm is based upon managerial or marketing knowledge that is embedded in the routines of the firm or the skills of its managers, and that is difficult to codify in a "book of blueprints."
Q:
The location-specific advantages argument associated with John Dunning helps explain why firms prefer FDI to licensing or to exporting.
Q:
The WTO embraces the promotion of international trade in services.
Q:
Performance requirements are controls over the behavior of the MNE's local subsidiary.
Q:
Ownership restraints and performance requirements are the two most common ways in which host governments restrict FDI.
Q:
Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk like the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home.
Q:
Offshore production refers to FDI undertaken to serve the host market.
Q:
An acquisition does not result in a net increase in the number of players in a market.
Q:
Services such as telecommunications, retailing, and many financial services, where the service has to be produced where it is delivered, lend themselves well to exporting.
Q:
The indirect employment effects of FDI are often as large as, if not larger than, the direct effects.
Q:
According to the pragmatic nationalist view, no country should ever permit foreign corporations to undertake FDI.
Q:
According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently.
Q:
By the early 1990s, the radical position toward FDI was in retreat due to the rise of communism in eastern Europe.
Q:
According to the extreme version of radical view, no country should ever permit foreign corporations to undertake FDI, because they can never be instruments of economic development, only of economic domination.
Q:
Economists refer to knowledge "spillovers" as externalities, and there is a well-established theory suggesting that firms can benefit from such externalities by locating close to their source.
Q:
Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.
Q:
A critical competitive feature of an oligopoly is independence of the major players.
Q:
By limiting imports through quotas, governments reduce the attractiveness of FDI and licensing.
Q:
By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing.
Q:
The attractiveness of exporting increases in comparison to FDI or licensing when products have a low value-to-weight ratio.
Q:
When a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.
Q:
Since World War II, the United States has been the largest source country for FDI.
Q:
Historically, most FDI has been directed at the least developed nations of the world.
Q:
According to the United Nations, the majority of changes made worldwide between 1992 and 2009 in the laws governing foreign direct investment have created a more favorable environment for FDI.
Q:
FDI has grown significantly slower than world trade and world output.
Q:
The globalization of the world economy is having a negative effect on the volume of FDI.
Q:
The stock of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time.
Q:
The flow of foreign direct investment refers to the number of countries a firm is investing in at any given point in time.
Q:
Greenfield investment involves the establishment of a new operation in a foreign country.
Q:
When a firm exports its products to a foreign country, foreign direct investment occurs.
Q:
Which of the following is the term for when a lower tariff rate is applied to imports within the quota than those over the quota?
A.Tariff rate quota
B.Voluntary import restraint
C.Import duty
D.Quota rent
E.Import quota
Q:
Which of the following statements is true about import quotas?
A.Import quotas benefit domestic producers by limiting import competition.
B.Import quotas always lower the prices for domestically produced goods.
C.Higher tariff rates are usually applied to imports within the quota than those over the quota.
D.Import quotas benefit consumers by decreasing the domestic price of an imported good.
E.Import quotas help foreign producers gain a competitive advantage.
Q:
Which of the following groups would benefit the most from receiving subsidies?
A.Governments
B.International organizations such as the WTO
C.Domestic producers
D.Importers
E.Foreign competitors
Q:
By lowering production costs, subsidies help domestic producers to:
A.gain export markets.
B.meet import quotas.
C.meet voluntary export restraints.
D.meet the local content requirement.
E.compete in the domestic market against local producers.
Q:
Which of the following is most likely to be an objective of export tariffs?
A.Abiding by the rules enforced by the WTO
B.Curbing the competition offered by foreign firms to domestic firms
C.Reducing exports from a sector, often for political reasons
D.Maintaining a positive trade deficit
E.Increasing the flow of capital in the international market
Q:
Which of the following identifies an attribute of tariffs?
A.Tariffs reduce the price of foreign goods for domestic consumers.
B.Tariffs reduce the overall efficiency of the world economy.
C.Tariffs increase exports from a sector.
D.Tariffs increase foreign competition for domestic producers.
E.Tariffs increase efficient utilization of resources.
Q:
A charge of 15-20% was levied by the government of Cadmia on the value of automobile accessories imported from a neighboring country. This increased the price of those imported car accessories for the consumers in Cadmia. Which of the following instruments of trade policy is being used by the government of Cadmia?
A.Local content tariff
B.Ad valorem tariff
C.Subsidies
D.Import quotas
E.Antidumping duties
Q:
Which of the following groups benefits the most from the imposition of tariffs?
A.Domestic producers
B.Consumers
C.Exporters and importers
D.Foreign producers
E.International bodies such as WTO
Q:
Which of the following is a trade policy instrument that the GATT and WTO have been most successful in limiting?
A.Local content requirements
B.Tariffs
C.Subsidies
D.Voluntary export restraints
E.Import quotas
Q:
Government intervention can be self-defeating because it tends to protect the inefficient rather than help firms become efficient global competitors.
Q:
The threat of antidumping action enhances the ability of a firm to use aggressive pricing to gain market share in a country.
Q:
A firm may set up production activities in a foreign country, where trade barriers do not currently exist, to reduce the threat of trade barriers being imposed later.